Romanian presidency’s efforts to amend EU gas directive called into doubt

Diane Pallardy

08-Feb-2019

The Romanian presidency of the European Council is pushing for an amendment to the EU gas market directive but its proposals are unlikely to get approved, experts say.

Bucharest proposed to increase the European Commission’s powers, politicize EU regulation and – by doing so – ignored many member states’ concerns, according to several gas industry experts.

Romania submitted two proposals in less than a month, the first one just a week after it took the rotating presidency of the council, the second on 4 February.

Changes

In its second proposal, Romania limited the applicability of the directive up to the territorial waters of member states, as opposed to up to the border of the EU jurisdiction called for in its first proposal.

This would solve the conflict of law with the United Nations Convention on the Law of the Sea that the previous proposal would have generated. International law is applicable in the zone outside member states’ territorial waters, which includes their exclusive economic zone.

However, the second proposal does not allow derogations for existing pipelines connecting EU member states with a third country, which has an obligation to transpose and implement the directive under an agreement with the EU.

This could prevent UK interconnectors with the Continent to apply for derogations should the UK conclude such agreement with the EU post-Brexit, Oxford Energy Institute researcher Katja Yafimava pointed out.


Remaining controversies

The derogation process, as outlined in the second proposal, allows for potential discrimination against certain sources of supply, a paper published by the consulting company Arthur D. Little said.

This is a potential conflict of law with international trading rules, the paper said.

Derogations may be granted to pipelines completed before the date of entry into force of the amendment, which can be discriminatory against pipelines built after this date, and “for objective reasons duly justified” the amendment states.

It is unclear what is considered “objective reasons” and “duly justified”, and who would decide the meaning of these terms, Arthur D. Little said.

The proposal allows member states to grant derogations to existing pipes, while for pipelines completed after the date of entry into force of the amendment an exemption granted by a member state would also have to be approved by the EU commission.

Such discrepancies between the derogation and exemption procedures can lead to discrimination between existing and new pipelines, Yafimava noted.

Should the directive be amended and should regulatory treatment of the Nord Stream 2 and EUGAL pipes change significantly as a result, there would be a strong possibility for prolonged litigation as both of these pipelines have been initiated before Brussels’ proposal and have proceeded under all laws applicable at the time, according to Yafimava. Nord Stream 2 is an offshore pipe set to be completed by the end of 2019 to bring Russian gas to Germany. EUGAL is a German onshore pipe connecting to Nord Stream 2.

“This is a political extension of regulation possibly against international law,” London Energy Consulting managing director David Cox told ICIS referring to the Romanian proposal. “The European Commission could be challenged in the European court and this could go higher,” he added.


Power shift

Bucharest’s proposal gives Brussels the power to block intergovernmental agreements (IGAs) between member states and a third country, and envisages a possibility for Brussels to start negotiating an agreement with the third country itself, Yafimava said.

This would constitute a further competence shift from individual member states to the Commission.

The proposal contains a broad wording for negotiations of IGAs, which would “fall under the exclusive external competence of the Union,” EastWest institute fellow Danila Bochkarev told ICIS.

Brussels can authorise member states to negotiate such agreements with third countries provided they will not be detrimental to the internal gas market, competition or security of supply in a member state or the bloc, or be in conflict with EU law.

“This broad wording allows political intervention in bilateral intergovernmental negotiations […] But are the institutions able to decide what is “detrimental to the functioning of the internal gas market?” Bochkarev said.

The Romanian presidency follows the Commission’s attempts to shift competences from the member states to the EU, which violates sovereignty of member states to choose their energy sources and the structure of their energy mix, Bochkarev said.

The second Romanian proposal is set to be discussed in meeting between EU member state representatives scheduled for 8 February. Diane Pallardy

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