Sunday, May 24, 2020

Nord Stream 2: is the BNetzA about to jink to save the pipeline?

One should not interpret recent media reports to the effect that the Nord Stream 2 project is in peril, writes Alan Riley. The German energy regulator the Bundesnetzagentur (BNetzA) it is reported may not grant Nord Stream 2 a derogation from EU energy liberalisation regime, contained in the gas directive 2009. Such a failure to obtain a derogation from the BNetzA, even if that is its final decision, is likely to prove far from fatal to Nord Stream 2.

"It is therefore possible that the entire focus on the derogation procedure over the last few months, and the media reports that the BNetzA does intend to adopt to grant a derogation to the pipeline is all part of a bait and switch operation. Emphasise over several months the prospect of a derogation being granted, at the last moment, pull the prospect of a derogation and instead take a decision that looks like compliance with EU law. In reality the new decision does not comply with Union law either but it is not a derogation decision. As a consequence although it also seeks to subvert Union law, it will not immediately bring down the full weight of the EU infringement procedure upon the BNetzA and the government in Berlin.

There are a number of options for Nord Stream 2 for something that looks like a measure that complies with EU law, but is really nothing of the sort. For example, last year before the discussion surrounding the derogation procedure took hold there was a discussion amongst advocates of the Nord Stream 2 pipeline that one option would be to focus application of EU law solely to the ‘stub’ of the pipeline. The stub is the 55km of pipeline solely in German territorial waters. The stub argument is essentially that EU law only applies to the pipeline in EU territory, the rest of the pipeline remains free of Union law and can be owned and controlled by Gazprom.

The stub would be fully compliant with EU energy liberalisation law and in particular the EU’s gas directive. There would even be no need for an exemption as that part of the pipeline will be subject to ownership unbundling. The pipeline would be owned by a EU owner unconnected with Nord Stream 2 and Gazprom. It would comply with third party access rules. However, no one but Gazprom would be able to access the stub from international waters and it would set a transparent tariff regime but conscious it would have only one source of supply from Gazprom.

Such a ‘stub’ project would be a legal sham. There is only one single pipeline running from Russian Federation territory to German territory. It was designed, planned and route permits were obtained on the basis of it being one pipeline. The majority of the pipeline outside German and EU territorial waters has no purpose or value save in relation to the physical connection with that part of its pipeline within EU territory. One can legitimately apply the territoriality principle in allocating jurisdiction in public international law as a consequence of the pipeline’s fixed connection to infrastructure in EU territory permitting the full application of Union law to the pipeline.

However, from a PR perspective opting for the stub approach has the merit of being more easily able to defend in the media. It is much easier for the German authorities to present the application of EU law to the stub as reasonable application of Union law, than participate in what would amount to an overt breach of Union law, by granting an unwarranted derogation to Nord Stream 2.

Applying EU law to the stub would create a legal framework to the pipeline which can then be defended over the next few years through the EU’s judicial hierarchy. In parallel, the pipeline can be completed and can be functioning. The facts on the ground will have been put in place with the aim of then minimising any subsequent application of Union law to an already functioning pipeline."

You can read the rest of the very interesting piece via the below link:



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