Monday, November 25, 2019

EUGC sentence in OPAL lawsuit explained

In a lawsuit opposing the European Commission and Poland on the subjects of the internal gas market and the principle of energy solidarity, the EU General Court (the lower court of the European Court of Justice) ruled in favour of Poland in a September 10 2019 sentence.

The litigation began, when Poland disapproved yet another exception from the rules of the EU-gas-directive granted to the pipeline operator of OPAL in Germany.
OPAL (short for: Ostsee-Pipeline-Anbindungsleitung) is the pipeline that takes natural gas from Nord Stream 1 (operating since 2011) at the feeding point in north german Lubmin and forwards it through eastern Germany and to the Czech Republic.

In 2009 the german national regulatory authority Bundesnetzagentur (BNetzA) made a request to the European Commission for two exceptions from stipulations of the EU-gas-directive to the benefit of the operator of OPAL that was not yet completed at that time.
The requested exceptions concerned the rules on third party access and tariff regulation the EU-gas-directive. Underlying is the problematic issue of the respective shares held by the two owners of the OPAL pipeline:  The Opal pipeline is owned by WIGA Transport Beteiligungs-GmbH & Co. (‘WIGA’, previously W & G Beteiligungs-GmbH & Co. KG, previously Wingas GmbH & Co. KG), which owns an 80% share of that pipeline, and E.ON Ruhrgas AG, which owns a 20% share thereof. WIGA is jointly controlled by OAO Gazprom and BASF SE. The company operating the share of the OPAL pipeline belonging to WIGA is OPAL Gastransport GmbH & Co. KG.
The European Commission approved those exceptions.

In 2013 and after that in 2016 the BNetzA requested adaptions to the exceptions granted in 2009 to the operators of the OPAL pipeline that was completed and operating by that time.
The variation proposed by the BNetzA consisted of replacing the restriction imposed by the original decision on the capacity that could be reserved by dominant undertakings and in consequence increase the capacity of the pipeline.

In October 2016, the Commission adopted the exemption of the OPAL pipeline from the requirements on third party access and tariff regulation.
Poland brought legal proceedings against this decision before the EUGC claiming that this decision violates several principles of EU law and international treaties and therefore should be annulled.

Poland argued that the contested decision infringes the principle of energy security and the principle of energy solidarity. The grant of a new exemption relating to the OPAL pipeline threatens the security of supply in the European Union, in particular in central Europe. In particular, the reduction of the transport of gas through the Yamal and Braterstwo pipelines could lead to a weakening of the energy security of Poland and considerably undermine the diversification of sources of supply of gas.

As regards Article 194(1) TFEU, the Republic of Poland, supported by the Republic of Lithuania, submits that the principle of solidarity referred to in that article is one of the European Union’s priorities in the field of energy policy. According to it, that principle of solidarity obliges both the Member States and the EU institutions to conduct the EU energy policy in a spirit of solidarity. In particular, measures adopted by EU institutions that compromise the energy security of certain regions or in certain Member States, including their security of gas supply, would be contrary to the principle of energy solidarity.
The Republic of Poland points out that the contested decision enables Gazprom and undertakings in the Gazprom group to redirect onto the EU market additional volumes of gas by fully exploiting the capacities of the Nord Stream 1 pipeline. Taking into account the lack of significant growth in demand for natural gas in central Europe, that would, as its only possible consequence, have an influence on the conditions of supply and use of transmission services of the pipelines competing with OPAL, namely the Braterstwo and Yamal pipelines, in the form of a reduction or even a complete interruption of the transmission of gas through those two pipelines.

First, in that regard the Republic of Poland fears that such a limitation or interruption in transmission through the Braterstwo pipeline would have the effect of rendering impossible the maintenance of supply on the territory of Poland through the pipeline from the Ukraine, which would result in it being impossible to guarantee the continuity of supply for clients on the territory of Poland, with consequences, which were apparently not examined by the Commission.

Secondly, taking into account the expiry in 2020 of the contract for the transport of gas via the Yamal pipeline towards western Europe, followed by the expiry in 2022 of the contract for the supply of gas towards Poland via that same pipeline, the Republic of Poland fears that there is a risk of reduction or even of a complete interruption of the supply of gas through the Yamal pipeline, which would have negative effects.

The EUGC ruled that the principle of solidarity “[also] entails a general obligation on the part of the European Union and the Member States, in the exercise of their respective competences, to take into account the interests of the other stakeholders.
As regards, more specifically, the energy policy of the European Union, that policy requires the European Union and the Member States to endeavour, in the exercise of their powers in the field of energy policy, to avoid adopting measures liable to affect the interests of the European Union and the other Member States, as regards security of supply, its economic and political viability, the diversification of supply or of sources of supply, and to do so in order to take account of their interdependence and de facto solidarity.
Having regard to the scope of the principle of solidarity, the Commission was required, in the context of the contested decision, to assess whether the variation to the regime governing the operation of the OPAL pipeline, as proposed by the German regulatory authority, could affect the interests in the field of energy of other Member States and, if so, to balance those interests with the interests that that variation had for the Federal Republic of Germany and, if relevant, the European Union.

However the examination referred to (..,) above was lacking in the contested decision. The principle of energy solidarity was not only not mentioned in the contested decision, but also the decision itself does not disclose that the Commission did, as a matter of fact, carry out an examination of that principle.
And it should be observed that both the examination in the original decision and the supplementary examination in the contested decision concerned only the effect that the putting into service and the increase in capacity actually used of the OPAL pipeline had on the security of supply to the European Union in general. (…) On the other hand, the Commission did not, inter alia, carry out an examination of the impact of the variation of the regime governing the operation of the OPAL pipeline on the security of supply in Poland.

Furthermore it must be observed that the wider aspects of the principle of energy solidarity were not addressed in the contested decision. In particular, it does not appear that the Commission examined what the medium term consequences, inter alia for the energy policy of the Republic of Poland, might be of the transfer to the Nord Stream 1/OPAL transit route of part of the volumes of natural gas previously transported via the Yamal and Braterstwo pipelines, or that it balanced those effects against the increased security of supply that it had found at EU level.

The EUGC consequently ruled that the contested decision must be annulled.

This sentence is a clear win for Poland, Latvia and Lithuania against the EU commission and Germany who supported the Commission although Germany seems to have appealed the decision.

You can find the decision in several languages here.
English version here.

Another interesting opinion from Thierry Bros in Natural Gas World on the solidarity principle:
Beside the unacceptably poor German regulator not being willing to disclose essential data, the real issue is about the EU solidarity mechanism.
With Germany being so reliant on Russia, should other member states, in the event of a gas supply disruption, reduce their industrial gas demand in order to keep German households warm? Is it acceptable that Germany, the wealthiest state in the EU, should rely on others to bear the cost of supply diversification to provide its security of supply?

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