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Topical Issues Of Development Of The Energy Law In The European Union: Discussion Concerning The Nord Stream-2 Project (Part 1)
 
PIIS231243500021980-6-1
DOI10.18572/2410-4390-2018-2-80-84
Publication type Article
Status Published
Authors
Ivan V. Gudkov 
Occupation: Assistant Professor of the Department of Legal Regulation
Affiliation: International Institute of Energy Policy and Diplomacy of the MGIMO University
Address: Russian Federation, Moscow
Journal nameEnergy law forum
EditionIssue 2
Pages80-84
Abstract

The Nord Stream-2 offshore pipeline project supported by a number of key Western European member states of the European Union (hereinafter referred to as the EU) and their major energy companies faces political opposition on the part of the European Commission (hereinafter referred to as the Commission), which shares a loudly articulated critical position of a group of the Baltic States and the countries of Eastern Europe. [1] Political opposition is expressed in a variety of declarative statements and appeals but has no legal effect, and in practical terms it is not able to prevent the construction of the relevant infrastructure. In view of this circumstance, the Commission tries to have such a regulatory impact on the project so that at least the relations with regard to its operation would fall within its sphere of influence so that it could participate in determining the parameters of its functioning. Initiatives of the Commission are thoroughly verified by the legal services of both the Commission itself and other institutions of the European Union (including the Council of the European Union) for compliance with the principles and rules of the applicable law. The main task of the verification is to prevent adoption of inappropriate measures that can be successfully challenged in the courts. Opinions of the legal services enjoy considerable authority although they are not mandatory for EU institutions, and they are usually given the most serious consideration in decision making. The conclusions formulated by the legal services of the EU institutions in verification of the measures proposed by the Commission in connection with the Nord Stream-2 project are beyond the scope of this particular project in terms of their significance, and they seem very important for understanding the scope of the EU energy law as a whole and the content of a number of its essential provisions in particular. The first three sections of this article provide an overview of the key findings formulated by the legal services of the EU institutions in verification of the Commission’s initiatives related to the Nord Stream-2 project. This article reflects the author’s personal point of view and does not represent the official point of view of any institution or organization.

Keywordsenergy law, energy law of the European Union, international legal regulation, gas pipeline, Nord Stream-2
Received06.05.2018
Publication date30.06.2018
Number of characters11311
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1 Inapplicability of the TEP to Offshore Pipelines between the EU and Third (Non-EU) Countries The Commission (or rather its profile Directorate General for Energy) initially tried to justify application of the current EU energy laws to the Nord Stream-2 project. [2] It insisted that the project falls under the Third Energy Package of the EU (hereinafter referred to as the TEP) and, accordingly, must comply with the general requirements of the EU Third Gas Directive on the Separation of Vertically Integrated Enterprises, Operator Certification, Third-Party Access and Tariff Regulation. [3]
2 In practical terms, the subordination of the project to these standards could create certain difficulties for attraction of external financing for construction (due to the requirements for access of third parties and regulation of tariffs), and at the operational phase, it would make it impossible to maintain the existing ownership structure (due to the requirements for separation and certification). [4]
3 At the same time, the project would be deprived of the opportunity to obtain an individual investment incentive exemption from the general TEP regime since Article 36 of the Third Gas Directive currently in effect makes it possible to issue relevant exemptions only to new large network infrastructure facilities such as “interconnectors”: pipelines connecting the EU member states with each other, but not with third countries.
4 The intention of the Commission to apply the TEP to the project encountered justified criticism of the legal services of the Commission itself1 [5], the Council of the EU2[6] as well as the Federal Network Agency of Germany — the energy regulator of the EU member state accepting the project. [7]
5 The essence of the criticism was that the TEP cannot and should not regulate offshore pipelines for gas import from third countries since the literal interpretation, the purpose of adoption, and the established practice give evidence of its inapplicability to this kind of gas transportation infrastructure. [8]
6 Initiative to Conclude International Treaty: Attempt to Agree on Extraterritorial Operation of the TEP Principles
7 Having been forced to acknowledge the inapplicability of the TEP to the project [9], the Commission proceeded to the next step: proposed to conclude a special international treaty between the European Union and Russia that would regulate relations with regard to operation of Nord Stream-2 (hereinafter referred to as the international treaty).
8 The draft mandate for negotiations, which the Commission requested from the EU Council in June 2017, indicated the main objective of this treaty: “to ensure a consistent regulatory regime that promotes market functioning and reliability of supplies to the EU”.
9 To achieve this goal, the Commission planned to incorporate in the international treaty provisions that extend the key principles of the TEP (separation, access of third parties, tariff regulation) to the operation of the pipeline, which, in its opinion, is necessary to eliminate the “legal vacuum” or “conflict of laws”.
10 Moreover, the Commission proposed to include measures “mitigating” the “potentially negative impact of the project on the market” and contributing to the reliability of gas supplies in the international treaty.
11 The negative impact is understood by the Commission as the replacement of existing routes for gas supply to the EU with a new “dominant transport corridor” that can strengthen the market position of the Russian gas supplier. Accordingly, the Commission refers the “conservation of longterm transit of gas through the existing routes, including through Ukraine, after 2019 (when the current contract for transportation of Russian gas through Ukraine expires – author’s note)” to “mitigating measures”. Specific rules that should be included in the international treaty for practical implementation of these “mitigating measures” have not been formulated by the Commission.
12 Having analyzed the draft mandate submitted by the Commission, in September 2017, the legal service of the Council of the EU issued an opinion which disposed of the key arguments of the Commission and recognized the absence of a legal need to conclude the international treaty. [10]
13 In particular, the legal service established the absence of the “legal vacuum”, “conflict of laws” and the lack of evidence of a causal link between the measures requested by the Commission and the relevant objectives of the EU energy policy.
14 In its turn, Russia announced its lack of intention to negotiate with the EU on the international treaty, and without its consent this initiative could not be implemented. [11]
15 Initiative to Amend the TEP: Simulation of “Conflict of Laws” and Expansion of the EU Competence Having faced the blocking of the proposed international treaty on Nord Stream-2, the Commission did not withdraw the draft mandate from the EU Council but exerted additional efforts to make it feasible.

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3. Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC.
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9. Peker E. EU Says It Can’t Block Russia-Backed Nord Stream 2 -EU’s executive arm proposes negotiations with Moscow to ease the security concerns of some member states // The Wall Street Journal. March 30, 2017.
10. Yafimava K. The Council Legal Service’s assessment of the European Commission’s negotiating mandate and what it means for Nord Stream 2. OIES. October, 2017. // https://www.oxfordenergy.org/wpcms/wp-content/up-  loads/2017/10/The-Council-Legal-Services-assessment-of-the-European-Commissions-negotiating-mandateand-what-it-means-for-Nord-Stream-2.pdf.
11. Vladimir Chizhov: Russia will not Negotiate with the EU on Nord Stream-2 // TASS. October 27, 2017.
12. Proposal for a Directive of the European Parliament and of the Council amending Directive 2009/73/EC concerning common rules for the internal market in natural gas // COM (2017) 660 final.
13. Gudkov I.V. Exemptions from the General Legal Regime as a Means for Attraction of Investments in New Projects of Gas Infrastructure in the Territory of the European Union. Energy Law Forum. 2016. № 2 .
14. Explanatory Memorandum. COM (2017) 660 final.
15. Gurzu A. Council legal service shoots down Commission gas proposal // Politico. March 5, 2018; Gotev G. EU Council removes Nord Stream 2 legal hurdles // Euractive. March 5, 2018; Gurzu A. Commission’s gas proposal would take power from EU countries // Politico. March 27, 2018.
16. St. Vincent and the Grenadines v. Guinea. Judgement of 1 July 1999. ITLOS Reports (1999), para 131.
17. Judgement of March 29, 2007, Case C-111/05 Aktiebolaget NN v. Skatteverket // EU:C:2007:195, para 59. The legal service also used references to the following EU court decisions: Judgement of October 20, 2005 Commission v. UK. Case C-6/04 // EU:C:2005:626, paras 115-117; Judgement of February 27, 2002 Herbert Weber v Universal Ogden Services Ltd. Case C-37/00 // EU:C:2002:122, paras 31-36. Judgement of March 19, 2015 Kik. Case-266/13. // EU:C:2015:188, para 41.

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