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:

https://icds.ee/nord-stream-2-preparing-for-the-bait-switch/

 

 

EGC dismisses Nord Stream 2 actions against EU-gas-directive

The General Court of the European Union declares that the actions brought by Nord Stream AG and Nord Stream 2 AG against Directive 2019/692, which extends certain rules of the internal market in natural gas to pipelines from third countries, are inadmissible.

Those companys objected to provisions of the EU-gas-directive "that those operators have, inter alia, an obligation to unbundle transmission systems and transmission system operators and to introduce a system of non-discriminatory third-party access to gas transmission and distribution systems on the basis of published tariffs." 

"The General Court finds that they are not directly concerned by the amending directive. 

Indeed, it is only through the intermediary of the national measures transposing that directive that the Member States will adopt or have adopted that operators such as those who have brought the actions in question will be or are subject (under the conditions agreed on by those Member States) to obligations under Directive 2009/73, as amended. 

Regarding the national transposing measures which are intended, as from 24 February 2020, to make the obligations under Directive 2009/73, as amended, binding with regard to operators, the Member States have a margin of discretion. 

Moreover, according to the amending directive, the national regulatory authorities may, under certain conditions, decide to grant exemptions or derogations from certain provisions of Directive 2009/73, as amended, to major new gas infrastructure, on the one hand, and to gas transmission lines between the Member States and third countries completed before 23 May 2019, on the other. For the purposes of implementing those provisions, the national regulatory authorities have a wide discretion as regards the grant of such exemptions or derogations and any specific conditions to which those exemptions or derogations may be subject. 

Regarding Nord Stream AG, the General Court finds, in addition, that it is also not individually concerned by the amending directive. 

In that regard, the General Court notes, inter alia, that Nord Stream AG did not have a right to operate and/or continue to operate the Nord Stream dual pipeline system free from any regulatory constraints of the EU, at the very least as regards the part of that gas transmission line located in the territory of the EU, in this instance in the territorial sea of a Member State. 

Thus, the fact that, when the amending directive was adopted, Nord Stream AG was part of a limited, identified or identifiable, circle of operators concerned by the extension of the territorial and/or material scope of Directive 2009/73 does not permit a finding that it is individually concerned by the amending directive. Indeed, it is common ground that the amending directive is applied by virtue of objective criteria defined by the EU legislature, including the criterion requiring gas transmission lines in respect of which certain derogations have been requested to have been completed before 23 May 2019, the date on which the amending directive entered into force."

You can find the press release of the EGS via the below link:

https://curia.europa.eu/jcms/upload/docs/application/pdf/2020-05/cp200062en.pdf 

Nord Stream 2: Gazprom's options after denial of exemptions by BNetzA

An interesting analysis of the options left to Gazprom after it is clear that the Nord Stream 2 pipeline will have to comply with the EU-gas-directive:

"Germany’s regulatory office Bundesnetzagentur announced it decided not to award derogation to Nord Stream 2, a gas pipeline connecting Germany and Russia, from the amended EU Gas Directive. According to the law, gas pipelines from outside of the EU that were not completed before 23 May 2019 need to have an independent operator, independently set tariffs and provide access to third parties. Gazprom, which owns the operator of the NS2 project, tried to argue that investment decisions about the pipeline had been made before 23 May last year, which meant the project had been somehow completed from the point of view of financing. Germany decided the gas pipeline had not been finished, which, by the way, was in line with common sense because a gas pipeline that does not connect point A to B cannot transmit gas, and Nord Stream’s Danish section is still under construction and is waiting for a permit from the Danish Energy Agency. The wait may be long, as the Agency had already delayed the project in the past when it took its time to make a previous decision. However, Russia may question the BnetzA ruling in court, similarly to what Poland’s PGNiG wanted to do if the decision had been in favor of Nord Stream 2. The court case may take place while the gas pipeline is allowed to operate, or not. This remains to be seen.

BnetzA’s decision means Nord Stream 2 AG will have to implement EU regulations with regard to the disputed pipeline. This is a hard nut to crack for Gazprom and a conflict between Russian and EU law. Russia granted Gazprom legal exclusivity over gas exports via gas pipelines, including Nord Stream 2, so it does not offer access to its pipelines to third parties. Additionally, Gazprom owns NS2 AG and is the pipe’s only gas provider, which means it would be responsible for setting tariffs. This goes against ownership unbundling required by the EU law.

Now Gazprom may either sell the pipeline, or hand over its operation to an “independent” company, that would guarantee fair transmission tariffs. Since Nord Stream 2 AG has a full share ownership it is not allowed to be the operator, but it remains to be seen whether this role could be played by a daughter company of the giant from Petersburg, which would hold a minority share. Perhaps the Russian-German company Gascade could become the pipe’s operator. Gascade is a joint venture of Gazprom and BASF that operates gas pipelines in east Germany, including OPAL, which is an onshore extension of Nord Stream, and EUGAL (in construction), an onshore leg of Nord Stream 2."

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

https://biznesalert.com/russia-eu-law-nord-stream-2-derogation-gas-directive/ 

German Federal Network Agency: no derogation from gas directive for Nord Stream 2

https://www.bundesnetzagentur.de/EN/Service-Funktionen/RulingChambers/Chamber7/BK7-20-0004EN/BK7-20-0004EN.html?nn=269738The Federal Network Agency of Germany (Bundesnetzagentur) has decided in a decree yet to be published that it won't grant any derogation from the EU-Gas-directive to the controversial Nord Stream 2 pipeline:

"The Bundesnetzagentur has today rejected the application of Nord Stream 2 AG for derogation from regulation for the section of the Nord Stream 2 pipeline located in German territory.

Pipeline not completed

The section of a gas interconnector involving a third country located in German territory can be granted a derogation from regulatory requirements upon application and under certain conditions. For this, it is necessary that the gas interconnector was completed before 23 May 2019.

Since the Nord Stream 2 pipeline had not been fully laid by 23 May 2019, the Bundesnetzagentur has rejected the application for derogation made by Nord Stream 2 AG. When it is put into operation, therefore, Nord Stream 2 will be subject to German regulatory requirements and European rules on unbundling, network access and cost regulation.

The responsible ruling chamber of the Bundesnetzagentur understands the term "completion" in a constructional/technical sense. The applicant, by contrast, believes it to mean completion in an economically functional sense and refers to the investment decision, which was made well before 23 May 2019.

Nord Stream 2 AG can appeal and have today's decision examined before a court.

Responses to the proceedings

All European Union Member States had the opportunity to examine Nord Stream 2 AG's application, with its annexes, and to submit a response. Responses to the consultation were taken into account in the decision, as was the joint statement submitted by PGNiG S.A. and PGNiG Supply & Trading GmbH, which were summoned to the proceedings upon application in a decision of 18 March 2020.

Neither any of the Member States nor the parties summoned shared the viewpoint of Nord Stream 2 AG as regards the term "completion".

Background

Since the amendment of the Gas Directive 2009/73/EC, the European regulatory provisions have also applied to interconnectors between a Member State and a third country. The new European provisions were transposed in the German Energy Industry Act (EnWG), which entered into force on 12 December 2019.

Subject to the conditions of the amended section 28b EnWG, the section of a gas interconnector with third country involvement located in German territory is to be granted a derogation from regulatory requirements provided it was completed by the relevant date and the other conditions under subsection 1 of the provision have been met.

A version of the decision from which confidential information has been removed will be published shortly at www.bundesnetzagentur.de/BK7-20-004 under the file number BK7-20-004.."

More information to come on the site of the Bundesnetzagentur.

https://www.bundesnetzagentur.de/SharedDocs/Pressemitteilungen/EN/2020/20200515_NordStream2.html;jsessionid=D3E9ED2D32B0B4F2C4D2206AFCD3B401?nn=265794

Germany rejects exemptions from EU-gas-directive for Nord Stream 2

TASS: Nord Stream 2will not be exempted from EU-gas-directive and will need to comply with EU regulations that might delay the project and undermine its feasibility.

https://tass.ru/ekonomika/8479385

Poland: parliament implements EU-gas-directive; thwart Nord Stream 2

Biznesalert writes:

"On May 13, 2020, the Act amending the Act – Energy Law and the act on the promotion of electricity from high-efficiency cogeneration, adopted unanimously in the Sejm and Senate, comes into force. It introduces the provisions of the revised gas directive into Polish law. The amended Act aims to implement into the Polish legal order the provisions of the amended Gas Directive, adopted after two years of efforts by the coalition of member states built by the Polish Government. Climate Minister Michał Kurtyka argues that the adopted changes allow the use of gas pipelines from third countries (e.g. disputed Nord Stream 2) the most important pillars of EU law.- This means the end of preferential treatment of gas infrastructure from third countries and its functioning in legal vacuum – said Michał Kurtyka in the Ministry’s announcement."

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

https://biznesalert.com/poland-gas-directive-nord-stream-2-energy-pern-oil/

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.