Third Energy Package: dispute between Russia and the EU

By Česlovas Iškauskas

During the visit in Brussels on 24 February, Vladimir Putin tried to push own energy policy model to the EU. Negotiations were indeed very difficult and parties didn’t manage to coordinate their positions. But the EU’s third internal energy market package took effect on 3 March.

In 2009 the EU adopted the programme for energy reforms aimed at increasing the competition and effectiveness of supply of energy resources. One of the ways to reach this goal is to make suppliers of energy resources reduce the control of pipelines and transmission networks. According to Russia, these measures are discriminatory and first of all directed against the Russian concern Gazprom. But European Commission President José Manuel Barroso insisted that the Third Energy Package (TEP) was not discriminatory, as the EU was asking foreign companies to apply the same rules as those that apply to companies from its member states.

Vladimir Putin said that this package ”could be equalled to confiscation of property”. Jose Manuel Barroso admitted that some EU countries had adopted the toughest of three possible models of unbundling, which sees production separated completely from distribution. He added that “our legislation is not discriminatory. It also applies to Norwegian and to European companies”.

The main problem of Europe which lacks conventional energy resources is dependence on non-democratic countries trying to use energy as a political tool. One of the means to fight against this is the increase of competition across the energy sector by reducing consumption of energy and use of renewable energy sources.

From the legal point of view the Third Energy Package consists of Directives for gas and energy, gas pipeline property and utilization, and establishment of the Agency for the Cooperation of Energy Regulators. The main principle of TEP is unbundling. EU Member States could chose from the three basic models: unbundling of ownership, appointment of an independent operator for the transport system, or independent transmission system operator model.

There is no secret that strong Lithuania’s position contributed to the adoption of TEP. Lithuania is reportedly planning to split state gas company Lietuvos Dujos, in which Gazprom is a shareholder, into a transport and a trade component, with the trade company remaining under government control. Gazprom says the government of Lithuania is only seeking an excuse to nationalize the company.

By the way, in 2009 Lithuanian Free Market Institute emphasised that TEP is a consistent continuation of the former EU energy policy.

According to Brussels, Lithuania might be an example for the rest of Europe on how to change energy situation for the benefit of consumers. Last September the EU's energy commissioner, Germany's Günther Oettinger positively evaluated efforts of Lithuania to reorganize national economy sector according to TEP requirements.  “We appreciate your choice and efforts in implementing the most effective model for unbundling the property of the transmission system operator”, he said to representatives of Lithuania.

The Lithuanian energy minister Arvydas Sekmokas expressed gratitude to the EC for support and noted that for Lithuania TEP is first of all an instrument for the establishment of a competitive gas and electricity market. “Lithuania buys gas three times more expensive than some other European countries. This situation cannot be tolerated. Therefore we not only reorganize gas sector but also establish the secondary gas exchange, i.e. a transparent competitive market mechanism which will ensure free access to network and lowest consumer prices”, said minister.

Thus, by encouraging Brussels to reorganise the energy system Vilnius stepped on Gazprom’s toes, and Moscow’s reaction to the initiative of a small country is also clear. During the meeting with Jose Manuel Barosso, Vladimir Putin was arrogant and he thought he had the right to behave like that: the events in North Africa and Middle East forced the EU to make concessions to Moscow. The UN Security Council, United States and European Union adopted sanctions against the regime in Libya which is rich of gas and oil. Even Russia approved that. There is no wonder: embargo against this country will increase global energy prices and Russia will have a possibility to dictate its conditions.

Vladimir Putin thought that by using the card of a powerful energy supplier he will break the obstinacy of Brussels. So far this didn’t happen but we all know that the West submitted to the Russian pipeline North Stream running through the Baltic Sea. Someday the West will regret this…