By Punsarani Jayawardhana
The EU General Court dismissed the complaint made on Nord Stream 2 against the amendments to the Third Gas Directive on 20 of May. It held that the Nord Stream 2 is not directly concerned by these amendments and any complaint should rather be directed at the national level as the Member States may apply these amendments with some discretion.
It further pronounced that these operators are subject to the amendment only through the intermediary of the national measures that are adapted by the Member States. What Nord Stream 2 had been argued throughout was complying with the new obligations in the Directive may force it to sell the whole 44bcm per year to Germany or to alter its business and organizational structure in its entirety.
Nord Stream 2 pleaded in the General Court after the German Energy Regulator Bundesnetzagentor rejected its request for a waiver from these amendments. Given this dissension on the ‘legality’ of Nord Stream 2 specially in the light of the amendments to the Directive and the ubiquitous political wrangling on the construction of the pipeline, a discourse as to debates on European Energy Law and International Law pertaining to Nord Stream 2 merits some deliberate thinking and analysis.
Virtues and vices of Nord Stream 2 have been troubling both the political and legal spheres more or less in Russia, Germany, European Union (EU) and the United States (USA). How it would be resolved will be decisive in the future relations in between these countries and with each other. The 1230km long pipeline is designed from Ust-Zuga in Russia to Lumbin in Germany.
One crucial part in this is that it runs in the Danish Economic Exclusive Zone for 160km. If completed it is scheduled to be doubling Russia’s direct export capacity to Germany to 110bcm per year. Political rancor had risen in the United States on the scheduled project that it had already discussed a new Bill on penalties that would result if Russia completes the Nord Stream 2. Sanctions are said to be applied on European companies investing on the pipeline. Allseas Co. had already withdrawn from the work in fear of sanctions.
Despite the growing grudges, the German Chancellor Angela Markel had pledged that the pipeline will be completed ‘no matter what’. Nonetheless the ‘politics’ on EU- Russia energy relations are only optimized through the attitude on Nord Stream 2.
For the past few years EU had been making conscious efforts on energy security and diversification of its energy supplies. In relation to Russia; the main provider of oil, gas and solid fuels to EU, energy transit and energy investment had been of peculiar concern in this sphere. As Siddi notes, EU’s demand for reliable energy supplies from abroad and Russia’s goal of capitalizing its vast fossil fuel resources abroad have resulted in a sound interdependence in the energy sector.
The degree of this inter-dependence had been academically and politically debated in different perspectives. Boersma and Goldthan contend that this is a trend toward the securitization of the EU- Russia energy relations and that it could eventually degrade the EU’s liberal posture and undo their dependencies. On the other hand academics like Krickovoc argues that this degree of interdependency may enhance the security tensions and that it would ultimately lead for a security dilemma in their respective efforts to dwindle their dependence.
It is worth noting that the security dilemma does play a pivotal role in the energy relations between EU and Russia, especially in regard to Eastern European member states in the EU, like Poland. The dissension pertaining to Nord Stream 2 can also be traced to this security dilemma with the allegation that Russia’s use of oil exportation to EU is rather an ‘energy weapon’.
However, one may argue that the political dilemma alone has not created this controversy, as the legal underpinning on Nord Stream 2 is highly debatable as well. Since the amendment to the Directive 2009/73/EC, the legality of Nord Stream 2 had been thrown into this allegation of negation. The aim of Third Energy Package being the creation of a single EU gas and electricity market to lower the energy prices and enhance the energy supply security, the project is clearly not catering to this collective EU interest.
It is with the amendment that this interest was secured to be achieved in relation to Nord Stream 2. Before the amendment, the Directive had no application on pipelines connecting the Member States with Third states. It was only if Nord Stream 2 was an interconnector or a transmission pipeline, that the Directive could have been applied.
Therefore the issue on legality rose primarily with the extension of the Directive. The amendment declares ‘rules applicable to gas transmission lines connecting to two or more Member States…within the Union, to gas transmission lines to and from third countries”. Thus the project is bound by the concomitant of such amendment that it is to be complied with unbundling, third party access and distribution of tariffs. So far, Gazprom being the sole owner of the project, the EU rules are clearly being violated.
Article 194(1) Treaty on the Functioning of European Union (TFEU) is the Union’s energy policy which ‘aims to ensure the functioning of the energy market and the security of energy supply in the Union in a spirit of solidarity.’ Solidarity, functioning of the internal energy market and security of supply lie at the heart of EU Energy Law.
As Gragl notes, the ideology of solidarity in EU Energy Law is rather a clear legal obligation than a mere political vagueness. In this vein, the Third Gas Directive is to consolidate the Union’s internal energy market by, inter alia, realizing competitive prices and contributing for the security of supply in natural gas; thus ensuring unbundling and third party access. In this light, it is more than obvious that the Article 11 of the Third Gas Directive is a blockade to Nord Stream 2 in terms of its ownership and business structure.
The exemption for this rule is articulated in Article 36 of the Directive. It provides an exemption for interconnectors if the new infrastructure in question enriches competition in gas supply and security of supply. However, an interconnector is defined only as a transmission line between Member States for the sole purpose of connecting their national transmission systems.
In this vein, it is highly probable that the exemption would not be applied to Nord Stream 2. It would bring us to ponder if the other existing pipelines carrying non-EU gas to Europe do not have to be complying with the rule. The answer comes in negative as such pipelines like Green Stream (Libya-Italy), Galsi (Algeria-Italy) are not solely owned like Gazprom’s sole ownership of Nord Stream 2. Nevertheless, the critics have enunciated that the amendment specifically targets Nord Stream 2 and this undermines EU general principles of non-discrimination and legal certainty.
It can also be challenged that it also exasperates the legitimate expectation.Amidst the controversy pertaining to EU law on Nord Stream 2, it is worth examining on how International Legal principles may apply to the issue. This study is important especially in the event of the Nord Stream 2 case being dismissed in the EU General Court, as any restoration to international law is quintessential in this discourse. Energy Charter Treaty (ECT), WTO Rules and Law of the Seas become the most viable in this endeavor. Although Article 7 of the ECT ensures the freedom of transit, Russia is not legally bound by it as it had not ratified it.
In terms of WTO Rules, Article 1.1 of GATT (General Agreement on Trade and Tariffs) embodies the Most Favored Nation. However Article V.2 of GATT does not explicitly pronounce third party access and unbundling, that it only enshrines the principle of Freedom of Transit.
It can be nonetheless questioned, as Vitaliy Pogoretskyy raises, if principle of freedom does not encompass the obligation of ensuring third party access and unbundling as an ancillary right. Russia may contest that the amendment has resulted in unlawful ‘quantitative restrictions and discrimination’.
Any change with the amendment can be argued to be having a retrospective effect and would be challenged that this would ‘estop’ Germany from going back in its promise. Even so, the success of such plea depends on the degree of Germany’s involvement with Nord Stream 2 as no inter-governmental agreement has been reached by Russia and Germany on the project.
In the light of Law of Seas, Gregl brings out a sound argument with application of few decided cases in the EU jurisdiction. In line with the principle ‘land dominates sea’, EU has the jurisdiction on the respective internal and territorial waters and exclusive economic zones of the Member States.
This is so held in Kramer and Poulsen cases. As per Salemink case, a Member State taking best of economic rights or exploit the natural resources of continental shelf needs to be abode by European Law and ensure the freedom of movement of persons working at those installations. Thus he argues that the application of European law on Exclusive Economic zones of the Member states is ‘highly probable and can be so argued on lex lata’.
This line of thinking makes it unambiguous that Nord Stream 2 is challenged with vigorous legal provisions. It is incontrovertible that geopolitics and security dilemma has so far been molding Russia’s energy monopoly in the EU. Now it seems to be taking with more strenuous undertaking with a legal synthesis, as the application of the Directive as amended is almost definite.
It would not be facile for Nord Stream 2 even if German courts with the application of Margin of Discretion, are to decide on it, as there is no intergovernmental agreement binding the two nations. As international politics, geo politics, geo- economics and now law all have been merged in their own degrees of ascendancy, the realization of Nord Stream 2 is both extremely confronted by and crucial in the stakeholders and their relations.
Author: Punsarani Jayawardhana – L.L.B.(Hons)(UoL), B.A. (International Relations)(Hons)(UoC), Attorneys-at-Law(reading)(Sri Lanka Law College)
(The opinions expressed in this article are solely those of the author and do not necessarily reflect the views of World Geostrategic Insights)