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Sergey Glandin commented on the German bill introducing amendments to the EU Gas Directive

A new German bill bypasses the EU directive

The permission for Nord Stream 2 pipeline installation issued by Denmark in late October does not settle all the issues faced by the project. Gazprom is still to ensure full loading of the pipeline, which is legally impeded by amendments to the EU Gas Directive. The situation may be settled by a new Bundestag bill, which, if adopted, will in essence annul the EU’s strict rules. However Gazprom started simultaneous development of a plan “B” involving establishment of a separate operator company for the pipe’s section in German waters.

On the night of November 8 Germany’s ruling coalition of CDU/CSU and SDP are going to vote for amendments, which will de facto mitigate all risks faced by Nord Stream 2 related to introduction of amendments to the EU Gas Directive. These amendments adopted in spring subject the project to the rules of the third package on unbundling, which may result in low loading of the gas pipeline. The EU Gas Directive is binding on all member states, but leaves means of its application to their discretion.

Thus, members of parliament propose amendments to the Energy Law, which annul the key provision of the EU directive stating that only pipelines commissioned before May 23, 2019 can be easily exempt from the third energy package. Nord Stream 2 is likely to be commissioned in the first months of 2020, which wouldn’t make it eligible for exemption.

Amendments to the EU Gas Directive are to concern the 12-mile section of the pipeline situated in German territorial waters. Compliance with the requirements of the Third Energy Package means that the pipeline has to have transparent tariff setting, a non-Gazprom operator (and now the operator is Nord Stream 2 AG, which is 100% controlled by the monopoly), and access to facilities has be to granted to third parties. But in practice no other company apart from Gazprom can connect to this pipeline installed at the bottom of the sea.

MPs justify their stance by the fact that of the moment of introduction of amendments to the EU directive investments into Nord Stream 2 had already been completed, and that is more important than the commissioning deadline.

The project worth €9.5 bn was funded, among others, by two German companies, Uniper and Wintershall. Bundestag’s Committee on Economic Affairs and Energy recommended adoption of the bill.

But even if the bill is approved, it's still unclear whether the European Commission, which has been the main advocate of changes to the Gas Directive, or other EU countries, will contest these relaxations for Gazprom. The head of Gas and Oil Market Department of German Finance Ministry Stefan Rolle quite elusively told Bloomberg on November 7 that at the moment he sees no opportunity to completely exempt Nord Stream 2 from the requirements of the EU Gas Directive. ‘It’s not 100% certain, that BNetzA (German Federal Network Agency — Kommersant) will pass a negative decision on exemption, but I would say, it’s quite likely, that they cannot pass a positive one with regard to this matter,’ the official told the agency, pointing out that the German domestic legislation may not go against European norms. At the same time, according to him, Gazprom should consider creating an independent operator for the 12-mile section of the pipeline.

As reported by Handelsblatt, Gazprom has already started developing this alternative option by establishing a separate operator company.

As reported by the newspaper, it will be trusted with management of the last 12 miles of the pipeline in German territorial waters and then sold to a third party. Gazprom has not commented on the issue to Kommersant.

As explained by Lawyer Sergey Glandin, Special Counsel of Pen & Paper Attorneys at Law, the matter of adoption of the Gas Directive concerns the common EU market, which is why the European Commission may initiate the EU treaty infringement procedure. At the same time other EU members, as noted by the lawyer, may not initiate this dispute, as the EU law does not provide for that, and the principle of sovereign equality and non-intervention into internal affairs directly prohibits to contest a domestic German regulation.