ENERGY: EU 3rd Energy Package Contradicts Croatia-Gazprom Deal

In January, Croatia’s public natural gas network company, Plinacro, and the Russian Oil & Gas giant, Gazprom, signed a contract for the construction of the South Stream pipeline branch from Hungary through Croatia to the Serbian border, valued at €60 million.This contract is an exclusive use contract by Gazprom, which is in contradiction to EU anti-trust policies and the upcoming EU Third Energy Package to be ratified in March 2013; this package will ensure the liberalisation of the distribution of natural gas through the EU, including obligations for EU member states (Directive 2009/73EC, 13 July 2009 concerning common rules for the internal market in natural gas.). Russian energy policy is actively attempting to negotiate exemptions to this energy package, lobbying for the South Stream and Nord Stream pipelines to be exempt from the package.  Their argument is that the pipelines are cross-border cooperation projects. At the same time, the EU position is that exemptions are possible only if Russia calls off its ban on international gas transit through its territory. Gazprom is considering unbundling its operations into 2 companies – production and distribution, in order to avoid the package’s liberalisation measures restricting gas producers from being network operators.

EU member states, Bulgaria and Hungary, have already given the South Stream project the status of a national project and Croatia, as a future EU member state, will be the third EU member state to have a signed contract for the project. EU/Russian negotiations over energy policy will have direct impact over unilateral bilateral agreements, including the contract between Plinacro and Gazprom, which will inevitably be revised according to what is negotiated between the European Commission and Russia. The fact that the South Stream pipeline also includes the European partners, Italy’s Eni, France’s EdF and Germany’s Wintershall, will be integral to Gazprom’s efforts to be exempt from the Third Energy Package, bringing 63 billion cubic meters of Russian gas to Southeast and Central Europe. This case also illustrates Croatia’s need to take into account EU policies before entering into strategic negotiations and contracts, such as the South Stream project.

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