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EU insists Russia should open its gas pipelines

Despite strong opposition from President Vladimir Putin, the European Union's Competition Commissioner said Friday that Russia must grant access to its gas pipelines for European energy companies as part of a new partnership agreement being negotiated between Brussels and Moscow.

„We are seeking a level playing field, a win-win for both sides,” said the commissioner, Neelie Kroes, in Berlin after holding talks with German officials over how to establish a single European market for electricity and energy. „As competition commissioner, I support and will continue to support a situation where both sides have access to each other's grids.” Putin is not the only one resisting opening markets to competition, as Kroes continues her effort to introduce more rigorous competition in European Union countries and to breakup energy monopolies. Some of Europe's largest energy companies, including Wintershall, RWE and E.ON Ruhrgas, all of Germany, are resisting plans by the Commission to allow other companies to enter their distribution networks and increase competition in this sector. „New players need access to energy supplies, to the network and to customers,” Kroes said. „Yet they run up against three interlinked structural problems.”

Putin and senior officials in Gazprom, Russia's state-owned gas monopoly, have resisted calls by the EU to allow foreign energy companies access to Russia's vast pipeline network, which would allow them to transport gas from parts of Central Asia to markets in Europe. The Kremlin said it regarded its gas pipelines as strategic assets and it was not prepared to open them to any kind of competition. Under current arrangements in Russia, any domestic or foreign company that wants to send gas to Europe can only use the Russian pipelines if they sell their gas to Gazprom. In many cases, those prices are set not at world market prices but at domestic levels, which are still heavily subsidized by the Russian government.

Kroes said that she would insist that when the EU starts negotiations with Russia for a new partnership and cooperation agreement to replace the current deal expiring at the end of 2007, the energy charter must be included. The charter calls on Russia to give third parties access to its pipelines. The partnership agreement covers a range of issues including security, energy, bilateral trade, air traffic control and other political and economic issues of common interest. Kroes cannot single-handedly halt the agreement, as it will be decided by the 27 member states of the EU, but she can exert significant pressure to have the energy charter included. And any individual state can veto the start of the bilateral negotiations.

Chancellor Angela Merkel of Germany, who currently holds the EU's rotating presidency, said that she wanted to try to begin the negotiations with Moscow before July 1, when Portugal takes over the presidency. While Merkel supports the energy charter, many government officials in Berlin do not think that Putin will budge on this issue. Kroes even suggested that large European energy companies were not pushing hard enough to gain access to Russia's pipeline system, since they had struck up their own relationships with Gazprom based largely on mutually beneficial deals that fail to enhance a single European energy market. Once complete, Kroes said the single market would make prices more transparent. Consumers would also have more choices for their suppliers, and European industry could become more competitive as a result of cheaper energy.

By taking advantage of the liberalization of the European energy sector, Gazprom itself has already forged deals with French, German and Italian companies that allow it to enter their distribution networks in order to sell Russian gas directly to European consumers. Kroes said these arrangements had not led to more competition. She said that the contracts and the gas prices were not transparent, and that the entry of Gazprom into the distribution markets was in no way leading to „unbundling,” or the breakup of production, distribution and supply chain divisions of the incumbents. „These European companies agreed these contracts with Gazprom because they were based on swap deals,” Kroes said. „Gazprom can enter the European market if a European company can do some production in Russia.” Kroes added that many energy markets are still highly concentrated, and that there is an absence of cross-border integration and competition. „The energy market is not transparent,” Kroes said. „It is blocked at the border.” (