Gazprom and commitments to the European Commission

The recent Gazprom commitments given to the European Commission (Commission) under the EU competition law rules illustrate a number of important issues in relation to competition law commitments.

An abuse of a dominant position is prohibited under the Competition Act 2002 (as amended) (Competition Act). This is whether or not the abuse of dominance is confined to Ireland or where it has an effect on trade between Member States and thus breaches Article 102 of the Treaty on the Functioning of the European Union (TFEU). There have been few cases so far in Ireland where an abuse of dominance has been successfully pleaded before the Irish Courts. Only the Irish Courts can make a legally-binding decision that there has been such an abuse of dominance under the Competition Act. The Irish competition law regulator (i.e. the Competition and Consumer Protection Commission (CCPC)) can only investigate such a breach and has no decision-making powers though has accepted "commitments" in return for the CCPC closing an abuse of dominance-related investigations. The CCPC can go to the Irish High Court to have any such agreement involving commitments made an order of the High Court (a breach of which constitutes contempt of court).

Fines of up to 10% of worldwide turnover can be imposed on companies that abuse a dominant position under the Irish and EU competition rules. However, the Commission has a strong and effective decision-making process to police abuses of dominance that are committed in breach of Article 102 TFEU and which can fall short of having to impose such fines. The recent Gazprom case is a striking example of the Commission's role in that regard. Under Article 9 of Regulation 1/2003, the Commission can accept binding commitments offered by the undertakings concerned to address a possible infringement of 102 TFEU (and Article 101 TFEU regarding alleged anti-competitive agreements).  

The Commission was concerned that Gazprom (which produces and supplies natural gas) had divided gas markets, prevented the diversification of the supply of gas and imposed unfair prices and therefore had abused a dominant position (in breach of Article 102 TFEU) in Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia. While Gazprom disputed the Commission's preliminary assessment, it offered commitments pursuant to Article 9 of Regulation 1/2003, to address the Commission's concerns. Following consultation, the Commission has accepted these commitments on 24 May and these commitments will bind Gazprom. A point made again by the Commission is that the EU competition law rules apply even if the conduct is caused by an undertaking outside the EU.

According to the Commission, the Gazprom commitments:

  • Are designed to ensure the removal of obstacles to the free flow of gas in Central and Eastern Europe;
  • Require Gazprom to take positive steps to further integrate gas markets in the region in light of the internal market for energy in Europe; and
  • Ensure Gazprom customers in Central and Eastern Europe pay a competitive price for gas.

Gazprom's commitments (emphasised by the Commission in its press release as being "obligations") in relation to the Central and Eastern European gas markets are:

  • No more contractual barriers to the free flow of gas: Gazprom is required to remove any restrictions placed on customers to re-sell gas cross-border.
  • An obligation to facilitate gas flows to and from isolated markets: Gazprom will enable gas flows to and from parts of Central and Eastern Europe that are still isolated from other Member States due to the lack of interconnectors, namely the Baltic States and Bulgaria.
  • A structured process to ensure competitive gas prices: Relevant Gazprom customers are given a tool to make sure their gas price reflects the price level in competitive Western European gas markets, especially at liquid gas hubs.
  • No leveraging of dominance in gas supply: Gazprom cannot act on any advantages concerning gas infrastructure, which it may have obtained from customers by having leveraged its market position in gas supply.

Combined, these obligations address the Commission's competition issues and achieve the Commission's stated objectives of enabling the free flow of gas in Central and Eastern Europe at competitive prices and are legally binding on Gazprom under Article 9 of Regulation 1/2003. Any breach of these obligations can lead to a fine of up to 10% of the company's worldwide turnover without having to prove an infringement of EU competition law rules. The Commission's investigation into Gazprom has been extensive and long-standing.

Comment: The case is a clear indication by the Commission that the energy market remains a top priority and the importance it places on the application of the EU competition law rules to the energy market. The CCPC has developed its own system for investigating possible abuses of dominance and then agreeing to stop such investigations in return for commitments by the companies under scrutiny to change behaviour. Often the fact of the commitments is sufficient for the CCPC. To be legally binding, the CCPC must apply for an order of the High Court regarding that agreement. Breach of such a High Court order constitutes contempt of court. Such applications by the CCPC have so far been rare in practice and ultimately may not be necessary assuming a willingness on the part of companies to avoid any further investigation by the CCPC.

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For further information, contact Alan McCarthy, Partner, or any member of the EU, Competition & Procurement team at A&L Goodbody.

Date published: 29 May 2018