Business Czech government clashes with Brussels over Russian gas storage deal

08-01-2014 15:55 | Chris Johnstone

The Czech Republic and one of its biggest local oil and gas companies is in a battle alongside Russian gas exporter Gazprom against the European Commission. Gas storage rules are the unlikely cause of the dispute.

Illustrative photo: Czech TelevisionIllustrative photo: Czech Television The two sides are heading for a further courtroom fight over whether the Czech Ministry of Industry was correct to give local oil and gas company MND an exemption from European rules aimed at encouraging increased gas competition by freeing up capacity at natural gas storage facilities.

So called third party access to massive gas storage installations means that the storage companies have to earmark a proportion of capacity to other firms which don’t own such facilities, The rules are regarded in Brussels as a key to breaking down local monopolies in gas sales and trading.

But in the face of that argument the Ministry of Industry and Trade gave MND and its gas storage offshoot Globula an exemption to the EU rules. This has paved the way for the Czech company to rent out the overwhelming majority of capacity at its Dambořice facility to dominant Russian gas exporter, Gazprom, in a lucrative deal. The South Moravian storage site is under construction and should be completed in 2016.

MND argued that financing for the storage construction depended on its ability to seal the long term Gazprom contract. Brussels officials begged to differ and blocked the Czech exemption.

The first round of the court battle in Luxembourg that followed resulted in a victory last September for MND and the Czech government.

But the Commission’s energy officials have not given up. They have filed an appeal in the European courts which should be heard some time this year. The Czech Cabinet at its last pre-Christmas meeting on December 18 passed a motion pledging its continued support for MND in the upcoming court battle.

The latest skirmish is perhaps testimony to British diplomat Lord Palmerston’s quip that countries have no permanent friends or allies, just permanent interests. Five years ago the Czech Republic held the EU Commission presidency and was in the midst of a European energy crisis caused by Russia and Gazprom’s decision to shut off exports of natural gas through Ukraine.

That crisis at the start of 2009 was, according to an interview by Czech Foreign Ministry based energy policy expert Václav Bartuška, the last time that European Union countries spoke with a single voice on energy issues. Brussels has since been trying to encourage diversified gas routes and supplies for growing European demands and dilute Gazprom’s ability to set prices and trading terms on nearby markets, including the Czech Republic.

Those Commission moves have been frequently frustrated by Gazprom’s attempts to corner free supplies and individual member states’ penchant for doing their own cosy deals with the Russian gas giant at the expense of EU solidarity when it suits them.

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