REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE on the application of the Decision 994/2012/EU establishing an information exchange mechanism on intergovernmental agreements between Member States and third countries in the field of energy
Date: 2016-02-16
Institutions: Directorate-General for Energy, European Commission
Subjects: EU Member State, energy cooperation, energy supply, exchange of information, intergovernmental cooperation (EU), international agreement, third country

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 16.2.2016  COM(2016) 54 final   REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE on the application of the Decision 994/2012/EU establishing an information exchange mechanism on intergovernmental agreements between Member States and third countries in the field of energy  
 
 
1. 

Introduction 

Article  8  of  Decision  994/2012/EU  (the  IGA  Decision)1  includes  an  obligation  on  the 
Commission to submit to the European Parliament, the Council and the European Economic 
and Social Committee a report on the application of this Decision. The current report serves to 
fulfil  this  obligation  and  it  is  based  on  the  results  of  the  evaluation  report  annexed  to  the 
Impact  Assessment  on  the  revision  of  the  IGA  Decision.  This  revision  is  foreseen  by  the 
European  Energy  Security  Strategy  of  May  20142  and  by  the  Energy  Union  Strategy  of 
February  20153,  which  highlight  the  need  for  full  compliance  with  EU  law  of  national 
agreements  with  third  countries  in  the  field  of  energy.  In  the  same  spirit,  the  European 
Council in its conclusions of 19 March 2015 also called for "full compliance with EU law of 
all  agreements  related  to  the  buying  of  gas  from  external  suppliers,  notably  by  reinforcing 
transparency of such agreements and compatibility with EU energy security provisions". 

Negotiations  with  energy  suppliers  in  third  countries  frequently  require  political  and  legal 
support  in  the  form  of  the  conclusion  of  intergovernmental  agreements  (IGAs).  IGAs  are 
usually negotiated bilaterally and are often the basis for more detailed commercial contracts.  
Compliance with some provisions of EU internal energy market legislation and competition 
law  is  not  always  in  the  commercial  interest  of  third  country  energy  suppliers.  Therefore, 
Member States can come under pressure to include regulatory concessions in their IGAs with 
third countries. Such concessions can threaten the smooth operation and proper functioning of 
the EU internal energy market.  

To  address  this  challenge  as  well  as  to  ensure  consistency  in  the  energy  relations  with  key 
third  countries,  on  4  February  2011  the  European  Council  invited  Member  States  to  inform 
the Commission, from 1 January 2012 onwards, of all their new and existing bilateral energy 
agreements with third countries.4 The adoption of Decision 994/2012/EU of 25 October 2012 
(the  IGA  Decision)  addressed  this  request  by  setting  up  a  mechanism  for  this  exchange  of 
information.  

The IGA Decision defines IGAs as "legally binding agreements between one or more MS and 
one  or  more  third  countries  having  an  impact  on  the  operation  or  the  functioning  of  the 
internal energy market or on the security of supply in the Union". In this respect, only IGAs 
concerning matters within the purview of the Euratom Treaty are excluded.5  

This  report  on  the  application  of  the  IGA  Decision,  in  compliance  with  Article  8  of  the 
Decision, assesses in particular: 

  The extent to which the IGA Decision promotes compliance of IGAs with EU law and 
promotes a high level of coordination between Member States with regard to IGAs; 
  The impact the IGA Decision has on Member States' negotiations with third countries; 
  The extent to which the scope of the IGA Decision and the procedures it lays down are 

appropriate. 

1 Decision No 994/2012/EU of the European Parliament and of the Council of 25 October 2012 establishing an 
information exchange mechanism with regard to intergovernmental agreements between Member States and 
third countries in the field of energy, OJ L 299, 27.10.2012, p. 13–17. 
2 COM(2014) 330 final 
3 COM(2015) 80 final 
4 This conclusion was confirmed by the Energy Council of 28th February 2011: "Improved and timely exchange 
of  information  between  the  Commission  and  Member  States  including  Member  States  information  to 
Commission on their new and existing bilateral energy agreements with third countries".  
5 For these IGAs, Article 103 of Euratom provides for a specific ex-ante procedure. 

2 

 
 
 
 
 
 
 
                                                            
The current report covers the application of the IGA Decision since its entry into force on 17 
November 2012 and its impact on IGAs notified both before and after that date. This report 
follows  the  criteria  enshrined  in  the  Better  Regulation  Guidelines,  namely:  effectiveness, 
efficiency,  coherence,  relevance  and  EU  added  value.  It  also  assesses  whether  the  current 
framework set up by the IGA Decision could be simplified. 

2. 

Assessment 

Since the adoption of the IGA Decision, 124 IGAs have been notified by Member States to 
the Commission.  As  far as  it is  possible to  assess,  Member States  have complied  with  their 
notification obligations. However, there are non-legally-binding agreements6, either according 
to the definition set out in Article 2 of the IGA Decision or in the sense of public international 
law,  for  which  there  is  no  notification  obligation  under  the  current  IGA  Decision. 
Nevertheless  such  agreements  can  go  into  great  detail  as  regards  the  legal  and  technical 
specificities of the issue at stake (e.g. on energy infrastructure projects). 

Among the 124 notified IGAs: 

  Around 60% covered general energy cooperation (mainly bilateral energy cooperation 
between EU Member States and a wide range of third countries, including e.g. Cuba, 
Vietnam, Singapore, Korea, India or China). None of these IGAs raised concerns and 
none have therefore been followed up by the Commission; 

  Around  40%  concerned  either  agreements  on  the  supply, import  or  transit  of  energy 
products (oil, gas or electricity) or the setting of rules for the exploitation of gas or oil 
fields;  bilateral  or  multilateral  agreements  for  the  development  of  energy-related 
infrastructure, with the great majority being oil and gas pipelines. 

After analysing the notified IGAs in the last category, the Commission expressed doubts on 
the  compatibility  with  EU  law  for  17  of  them.  The  EU  law  in  question  mainly  concerned 
either Third Energy Package provisions (e.g.: unbundling, third party access and tariff setting, 
including the independence of the national regulator) or EU competition law (prohibition of 
market segmentation by means of destination clauses). 

Therefore,  around  one  third  of  the  notified  IGAs  related  to  energy  supplies  or  energy 
infrastructure has been judged of concern. Letters were sent in 2013 to the 9 Member States 
concerned by their IGAs, inviting them to amend or terminate the IGAs in question in order to 
resolve the identified incompatibilities.  

2.1 

Effectiveness 

To date, no Member State has managed to terminate or renegotiate the non-compliant IGAs.7 
This is notably due to the complex legal situation that arises once IGAs are signed with a third 
country.  Specifically,  once  a  Member  State  has  concluded  an  IGA  which  is  binding  under 
public international law and which does not contain a termination or suspension clause, it is - 
in  legal  terms  -  almost  impossible  for  the  Member  State  concerned  to  terminate  the  IGA 
within a short period of time and before the end of the initial duration of the IGA without the 

6 Such as memoranda of understanding, letters of intent, or political declarations. 
7  It  should  be  noted  that  in  some  cases  the  IGA  ceased  to  apply  because  the  initial  duration  of  the  IGA  has 
expired in the meanwhile or because a specific condition set out in the IGA was not fulfilled in time. 

3 

 
 
 
 
 
 
 
 
 
 
 
                                                            
agreement of the third country. The same applies as regards the renegotiation of an IGA, for 
which  the  consent  of  the  third  country  is  required.  This  in  turn  considerably  limits  the 
enforcement powers of the Commission, even if an infringement process was to be launched. 

As regards IGAs signed after the entry into force of the IGA Decision, only one IGA has been 
notified  to  the  Commission.  It  is  therefore  not  possible  at  this  stage  to  draw  any  general 
conclusions as to the effectiveness of the IGA decision in ensuring the compatibility with EU 
law of IGAs adopted after 2012.  

Since the adoption of the IGA Decision,  the Commission has  not  been  notified of any IGA 
negotiations  by  Member  States.  However,  it  is  clear  that  Member  States  have  had  contacts 
with  third  countries  about  infrastructure  and  related  commodity  supply.  In  this  regard,  the 
Commission  is  not  in  a  position  to  assess  the  extent  to  which  Member  States  and  third 
countries  have  entered  into  political  commitments  (e.g.  in  the  form  of  memoranda  of 
understanding, exchanges of notes or letters of intent). 

On the basis of the above, the provisions of the current IGA Decision have not resulted 
in  the  transformation  of  concluded  non-compliant  IGAs  into  compliant  ones.  This  is 
notably due to the ex-post nature of the compatibility check set out by the IGA Decision. 
The provisions of the current IGA Decision have not directly impacted Member States' 
negotiations with third countries, either. Therefore, the IGA Decision in its present form 
is not considered effective. 

2.2 

Efficiency 

It is impossible to assess empirically or even to model the costs imposed by the current IGA 
Decision. However, the ex-post nature of the compatibility check of IGAs with EU law entails 
a number of qualitative considerations. 

For compliant IGAs and IGAs concerning general bilateral energy cooperation that engage no 
aspect of EU law, the IGA Decision does not entail direct costs for Member States, apart from 
the  administrative  costs  linked  to  the  notification  of  IGAs  under  the  current  information 
exchange mechanism. These administrative costs are very limited, as IGAs can be uploaded 
electronically and there are no translation requirements for the Member States. 

On the other hand, additional direct and indirect costs result from an IGA being assessed ex-
post  as  incompatible  with  EU  law.  These  costs  include  direct  costs  relevant  to  public 
authorities,  such  as  administrative  costs  (i)  for  the  Commission  related  to  internal  decision 
making  and  communicating  with  the  Member  State(s)  concerned,  and  (ii)  for  both  Member 
State(s)  and  the  Commission  in  the  event  of  follow-up  action  by  the  Commission  such  as 
structured  dialogue  with  the  Member  States  or  infringement  procedures.  Furthermore, 
Member States can bear litigation costs in the case of IGAs with no termination clauses, as the 
third  country  can  request  compensation  in  front  of  an  international  arbitration  court  for  the 
non-application of the given IGA. 

In  addition,  indirect  costs  relevant  to  national  authorities  and  to  undertakings  involved  in 
infrastructure projects can arise. These are related to the cancellation, suspension or delay of 
infrastructure  projects  for  which  the  legal  framework  is  ex-post  assessed  as  being 
incompatible, once the physical infrastructure has already been partly developed and/or costs 
have been incurred.  

4 

 
 
 
 
 
 
 
 
 
 
With regard to the benefits provided by the current system to date, these could be expected to 
stem from an increased level of IGA compliance with EU law, resulting from an expectation 
on  the  part  of  those  entering  into  it  or  it  later  being  subject  to  ex-post  assessment.  The 
economic benefits of compliant IGAs are related to: 

 

Increased  legal  certainty,  which  favors  investment.  This  is  particularly  true  for 
infrastructure-related IGAs that are intended to provide legal and regulatory certainty 
for  projects  involving  high  levels  of  investment.  This  increased  legal  certainty  is 
particularly 
transit 
important  where 
agreement/infrastructure project; 

several  bilateral 

cover  one 

IGAs 

  A  well-functioning  internal  energy  market,  without  segmentation  at  a  national  level 

 

 

and with increased competition; 
Increased  transparency  as  regards  the  security  of  supply  situation  in  all  Member 
States, which in turn can avoid redundant investments and/or infrastructure gaps; 
Increased  cooperation  between  Member  States  and  between  Member  States  and  the 
Commission,  which  can  help  the  EU  to  deliver  a  single,  consistent  message  to  third 
countries and therefore enhance the EU's bargaining power in energy negotiations. 

In  conclusion,  the  IGA  Decision  can  be  considered  reasonably  efficient.  Overall,  the 
costs  associated  with  the  current  IGA  Decision  are  justified  by  the  relative  benefits  it 
provides as it safeguards the functioning and integrity of the internal energy market and 
contributes to security of supply. However, the IGA Decision could be more efficient if 
the  compatibility  check  it  establishes  were  done  ex-ante.  This  would  considerably 
enhance legal certainty and avoid costs for both Member States and the Commission. 

2.3 

Coherence 

The IGA Decision is coherent with a number of measures adopted at EU level to improve the 
functioning  of  the  EU  energy  market  and  to  increase  the  EU's  energy  security.  It  was 
developed in 2012 and complements the Security of Gas Supply Regulation adopted in 20108. 
Moreover, the review of the current IGA Decision is part of the Energy Union deliverables. 
One  of  the  five  mutually  reinforcing  dimensions  of  the  Energy  Union  -  energy  security, 
solidarity  and  trust  –  also  underlines  the  importance  of  the  objectives  pursued  by  IGA 
Decision.  

Overall,  the  IGA  Decision  is  fully  coherent  with  other  initiatives  under  the  Energy 
Union Framework Strategy that have similar objectives. 

2.4 

Relevance 

Significant  infrastructure  projects  continue  to  rely  on  public  support  in  the  form  of  IGAs 
that will need to be agreed or renewed in the coming years.  

In the case of gas supplies, the share of piped gas in total imports from third countries reached 
90% in 2014. The majority of the gas pipelines connecting the EU to its trading partners were 
commissioned between the late 1970s and the late 1990s. With regard to oil, 90% of EU crude 

8 Gas Security of Supply Regulation (EU) 994/2010, OJ L 295, 12.11.2010, p.1 

5 

 
 
 
 
 
 
 
 
 
 
                                                            
oil imports are sea-borne and only 10% arrive via pipeline infrastructure9, for which project 
developers might require an IGA.  With regard to electricity, the share of EU net imports in 
gross  electricity  generation  is  less  than  1%  for  the  EU2810.  Nonetheless,  as  in  the  case  of 
crude oil, some isolated electricity systems in the EU (notably in the Baltic Member  States) 
rely heavily on electricity imported via cables from third countries11. As with gas and oil, the 
relevant connecting infrastructure was constructed several decades ago. In summary, either a 
large share of a commodity at EU level (in the case of gas) or a critical share of a commodity 
for specific EU Member States (in the case of oil and electricity) is imported into the EU from 
third countries via physical interconnections.  

The  construction  of  infrastructure  projects  is  based  on  complex  contractual  agreements 
between  the  project  promoters,  which  are  often  underpinned  by  one  or  several  agreements 
between the producing, transiting and receiving countries. Due to the long time span of many 
IGAs, their renewal and notification is subject to a cyclical effect. Therefore, the fact that the 
Commission  has  only  been  notified  one  IGA  since  2012  does  not  imply  that  it  will  not  be 
notified of new IGAs in future. In addition, it is not the number of notified IGAs that matters 
but  the  importance  of  the  projects  they  underpin,  and  their  compliance  with  EU  law.  With 
respect  to  the  renewal  of  IGAs  for  older  infrastructure,  the  initial  construction-related  risks 
may  also  by  this  point  have  been  mitigated,  meaning  that  it  may  be  all  the  more  important 
now to carry out an assessment of the IGA's compliance with EU law.  

EU import dependency is expected to remain stable or increase over the next two decades12 
(for  fuels,  technology  and  other  materials).  Although  only  a  limited  number  of  new  energy 
corridors are expected to be developed in the coming years, the potential new infrastructure 
involved  in  each  of  them  could  have  an  impact  on  the  entire  European  energy  market.  It  is 
therefore  essential  that  IGAs  related  to  such  infrastructure  be  compatible  with  EU  law  and 
with the EU's diversification policy. Moreover, for new infrastructure projects, the number of 
issues  typically  referred  to  in  IGAs  is  increasing.  As  energy  routes  increase  in  length,  the 
number, legal hierarchy and complexity of IGAs also increases13. For fuels, liability is a major 
issue  that  can  only  be  dealt  with  by  governments  and  nearly  all  network  connections  are 
subject  to  bilateral  or  multilateral  IGAs.  In  the  context  of  this  growing  complexity,  IGAs 
remain relevant, particularly as regards any potential new energy project development carried 
out in the context of the EU's energy diversification policy. 

With  regard  to  IGAs  related  to  the  purchase  of  energy  commodities,  the  way  in  which 
those commodities are imported into the EU internal market has changed over the last decade. 
For  gas  in  particular,  the  preferred  means  of  price  setting  has  shifted  from  long  term  oil 
indexed contracts to a market based mechanism, i.e. hub pricing.  However, the general shift 
towards  gas  market-based  pricing  mechanisms  conceals  the  disparities  that  exist  between 
individual  EU  Member  States.  Whereas  the  situation  in  Member  States  in  Central  and 
Northwestern Europe mirrors the general trend, other regions of the EU – such as Baltics and 
Southeast Europe - have not yet experienced the switch to hub-based pricing. 

9 A number of the refineries in the Baltics and Central Europe rely to various degrees on the Druzhba pipeline 
connecting those regions with production fields in the Russian Federation. 
10 Source: annual data from ESTAT 
11 For instance, Croatia, Lithuania and Latvia import more than 20% of their electricity. 
12 https://ec.europa.eu/energy/sites/ener/files/documents/trends_to_2050_update_2013.pdf , p.49. For more 
information, see Impact Assessment on the Revision of the IGA Decision p. 43. 
13 For instance, a network connection from Baku to the EU under the aegis of the Southern Corridor initiative 
involves up to 20 different agreements, more than half of them being IGAs and "Host Government Agreements" 
(i.e. agreements between governments and companies). 

6 

 
 
 
 
 
                                                            
On  the  basis  of  the  above,  the  Commission's  assessment  is  that  IGAs  will  continue  to 
play  a  key  role  in  the  EU's  energy  sector.  The  IGA  Decision  is  thus  still  relevant  but 
needs to be adapted to the changing nature of energy supplies and routes. 

2.5 

EU added value 

In  terms  of  energy  security,  the  situation  of  Member  States  is  very  diverse.  Europe's  least 
vulnerable areas are those where supplies are available from a substantial number of different 
sources/routes  and  where  there  is  a  functioning  and  liquid  wholesale  market.  The  most 
vulnerable  areas  often  suffer  from  a  lack  of  infrastructure,  needed  both  to  enjoy  a  diverse 
supply  base  and  to  develop  a  functioning  market.  While  liquid  markets  are  found  only  in  a 
limited number of countries, the demand of those countries covers some 80% of total EU gas 
needs.  

This differentiated situation means that different EU Member States have different levels of 
bargaining  power  vis-à-vis  third  countries,  and  different  levels  of  exposure  to  external 
pressure.  The  progressive  integration  of  energy  infrastructure  and  markets  and  the  resulting 
common reliance on external suppliers imply that fundamental political decisions on energy 
taken by one Member State should be discussed with neighbouring countries. The same holds 
true for the external dimension of EU energy policy. The IGA Decision plays a crucial role in 
linking  the  external  dimension  of  energy  policy  (as  it  relates  to  agreements  with  third 
countries)  and  the  internal  dimension  (since  provisions  in  IGAs  that  are  not  compliant  with 
EU law have a negative impact on the functioning of the internal energy market). 

Therefore,  there  is  a  clear  EU-added  value  to  the  IGA  Decision,  as  it  reinforces 
cooperation  and  transparency  at  EU  level  and  contributes  to  the  functioning  of  the 
internal energy market and to security of supply. 

2.6 

Simplification 

The  current  IGA  Decision  establishes  a  relatively  simple  information  exchange  mechanism. 
The main administrative  burden for Member States relates to  the notification process.  IGAs 
can be uploaded electronically and there are no translations requirements for Member States. 
A clarification, rather than a simplification, could be envisaged. Article 3 of the current IGA 
Decision sets the deadline for submission of existing IGAs on 17 February 2013. As this does 
not apply anymore, it could be clarified that the deadline of nine months to carry out the ex-
post  assessment  applies  to  all  new  IGAs  concluded  after  the  entry  into  force  of  the  IGA 
Decision. 

There  is  limited  potential  for  simplification  in  the  current  IGA  Decision.  However  a 
clarification  could  be  introduced  concerning  the  submission  deadline  for  IGAs 
concluded after the entry into force of the IGA Decision. 

7 

 
 
 
 
 
 
 
 
 
3. 

Conclusions 

This report is based on the experience gained by the Commission since the entry into force of 
the  IGA  Decision  in  2012  and  on  the  in-depth  analysis  of  the  124  IGAs  notified  in  this 
context.  It  fulfills  the  Commission's  obligation  to  assess  the  IGA  Decision  as  set  out  in 
Article 8 of that Decision. 

The IGA Decision in its present form is not considered effective. The current provisions 
(and  in  particular  the  ex-post  nature  of  the  compatibility  check)  have  not  resulted  in  the 
transformation  of  non-compliant  IGAs  into  compliant  ones  and  have  not  directly  impacted 
Member  States'  negotiations  with  third  countries.  In  particular,  no  draft  IGA  has  been 
submitted on a voluntary basis for an ex-ante check. 

As regards efficiency and in particular the aspects of cost and cost/benefit, the IGA Decision 
is  considered  reasonably  efficient.  In  particular,  the  costs  associated  with  the  current  IGA 
Decision are justified by the benefits it provides as it safeguards the functioning of the internal 
energy  market  and  contributes  to  security  of  supply.  However,  the  IGA  Decision  could  be 
more  efficient  if  the  compatibility  check  it  establishes  were  done  ex-ante.  This  would 
considerably enhance legal certainty and avoid significant costs. 

The IGA Decision is fully coherent with other EU initiatives and legislative acts. 

On relevance, IGAs will keep playing a key role in the EU's energy sector. The IGA Decision 
is therefore relevant but needs to adapt to the changing nature of energy supplies and routes.  

There  is  a  clear  EU-added  value  to  the  IGA  Decision,  as  it  reinforces  cooperation  and 
transparency  at  EU  level  and  contributes  to  security  of  supply  and  the  functioning  of  the 
internal energy market. 

Finally,  as  regards  simplification,  a  clarification  could  be  introduced  concerning  the 
submission deadline for IGAs concluded after the entry into force of the IGA Decision.  

Overall, this report concludes that the procedures laid down by the current IGA Decision are 
not fully appropriate, with the main procedural issue in this regard being the ex-post nature of 
the compatibility check. 

8