Brussels to launch antitrust case against Russia's Gazprom

Gazprom will on Wednesday be put in Brussels' antitrust dock, facing charges of illegally abusing its gas market clout that would have been served eight months ago - had politics and the Ukraine crisis not stood in the way.

A so-called "statement of objections" was primed last summer, accusing Gazprom of overcharging customers by exploiting its stranglehold on eastern Europe's gas supply. Joaquin Almunia, the EU's then competition commissioner, wanted the charge sheet sent in September. But there was geopolitics to consider.

In a decision that speaks to the sharp diplomatic edge of the latest antitrust battle, Jose Manuel Barroso, then-European Commission president, slammed on the brakes. According to people involved in the deliberations, he feared an aggressive stance would further unsettle relations with Moscow, just as hopes were rising of a diplomatic thaw. Angela Merkel's chancellery in Berlin held the same view.

"You had to determine how many bullets you put in the gun at the same time," said one senior official directly involved. At that time, the first Minsk ceasefire deal with the Kremlin was taking shape and delicate gas talks between Kiev and Moscow on supplying Ukraine through the winter were under way. There was, Mr Barroso thought, too much at stake to upset the balance.

"The priority was in having the deal, making sure there was not trouble with gas supplies for Ukraine or Europe during the winter," the official said. "Almunia, of course, was looking in his file and its details. It was for the president [Mr Barroso] to look beyond that and the upcoming winter."

Margrethe Vestager, Mr Almunia's successor as competition commissioner, will today fire that bullet held in reserve - even amid a relative lull in hostilities with Russia since the second Minsk ceasefire deal. The circumstances mean that whatever the merits of the case or her intentions, the move represents a diplomatic gamble. Even advocates of action acknowledge it could, at worst, provoke a level of retaliation that would dwarf the competition problems at issue.

Analysts at Sberbank warned of the possibility of an aggressive response from the Kremlin. "We are most concerned about a strong reaction from the Russian authorities - such a reaction carries the risk of an escalation in tensions that ultimately could cost Gazprom significantly more," the Russian state-owned bank said in a note to clients.

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"The Russians will see this as just a political strike," said Vaclav Bartuska, Czech energy ambassador. "I would politely remind [Moscow] of past commission cases against Microsoft, Intel and Google." But Mr Bartuska also noted a shift in attitude in Brussels: "Nobody cares what Moscow thinks and that is the most important change."

The move by Brussels follows Gazprom chairman Alexei Miller's overtures to settle the case, which came as recently as last week. Issuing the charge sheet so soon after such an offer may antagonise Moscow, according to some people familiar with the company.

It also adds to a detachment on energy issues seen since Gazprom last year cancelled its ambitious Southstream pipeline and the EU outlined plans to reduce energy reliance on Russia.

<>"Last year really saw a kind of divorce between two energy partners," said Marie-Claire Aoun, a director of the energy centre at the French Institute for International Relations, a think-tank. "This antitrust case comes at a very bad time."

Jonathan Stern, chairman of gas research at the Oxford Institute for Energy Studies at Oxford university, said that if the commission limited itself to requirements that Gazprom make changes to its contract structure "we will hear a lot of huffing and puffing [from Russia] but nothing else".

But if Brussels was to indicate plans to impose fines on the Russian company, "expect both barrels from Gazprom and [Russian president Vladimir] Putin," Prof Stern said.

Some of those involved with the probe say Ms Vestager had little choice but to roll out charges - the question was mainly on timing. Abandoning the case would be, they feared, fatal for the commission's credibility as a competition enforcer.

"Gazprom is being forced to learn the rules of European behaviour. It's being tamed, said Andrius Kubilius, former prime minister of Lithuania. "This is very important for the future - more important than the question of how big the penalties may be."

Additional reporting by Peter Spiegel in Brussels

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