# C_2018258EN.01000601.xml

| 23.7.2018 | EN | Official Journal of the European Union | C 258/6 |
| --- | --- | --- | --- |

23.7.2018

EN

Official Journal of the European Union

C 258/6

---

Summary of Commission Decision

of 24 May 2018

relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union and Article 54 of the EEA Agreement

(Case AT.39816 — Upstream gas supplies in Central and Eastern Europe)

(notified under document C(2018) 3106)

(Only the English text is authentic)

(2018/C 258/07)

On 24 May 2018, the Commission adopted a decision relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union and Article 54 of the EEA agreement. In accordance with the provisions of Article 30 of Council Regulation (EC) No 1/2003 (1)
  , the Commission herewith publishes the names of the parties and the main content of the decision, including any penalties imposed, having regard to the legitimate interest of undertakings in the protection of their business secrets.

On 24 May 2018, the Commission adopted a decision relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union and Article 54 of the EEA agreement. In accordance with the provisions of Article 30 of Council Regulation (EC) No 1/2003

1

, the Commission herewith publishes the names of the parties and the main content of the decision, including any penalties imposed, having regard to the legitimate interest of undertakings in the protection of their business secrets.

1.   Introduction

Introduction

| (1) | The Decision makes legally binding upon Public Joint Stock Company Gazprom and Gazprom export LLC (jointly referred to as ‘Gazprom’), the commitments which Gazprom has offered. These commitments aim to address the Commission’s preliminary concerns that Gazprom abused its market position by pursuing an anticompetitive strategy of fragmenting and isolating the Central and Eastern European gas markets (the Czech Republic, Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia) and restricting the free flow of gas between those Member States with a view to be able to maintain higher prices in some of them (Bulgaria, Estonia, Latvia, Lithuania and Poland). It also concerns instances of Gazprom leveraging its dominance by making gas supplies conditional on obtaining certain non-related infrastructure commitments (Bulgaria). |
| --- | --- |

(1)

The Decision makes legally binding upon Public Joint Stock Company Gazprom and Gazprom export LLC (jointly referred to as ‘Gazprom’), the commitments which Gazprom has offered. These commitments aim to address the Commission’s preliminary concerns that Gazprom abused its market position by pursuing an anticompetitive strategy of fragmenting and isolating the Central and Eastern European gas markets (the Czech Republic, Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia) and restricting the free flow of gas between those Member States with a view to be able to maintain higher prices in some of them (Bulgaria, Estonia, Latvia, Lithuania and Poland). It also concerns instances of Gazprom leveraging its dominance by making gas supplies conditional on obtaining certain non-related infrastructure commitments (Bulgaria).

| (2) | The Advisory Committee on Restrictive Practices and Dominant Positions issued a favourable opinion on 2 May 2018. |
| --- | --- |

(2)

The Advisory Committee on Restrictive Practices and Dominant Positions issued a favourable opinion on 2 May 2018.

2.   The Concerns in the Statement of Objections

The Concerns in the Statement of Objections

| (3) | In its Statement of Objections of 22 April 2015, the Commission came to a preliminary conclusion that Gazprom holds a dominant position on each of the relevant markets in Central and Eastern Europe, namely in Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary and Bulgaria (jointly referred to as ‘CEE’). |
| --- | --- |

(3)

In its Statement of Objections of 22 April 2015, the Commission came to a preliminary conclusion that Gazprom holds a dominant position on each of the relevant markets in Central and Eastern Europe, namely in Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary and Bulgaria (jointly referred to as ‘CEE’).

| (4) | The Commission was concerned that Gazprom engaged in an anticompetitive strategy to prevent the free flow of gas across CEE and thereby fragmented and isolated the investigated CEE gas markets. This strategy was implemented by explicit contractual export bans and destination clauses as well as by other contractual and non-contractual means with an equivalent effect to contractual territorial restrictions. Such an overall market segmentation strategy enabled Gazprom to charge unfair prices in Bulgaria, Estonia, Latvia, Lithuania and Poland compared with its cost and competitive price benchmarks, in particular with prices quoted at liquid competitive Western European gas hubs. Furthermore, by the alleged prevention of the free flow of gas across CEE borders, Gazprom remained the key supplier of gas to CEE and conditioned its gas supplies on it obtaining infrastructure-related advantages from its customers. |
| --- | --- |

(4)

The Commission was concerned that Gazprom engaged in an anticompetitive strategy to prevent the free flow of gas across CEE and thereby fragmented and isolated the investigated CEE gas markets. This strategy was implemented by explicit contractual export bans and destination clauses as well as by other contractual and non-contractual means with an equivalent effect to contractual territorial restrictions. Such an overall market segmentation strategy enabled Gazprom to charge unfair prices in Bulgaria, Estonia, Latvia, Lithuania and Poland compared with its cost and competitive price benchmarks, in particular with prices quoted at liquid competitive Western European gas hubs. Furthermore, by the alleged prevention of the free flow of gas across CEE borders, Gazprom remained the key supplier of gas to CEE and conditioned its gas supplies on it obtaining infrastructure-related advantages from its customers.

| (5) | The Commission’s preliminary conclusion was that Gazprom’s behaviour infringed Article 102 of the Treaty. |
| --- | --- |

(5)

The Commission’s preliminary conclusion was that Gazprom’s behaviour infringed Article 102 of the Treaty.

3.   Effectiveness of the commitments

Effectiveness of the commitments

| (1) | To address the Commission’s competition concerns, as expressed in the Statement of Objections, and to meet the Commission’s overall objective of the free flow of gas at competitive prices across the CEE, Gazprom offered a set of initial commitments, which were put to a market test on 16 March 2017. |
| --- | --- |

(1)

To address the Commission’s competition concerns, as expressed in the Statement of Objections, and to meet the Commission’s overall objective of the free flow of gas at competitive prices across the CEE, Gazprom offered a set of initial commitments, which were put to a market test on 16 March 2017.

| (2) | To the extent that the suggested changes related to the competition objections put to Gazprom by the Commission and made the commitments more effective, they were presented to Gazprom and the necessary changes were requested. In response to the comments received pursuant to the Article 27(4) Notice, Gazprom modified its Initial Commitments with a revised proposal on 15 March 2018 (‘Commitments’). |
| --- | --- |

(2)

To the extent that the suggested changes related to the competition objections put to Gazprom by the Commission and made the commitments more effective, they were presented to Gazprom and the necessary changes were requested. In response to the comments received pursuant to the Article 27(4) Notice, Gazprom modified its Initial Commitments with a revised proposal on 15 March 2018 (‘Commitments’).

| (3) | The Commission considers that the Commitments offered by Gazprom following the observations submitted by interested third parties are effective and necessary in order to address the concerns expressed by the Commission in its Statement of Objections without being disproportionate. The Commitments offer tailor-made and forward-looking solutions to the competition problems identified by the Commission and ensure the free flow of gas at competitive prices across the CEE. |
| --- | --- |

(3)

The Commission considers that the Commitments offered by Gazprom following the observations submitted by interested third parties are effective and necessary in order to address the concerns expressed by the Commission in its Statement of Objections without being disproportionate. The Commitments offer tailor-made and forward-looking solutions to the competition problems identified by the Commission and ensure the free flow of gas at competitive prices across the CEE.

| (6) | First, to address the Commission’s market segmentation concerns, Gazprom commits to removing all provisions in its CEE gas supply contracts that directly or indirectly prohibit or impede the free flow of gas across the CEE. |
| --- | --- |

(6)

First, to address the Commission’s market segmentation concerns, Gazprom commits to removing all provisions in its CEE gas supply contracts that directly or indirectly prohibit or impede the free flow of gas across the CEE.

| (7) | Furthermore, to open the Bulgarian gas market to competition, Gazprom will take a positive action to amend its relevant gas contracts to enable the conclusion of interconnection agreement at the interconnection points between Bulgaria and other EU Member States, especially Greece, and to adjust the allocated-as-measured gas allocation method to the modern method of allocated-as-nominated. Following the Market Test, Gazprom clarified that it will remain liable for gas quality at the entry point to the Bulgarian gas system. |
| --- | --- |

(7)

Furthermore, to open the Bulgarian gas market to competition, Gazprom will take a positive action to amend its relevant gas contracts to enable the conclusion of interconnection agreement at the interconnection points between Bulgaria and other EU Member States, especially Greece, and to adjust the allocated-as-measured gas allocation method to the modern method of allocated-as-nominated. Following the Market Test, Gazprom clarified that it will remain liable for gas quality at the entry point to the Bulgarian gas system.

| (8) | Besides, to allow gas flows between on the one hand the still infrastructure-isolated Baltic States and Bulgaria and on the other hand the rest of CEE, Gazprom commits to take a positive step whereby it will offer its relevant customers in these countries the possibility to request that all or parts of their contractual gas volumes delivered at certain delivery points in Hungary, Poland and Slovakia be delivered instead at another delivery point used by Gazprom for supplies to Bulgaria and the Baltic States (from Poland or Slovakia to the Baltics and from Slovakia or Hungary to Bulgaria). |
| --- | --- |

(8)

Besides, to allow gas flows between on the one hand the still infrastructure-isolated Baltic States and Bulgaria and on the other hand the rest of CEE, Gazprom commits to take a positive step whereby it will offer its relevant customers in these countries the possibility to request that all or parts of their contractual gas volumes delivered at certain delivery points in Hungary, Poland and Slovakia be delivered instead at another delivery point used by Gazprom for supplies to Bulgaria and the Baltic States (from Poland or Slovakia to the Baltics and from Slovakia or Hungary to Bulgaria).

| (9) | Following the market test, Gazprom improved its Commitments by making the swaps possible in both directions. Gazprom also extended the scope of the change of delivery point mechanism to enable a number of customers from the Baltic States to become also eligible under the change of delivery point mechanism if they were to sign new long-term contracts with Gazprom. Furthermore, Gazprom reduced the minimum requirements attached to the change of delivery point mechanism, committed to remain liable for delivery of gas to a new delivery point and added new delivery points in the Baltics and Poland. Finally, Gazprom significantly reduced the fixed and transparent service fees it can charge for these swaps, to ensure the mechanism is financially attractive. |
| --- | --- |

(9)

Following the market test, Gazprom improved its Commitments by making the swaps possible in both directions. Gazprom also extended the scope of the change of delivery point mechanism to enable a number of customers from the Baltic States to become also eligible under the change of delivery point mechanism if they were to sign new long-term contracts with Gazprom. Furthermore, Gazprom reduced the minimum requirements attached to the change of delivery point mechanism, committed to remain liable for delivery of gas to a new delivery point and added new delivery points in the Baltics and Poland. Finally, Gazprom significantly reduced the fixed and transparent service fees it can charge for these swaps, to ensure the mechanism is financially attractive.

| (10) | The change of delivery point mechanism will further integrate CEE gas markets, as if gas connecting infrastructure already existed. |
| --- | --- |

(10)

The change of delivery point mechanism will further integrate CEE gas markets, as if gas connecting infrastructure already existed.

| (11) | Second, to address the Commission’s pricing concern and to ensure that gas prices do not become again unfair in the future, Gazprom commits to offer a price revision clause to its relevant customers. This price revision clause ensures that if prices deviate from competitive Western benchmarks (including prices at liquid hubs) a price review can be requested. Customers can exercise this option every two years, with an additional ‘joker’ every five years. Following the market test, Gazprom committed to offer the clause also to its new customers and clarified that this right can be exercised immediately after the introduction of the new price review clause in their contracts and that the new price will apply retroactively. |
| --- | --- |

(11)

Second, to address the Commission’s pricing concern and to ensure that gas prices do not become again unfair in the future, Gazprom commits to offer a price revision clause to its relevant customers. This price revision clause ensures that if prices deviate from competitive Western benchmarks (including prices at liquid hubs) a price review can be requested. Customers can exercise this option every two years, with an additional ‘joker’ every five years. Following the market test, Gazprom committed to offer the clause also to its new customers and clarified that this right can be exercised immediately after the introduction of the new price review clause in their contracts and that the new price will apply retroactively.

| (12) | Following the market test, the benchmarks that will drive the new price were significantly improved. The price revision clause makes clear that the new price will have to be set in line with the price level in competitive Continental Western European gas markets, including at liquid gas hubs in Germany and the Netherlands. If the parties do not agree on a new price within 120 days, they will have the right to refer the dispute to an arbitrator, which will also be guided by the same Western European benchmarks. Arbitration will have to take place in the EU. This obliges the arbitral tribunals to respect and apply EU competition law, and ensures that the Commission can intervene as amicus curiae. |
| --- | --- |

(12)

Following the market test, the benchmarks that will drive the new price were significantly improved. The price revision clause makes clear that the new price will have to be set in line with the price level in competitive Continental Western European gas markets, including at liquid gas hubs in Germany and the Netherlands. If the parties do not agree on a new price within 120 days, they will have the right to refer the dispute to an arbitrator, which will also be guided by the same Western European benchmarks. Arbitration will have to take place in the EU. This obliges the arbitral tribunals to respect and apply EU competition law, and ensures that the Commission can intervene as amicus curiae

| (13) | This structured process will ensure competitive gas prices in these regions and avoid that gas prices under the oil-indexed long-term contracts significantly diverge from competitive price benchmarks in the future. |
| --- | --- |

(13)

This structured process will ensure competitive gas prices in these regions and avoid that gas prices under the oil-indexed long-term contracts significantly diverge from competitive price benchmarks in the future.

| (14) | Third, Gazprom commits not to claim any damages on the basis of the cancellation of the South Stream project from the Bulgarian counterparts. In this way Gazprom will not benefit from advantages that it has obtained and will provide its Bulgarian partners with business and legal certainty. |
| --- | --- |

(14)

Third, Gazprom commits not to claim any damages on the basis of the cancellation of the South Stream project from the Bulgarian counterparts. In this way Gazprom will not benefit from advantages that it has obtained and will provide its Bulgarian partners with business and legal certainty.

4.   Conclusion

Conclusion

| (15) | The decision finds that, in view of the commitments offered, there are no longer grounds for action by the Commission. The decision shall be binding on Gazprom for a period of eight years, except for the Commitments regarding the cancellation of the South Stream project (see paragraph 21) for which the period shall be 15 years, as from 28 May 2018. |
| --- | --- |

(15)

The decision finds that, in view of the commitments offered, there are no longer grounds for action by the Commission. The decision shall be binding on Gazprom for a period of eight years, except for the Commitments regarding the cancellation of the South Stream project (see paragraph 21) for which the period shall be 15 years, as from 28 May 2018.

---

(1)  OJ L 1, 4.1.2003, p. 1.

1

---