EU Energy and Competition Law: Influence On Russian Trade and Investment Interests

1. EU Energy and Competition Law: Influence On Russian Trade and Investment Interests Ivan Gudkov, MGIMO-University, May, 31, 2013

2. EU-Russia Energy Relations Generally • Interdependent but complex because linked to fixed infrastructure which cross borders: • between different political and legal systems • between holders of different economic interests • between a sovereign state and international organization with evolving distribution of external competences

3. Need for Mutually Agreed Set of Rules • ECT (still unbalanced, under modernization, Russia is outside) • PCA (not energy-specific, out-dated, has to be replaced) • NBA (incl. “energy chapter”, work in slow progress since 2007) • Convention on International Energy Security (work in slow progress since 2010) • Agreement on Cross-Border Energy Infrastructure (work in slow progress since 2011) • Road Map 2050 agreed on March 2013 (but does not set rules)

4. Why no Feasible Progress so Far? • EU: • Agreement possible only on the basis of EU rules (“Energy Community model”); • EU Council mandate is needed for each and every stage of external action. • Russia: • Energy Community model not acceptable because rules shall be mutually elaborated rather than imposed by the partner; • Easier to agree with separate Member States.

5. What Trade and Investment Regime Fits Security of Supply and Demand? • Fair allocation of risks • Regulatory certainty • Attractive rate of return on investments • Possibility of resource-holders to invest • Non-discriminatory approach

6. What are Main Regulatory Challenges? • Intent to change agreed risk-allocation in favor of one party • Threat to existing investments • New entry barriers • Lack of clarity for future investments • Unequal treatment

7. How to Cope with Regulatory Challenges? • Comply with existing international agreements (ECJ decision оf 15.09.2011 in “Commission v. Slovakia”, C-264/09) in light of established practice and political assurances (including Joint EU-Russia Statement of May,2004). • Follow non-interference principle when law enforcement affects vital interests of third states (e.g. Commission decision in case Eastern Aluminium, 1984). • Recognize need for specific treatment of upstream market (principle of sovereignty over natural resources and scarcity rent). • Respect wish of producing countries to maintain traditional upstream gas supply contracts with oil-indexation (GESF Doha Declaration of 15.11.2011). • Use consultations rather than formal procedures in upstream relations with third countries.

8. Conclusion: Way Forward Intelligent solutions need to be found in a spirit of strategic cooperation and mutual benefit. Maximum: agreement on a set of binding rules realistically acceptable for both sides to avoid conflict of laws and ensure predictability of EU-Russia energy relations. Minimum: cautious “investor-friendly” and “non-politicized” application of EU energy rules to upstream market relations involving third countries with a transition period to adapt to changing environment.

9. THANK YOU FOR ATTENTION