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Presidential decree to help Gazprom in standoff with European Commission

September 12, 2012, 16:20 UTC+3 Alexandrova Lyudmila

MOSCOW, September 12 (Itar-Tass) —— Russian President Vladimir Putin on Tuesday offered his response to the European Union’s anti-monopoly investigation the European Commission has launched against Gazprom. He signed a decree obliging all strategic enterprises to agree their foreign economic activity with the government. The measure encompasses amendments to treaties and the sale of assets. This means that the price of gas being supplied to Europe will now be set in the “manual” mode.

Experts believe that the decree, signed for the purpose of protecting Gazprom from likely intervention by the European authorities in its affairs, will bring about no changes in the day-to-day operation of the Russian gas monopoly, but will give extra leverage to Russian strategic companies. Besides, the document in its current form may contradict a number of international agreements to which Russia is a signatory.

Alongside Gazprom the list of strategic enterprises includes Rosneft, Transneft, Zarubezhneft, the railways company RZD, the airlines Aeroflot, Inter RAO, and Rushydro, Sovcomflot and a number of defense holding companies and their joint ventures. From now on these enterprises and their subsidiaries will be allowed to disclose information about their activity at the request of the foreign countries’ authorities and international organizations solely with the consent of a federal body of executive power. Which one the Russian government will decide within a month. The same rules will be effective in case of the need for making amendments to the contracts of a Russian strategic company with a foreign one, and to other documents concerning their commercial (pricing) policy in other countries.

“The decree is connected with the European Commission’s investigation of Gazprom and the searches of its subsidiaries in Europe that preceded it. Nothing of the sort will happen again,” a Kremlin official told the RBC Daily.

The European Commission suspects Gazprom of three types of offences on the EU markets: splitting gas markets, hindering free gas supplies to the EU countries, obstructing the diversification of supplies and setting unfair prices pegged to oil prices. Respectively, the European Commission’s regulatory decision may require that Gazprom and its subsidiaries should disclose all information about their transactions in the European Union, allow the re-export of gas within the EU, terminate the peg of the gas price to that of oil and, possibly, offer the European consumers new discounts or sell up some of its assets in the EU. The decree prohibits Gazprom from acting on any verdict the European Commission is yet to pronounce without the Russian government’s consent.

In the meantime, several Western companies - Germany’s RWE, Poland’s PGNiG, Shell Energy Europe, Centrex, Switzerland’s EGL, the Netherlands’ GasTerra, and Denmark’s DONG - are in consultations with the Russian gas concern over likely discounts. Changes to prices will have to be agreed with a special authorized agency, Gazprom’s spokesman, Sergei Kupriyanov, said on Tuesday. Gazprom CEO Alexei Miller has already stated that the European consumers of Russian gas demanding discounts from Gazprom “should not be coming to us any more.”

Incidentally, lawyers do not doubt that the decree may yield real benefits to Gazprom. As East European Gas Analysis Director Mikhail Korchyomkin has told Vedomosti, the decree spells no big change for the company. Possibly, Gazprom will have one more excuse for procrastination. Lawyer Ilya Rachkov believes that if Gazprom refuses to disclose information and cooperate with the investigation, it will have to brace for a backlash. The European Commission will have to make a decision on the basis of information provided by one side, for instance, Poland or Lithuania.

Yuli Tai, of the legal firm Bartolius, believes that the decree is a temporary measure for postponing action on the EC’s demands addressed to Gazprom. The very structure of the decree looks doubtful: the decree limits the autonomy of a legal entity, while the Civil Code of the Russian Federation allows for imposing such restrictions solely under federal laws. He believes that the decree may run counter to a number of international conventions, which, according to Russian legislation, enjoy supremacy over decrees – the New York purchase and sale convention, the Vienna convention on international sales contracts and bilateral inter-governmental agreements on the protection of foreign investments.

The decree will not make significant changes to the operation of Gazprom, but it will enhance the perception of Russia as a country where everything is operated in the manual mode. For this reason investors’ reaction to the introduction of government coordination procedures may be negative, the chief of the analytical department of UniverCapital, Dmitry Alexandrov, has told the RBC Daily.

The decree has caused bewilderment, almost anger in almost all strategic companies, but for Gazprom, says the daily Kommersant. Their subsidiaries operating in Europe will have to struggle their way through the requirements of the Russian and European authorities.

“By and large all operating companies are affiliates of Russian ones. They are registered in Europe and cannot afford to defy the local bodies of power,” the daily learned from a source responsible for providing legal support for one of the public companies’ business outside Russia.

 Presidential press secretary Dmitry Peskov explained why the operation of the decree was not confined to Gazprom alone, but should be spread to all strategic enterprises. He said, “At the moment the decree is beneficial to Gazprom, because the EC has taken certain action against it. But many strategic enterprises are involved in international activity. Hypothetically, they may find themselves in a situation where their interests may be harmed. The state has certain shares in the strategic companies, so the interests of the Russian state may be affected, too.”