EU Energy and Competition Law: Influence On Russian Trade and Investment Interests

Ivan Gudkov, MGIMO-University, May, 31, 2013

EU-Russia Energy Relations Generally

Interdependent but complex because linked to fixed infrastructure which cross borders:

between different political and legal systems

between holders of different economic interests

between a sovereign state and international organization with evolving distribution of external competences

Need for Mutually Agreed Set of Rules

ECT (still unbalanced, under modernization, Russia is outside)

PCA (not energy-specific, out-dated, has to be replaced)

NBA (incl. “energy chapter”, work in slow progress since 2007)

Convention on International Energy Security (work in slow progress since 2010)

Agreement on Cross-Border Energy Infrastructure (work in slow progress since 2011)

Road Map 2050 agreed on March 2013 (but does not set rules)

Why no Feasible Progress so Far? EU:

- Agreement possible only on the basis of EU rules (“Energy Community model”);

- EU Council mandate is needed for each and every stage of external action.

Russia:

- Energy Community model not acceptable because rules shall be mutually elaborated rather than imposed by the partner;

- Easier to agree with separate Member States.

What Trade and Investment Regime Fits Security of Supply and Demand?

Fair allocation of risks

Regulatory certainty

Attractive rate of return on investments

Possibility of resource-holders to invest

Non-discriminatory approach

What are Main Regulatory Challenges?

Intent to change agreed risk-allocation in favor of one party

Threat to existing investments

New entry barriers

Lack of clarity for future investments

Unequal treatment

How to Cope with Regulatory Challenges?

Comply with existing international agreements (ECJ decision оf 15.09.2011 in “Commission v. Slovakia”, C-264/09) in light of established practice and political assurances (including Joint EU-Russia Statement of May,2004).

Follow non-interference principle when law enforcement affects vital interests of third states (e.g. Commission decision in case Eastern Aluminium, 1984).

Recognize need for specific treatment of upstream market (principle of sovereignty over natural resources and scarcity rent).

Respect wish of producing countries to maintain traditional upstream gas supply contracts with oil-indexation (GESF Doha Declaration of 15.11.2011).

Use consultations rather than formal procedures in upstream relations with third countries.

Conclusion: Way Forward

1. Intelligent solutions need to be found in a spirit of strategic cooperation and mutual benefit.

2. Maximum: agreement on a set of binding rules realistically acceptable for both sides to avoid conflict of laws and ensure predictability of EU-Russia energy relations.

3. Minimum: cautious “investor-friendly” and “non-politicized” application of EU energy rules to upstream market relations involving third countries with a transition period to adapt to changing environment.

THANK YOU FOR ATTENTION