Poland hits Gazprom with $7.6 billion fine over Nord Stream 2 project

Warsaw — Poland's anti-trust authority has imposed a fine of more than Zloty 29 billion ($7.62 billion, Eur6.48 billion) on Russia's Gazprom for building the Nord Stream 2 gas pipeline without its approval, in a move likely to send shockwaves through the European gas industry.

The Office of Competition and Consumer Protection (UOKiK) said Oct. 7 it had also imposed a total of Zloty 234 million in fines on the five western European companies it says are financing the pipeline.

Related stories:

Russian gas flows to Europe dip in September on Ukraine reverse flow
Denmark awards permit to operate Nord Stream 2 gas pipeline in Danish waters

UOKiK said its own investigation had shown that Gazprom, France's Engie, Austria's OMV, Shell, and Germany's Uniper and Wintershall Dea had concluded a number of agreements regarding financing for Nord Stream 2 without having first obtained its approval to establish a joint venture for the project.

When they failed to gain UOKiK's approval, the companies decided to complete the project in a different form to work around the requirement to obtain that consent, the watchdog said.

Nord Stream 2 does not go through Polish waters but UOKiK has broad powers under the country's competition law and it has the right to rule on the business impact of the pipeline because some of the companies have assets in Poland.

"In December 2015, when the establishment of the joint venture was first reported, the participants specified their 'intention to concentrate' that has remained a part of their plans ever since. Each subsequent move was only an attempt to alter the form of their participation in the scheme," UOKiK President Tomasz Chrostny said in a statement.

Gazprom reaction

In a statement Oct. 7, Gazprom said it "fundamentally disagrees" with the position of the Polish antimonopoly authority.

"Gazprom and European companies are accused of setting up a joint venture for the implementation of the Nord Stream 2 project, which has not been approved by the Polish authorities. In fact, the project was implemented not by a joint venture, but by a subsidiary of Gazprom with the attraction of debt financing," it said.

"The UOKiK decision violates the principles of legality, proportionality and fair trial, and the unprecedented amount of the fine indicates a desire to oppose the implementation of the Nord Stream 2 project by any means," it said.

Gazprom said it would use its right to appeal the decision, arguing that it had not violated Polish antimonopoly legislation.

"When appealing against the UOKiK decision, it is not subject to execution until the entry into force of the relevant court decision," it said.

The European companies also slammed the Polish authority's decision.

"Uniper does not share the assessment which UoKiK has presented in its decision," a company spokesman told S&P Global Platts. "The agreements concluded between the Nord Stream 2 financial investors and Gazprom are not a joint venture but financing agreements. Financing agreements do not constitute a notifiable concentration under Polish merger control law and there is no such precedent in the previous practice of competition authorities, including UoKiK," he said.

He added that Uniper was considering a possible appeal against the UOKiK decision. "A decision can take up to 4-5 years. Depending on the decision, fines would not be due until then," he said.

Shell told Platts it "strongly" disagreed with the decision. "We are reviewing the basis of the decision and considering our next steps," a Shell spokesperson said.

OMV also said it had received the decision and would analyze it in more detail. "OMV is of the clear opinion that it has complied with all applicable laws," it said.

Engie and Wintershall Dea could not be reached for immediate comment.

Nord Stream 2 funding

In 2016, Gazprom signed agreements with the five companies to finance half of the cost of Nord Stream 2, with each of the five companies contributing some Eur950 million.

UOKiK said the terms and conditions of the financing agreements enabled them to take shares in Nord Stream 2 at a later stage of the project, UOKiK's Chrostny said.

"If the project were solely of a financial nature, then Gazprom could easily obtain financing from the government of the Russian Federation or from commercial banks. Perhaps they would be able to pull it off on their own. It needs to be stressed that operating as a financial institution is not the core activity of the remaining participants. First and foremost, Uniper, Engie, OMV, Shell and Wintershall are customers, and sometimes also competitors of Gazprom on the gas market," Chrostny said.

"The fact that a joint venture is financed by participants of the gas market and not by financial institutions proves that all the entities involved share the same economic interests. Without the participation of those entities, Nord Stream 2 would not be able to operate and to pursue the gas pipeline construction project in the EU, meaning that most probably it would not be established at all," he added.

UOKiK ordered the six companies to terminate their financing agreements for the pipeline within 30 days. If the companies decide to appeal against the decision, the deadline expires 30 days after it becomes legally valid.

Enforcement

Poland's Deputy Foreign Minister Pawel Jablonski said Oct. 7 that the country had the tools to enforce the payment of the fine.

"As in the case of the previous fine for Gazprom, which was smaller but a fairly large amount, there were no problems with its enforcement because we have the tools to enforce it," Jablonski told the state news agency PAP.

In August, UOKiK imposed a Zloty 213 million fine on Gazprom for failing to provide requested documents in the watchdog's investigation into the construction of Nord Stream 2.

Jablonski said Nord Stream 2 is a purely political project.

"Regardless of the penalty, we treat the entire Nord Stream project as a strictly political investment, whose main goal is Russia's domination, as well as achieving political goals in Central Europe, above all in Ukraine," he said.

UOKiK's Chrostny said the six companies' actions had negatively impacted competition on Poland's gas market and the launch of Nord Stream 2 would threaten the continuity of gas supplies to Poland and raise gas prices on the Polish market.

"Completion of this investment project increases the economic dependence on Russian gas -- not only in the case of Poland, but also of other European states. As far as energy security is concerned, the undertaking splits Europe into two parts, with the border located on the Odra river. It is astounding that Western corporations fail to understand that and participate in an undertaking that not only disturbs competition on the market, but also poses a threat to Europe's energy security," he said.

Fines imposed by Poland on Nord Stream 2 investors

*Currency conversion rate at 1100 GMT Oct. 7

Source: UOKiK