OAO Gazprom (GAZP), Russia’s natural-gas export monopoly, faces a European Union antitrust probe over long-term gas supply contracts in central and eastern Europe.
The European Commission is investigating whether Gazprom imposed unfair prices by linking natural gas and oil prices, prevented gas from being traded between countries and hindered the diversification of supply. Gazprom shares dropped by as much as 2 percent after the EU announcement.
“We are interested in the long-term contracts between Gazprom and the companies who they supply,” said Antoine Colombani, a spokesman for the Brussels-based commission. If the probe “reveals new information, we will then expand the investigation.”
Gazprom, which supplies about a quarter of European gas, and customers including RWE, E.ON’s Ruhrgas and Hungary units, OMV AG (OMV) and Poland’s Polskie Gornictwo Naftowe I Gazownictwo SA (PGN) were raided by EU officials last year to uncover information on prices and supplies. Companies found to violate EU competition rules can be fined as much as 10 percent of annual revenue.
Gazprom fell 1.8 percent to 155.21 rubles by the close of trading in Moscow, the biggest decline since July 31.
Gazprom said its pricing policies were “in full conformity with legal standards applied by other natural gas producers and exporters,” according to an e-mailed statement from the Moscow- based company. The gas producer said it “scrupulously abides” by international and national laws in the regions where it operates.
Gazprom expects that the EU will take into account that it is “registered outside the jurisdiction of the EU, is a business entity empowered, according to the legislation of the Russian Federation with special social functions and the status of a strategic organization, administered by the government,” it said.
Dmitry Peskov, a spokesman for Russian President Vladimir Putin, said Gazprom has applied a widely used price formula for gas sales for years.
“It’s not clear why this suddenly has become a subject for investigation,” Peskov said by telephone today. “Why is there this assertion of a violation of the security of supplies? Because Gazprom was, is and will be a reliable supplier of natural gas to its customers.”
Colombani said EU regulators were looking at state-owned Gazprom’s behavior as a company and the investigation “does not concern Russia.”
Gazprom has been cooperative with the EU probe and made no attempt to obstruct the investigation, he said. The probe covers Poland, the Czech Republic, Slovakia, Hungary, Bulgaria, as Estonia, Latvia and Lithuania, Colombani said.
The EU’s antitrust agency said Gazprom’s behavior may lead to higher prices and harm Europe’s security of supply. Regulators have tried to spur trading of natural gas between EU nations and investment in energy networks. In 2009, the EU approved legislation to separate companies’ control over energy infrastructure and supplies.
E.ON, Germany’s biggest utility, and RWE negotiated with Gazprom to weaken the link between gas and oil prices in supply contracts as oil costs surged. The companies lost hundreds of millions of dollars as they sold gas to customers at less than it cost to source. Gazprom agreed to adjust accords with E.ON on gas prices in long-term contracts and is in arbitration with RWE, its main partner for supplying the Czech Republic.
Lithuania’s government asked the EU last year to investigate Gazprom for refusing to cut gas prices after the Baltic state announced it would split sales and transport. It also complained Gazprom linked gas and oil prices for sales to Lietuvos Dujos AB, majority-owned by Gazprom and E.ON.
Lithuanian Energy Minister Arvydas Sekmokas said his country was “punished with the highest prices in Europe” when it tried to implement EU energy policy to open up markets, according to an e-mailed comment. He said the EU probe may help Europe create a more transparent and effective energy market.
Poland’s PGNiG considers that the EU probe may help its arbitration against Gazprom, the company’s chief executive Grazyna Piotrowska-Oliwa said in an interview today. The company filed a suit in a Stockholm international arbitration court in February, seeking lower prices from Gazprom. PGNiG buys 70 percent of its gas from Gazprom and said it was losing several million zloty a day in January after the country’s regulator delayed approval of a price increase.
AS Eesti Gaas’ management board member Raul Kotov said it would be difficult to claim that linking gas and oil prices violated competition rules. Estonian gas prices have been tied to oil since 1999 after customers demanded that gas should follow oil price drops, he said in an e-mail.
E.ON, RWE and Lietuvos Dujos (LDJ1L) declined to comment on the EU investigation.
While Gazprom has yielded to pricing demands from German and French customers, it has conceded little to countries further east, which are largely dependent on Russian gas, said Patrick Heren, a London-based consultant.
“Gazprom is the last major gas supplier that sticks ferociously to the conditions of international trade that were developed in the 1960s and 1970s, and were outmoded by the year 2000,” said Heren, founder of Heren Energy Ltd., the European price-information service bought by Reed Business Information Ltd. to form ICIS Heren. “Destination restrictions, prohibitions on re-trading and oil-linked pricing are appropriate only to uncompetitive managed markets.”
EU regulators are separately investigating Bulgarian Energy Holding, which controls several utilities including Bulgargaz AD, Colombani said today.
Bulgargaz spokeswoman Stefka Ikonomova didn’t reply to Bloomberg calls and questions asked by e-mail on the probe.
Overgas, Bulgaria’s biggest private natural gas distributor which is partly owned by Gazprom, complained to the EU in 2010 after state-owned Bulgartransgaz AD blocked access to a high- pressure pipeline, Overgas said last year.
Gazprom estimates export revenue from sales to Europe will rise this year to $61 billion from $57 billion last year, approaching the record $64 billion in 2008, Deputy Chief Executive Officer Alexander Medvedev said on June 20.
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