Gazprom pledges EU response by Christmas

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Russian gas giant Gazprom will send commitments to the European Commission by Christmas in a bid to close an ongoing abuse of an anti-monopoly probe, the Russian news agency Sputnik reported on November 28.

Gazprom made a similar pledge in late October following a meeting between Gazprom deputy CEO Alexander Medvedev and the EU’s competition commissioner Margrethe Vestager.

The report quoted Medvedev as saying the negotiating process had closed and that the company had reached the ‘execution stage’. He said commitments would be sent by mid-December and no later than Christmas, adding that European Commission officials would then market test the proposals, according to the report.

Gazprom executives held talks with the European Commission representatives on October 26, during which commitments were discussed. European Union countries relied on Russia for 37.5% of their gas imports in 2014 but that share is believed to have increased to about 45% more recently.

The commission started investigating Gazprom’s business activities in 2011, amid suspicions that the company was abusing its dominant position in Central and Eastern European countries that were almost entirely dependent on Russian gas. In April 2015, the commission filed charges against Gazprom within the framework of this investigation.

Russian champion

Public Joint Stock Company Gazprom is a large Russian company founded in 1989, which carries on the business of extraction, production, transport, and sale of natural gas.

The company name is a portmanteau of the Russian words Gazovaya Promyshlennost. The headquarters of Gazprom are in Moscow.

The Russian government controls 50.23 percent of Gazprom shares through Rosimushchestvo, Rosneftegaz, and Rosgazifikatsiya.

Gazprom is a national champion, a concept advocated by President Putin, in which large companies in strategic sectors are expected not only to seek profit, but also to advance Russia’s national interests. For example, Gazprom sells gas to its domestic market at a price less than that of the global market. In 2008, Gazprom’s activities made up 10 percent of the Russian gross domestic product.

European dependence

Gazprom delivers gas to 25 European countries, the only major exceptions being Spain and Portugal. The majority of Russian gas in Europe is sold on 25 year contracts. In late 2004, Gazprom was the sole gas supplier to Bosnia and Herzegovina, Estonia, Finland, Macedonia, Latvia, Lithuania, Moldova, Serbia and Slovakia. It provided 97 percent of Bulgaria’s gas, 89 percent of Hungary’s gas, 86 percent of Poland’s gas, nearly 75 percent of the Czech Republic’s, 67 percent of Turkey’s, 65 percent of Austria’s, about 40 percent of Romania’s, 36 percent of Germany’s, 27 percent of Italy’s, and 25 percent of France’s gas. The European Union as a whole receives about 25 percent of its gas supply from Gazprom.

In 2014, Europe was the source of 40 percent of Gazprom’s revenue. The proportion of Europe’s gas bought in the spot market rose from 15 percent in 2008 to 44 percent in 2012.

In September 2013, during the G20 summit, Gazprom signed an agreement with CNPC that the Henry Hub index would not be used to settle prices for their trades. On 21 May 2014, Putin met with Xi Jinping and negotiated a €380 bn deal between Gazprom and CNPC. Under the contract, Russia was to supply 38 billion cubic meters of gas annually over 30 years at a cost of €330 per thousand cubic meters beginning in 2018. In 2013, the average price of Gazprom’s gas in Europe was about €360 per thousand cubic meters. China offered a loan of about €47 bn to finance development of the gas fields and the construction of the pipeline by Russia up to the Chinese border, with the Chinese to build the remaining pipeline.

Sanctions

Sanctions were imposed to prevent Russian and Crimean officials and politicians travelling to Canada, the United States, and the European Union. They were the most wide-ranging used on Russia since the 1991 fall of the Soviet Union.

Japan announced milder sanctions than the US and EU. These include suspension of talks relating to military, space, investment, and visa requirements.

In response to the sanctions introduced by the US and EU, the Russian Duma unanimously passed a resolution asking for all members of the Duma to be included on the sanctions list.

Head of the opposition, Just Russia party Sergei Mironov said he was proud of being included on the sanctions list, “It is with pride that I have found myself on the blacklist, this means they have noticed my stance on Crimea.” Russian companies started pulling billions of dollars out of Western banks to avoid any asset freeze.

Three days after the lists were published, the Russian Foreign Ministry published a reciprocal sanctions list of US citizens, which consisted of 10 names, including House of Representatives Speaker John Boehner, Senator John McCain, and two advisers to President Obama.

The ministry said in the statement, “Treating our country in such way, as Washington could have already ascertained, is inappropriate and counterproductive,” and reiterated that sanctions against Russia would have a boomerang effect.

Several of those sanctioned responded with pride at their inclusion on the list, including John Boehner, John McCain, Bob Menendez, Dan Coats, Mary Landrieu, and Harry Reid.

On 24 March, Russia has imposed retaliatory sanctions on 13 Canadian officials including members of the Parliament of Canada, banning them from entering Russia. Foreign Affairs Minister John Baird, said the sanctions were “a badge of honour.” Former Minister of Justice Irwin Cotler also said that he considered the sanctions a badge of honour, not a mark of exclusion.

In March 2014, The Christian Science Monitor reported, “The good news is that so far, Russia has shown no inclination to use the NDN [ Northern Distribution Network, key supply line to Afghanistan that runs through Russia] as leverage in the wake of US retaliation for its troop movements in Crimea.”

Expanded Western sanctions in mid-March coursed through financial markets, hitting the business interests of some Russia’s richest people. The Americans centred on the heart of Moscow’s leadership, though the EU’s initial list shied from targeting Putin’s inner circle. As ratings agencies Fitch and Standard & Poor’s downgraded Russia’s credit outlook, Russian banks warned of a sanctions-induced recession, the country braced for capital outflows for the first three months of 2014 to reach €65 billion, more than the entirety of outflows for 2013, and Russian government-bond issues plummeted by three-quarters compared with the same period the previous year. Novatek, Russia’s second-largest gas producer, saw €2.3bn in market value wiped out when its shares sank by nearly 10%, rendering Putin’s close friend Gennady Timchenko, who has a 23% stake in the company, €540m poorer. “I do hope that there is some serious diplomatic activity going on behind the scenes,” said one Russian banker, though others were more sanguine on the question of whether the sanctions would have any enduring effect, and Russians, top and bottom, seemed defiant. The official Russian response was mixed.

Minister of Economic Development of the Russian Federation Alexey Ulyukaev said what introduction of sectoral sanctions will lead to a serious decline of the Russian economy: economic growth of Russia will become seriously negative, the growth of volumes of investment will be even more negative, inflation will be on the rise, and government revenues and reserves will go down.

As well as differences between the United States and Europe as a whole as to how to respond to the Russian-backed incursion, those same differences have played out among Eastern European countries.

A number of Russian citizens reported that they have been denied European visas after they visited Crimea after annexation. A Russian consumer protection watchdog OZPP published a warning for Russian tourists about this risk, explaining that from the international law point of view Crimea is an occupied territory, after which Roskomnadzor blocked the OZPP website “for threatening territorial integrity of Russian federation”