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EU Gas Market Amendment - Despite of
Issue
(Provisional)
Compromise, Problems Remain
Published
February 2019
by K. Talus
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energy.
EU Gas Market Amendment - Despite of Compromise, Problems
Remain
Kim Talus1
Summary
After two unsuccessful attempts to affect the Nord Stream 2 pipeline project by virtue of EU
gas market regulation, the Commission tabled a legislative proposal to amend the Gas Market
Directive in a way that would extend its scope of application to external gas pipelines bringing
gas to the EU internal market. After extended talks and several consecutive versions of a
possible amendment, on 12 February 2019 the trilogue2 reached a compromise on key issues
relating to the amendments to the Gas Directive.3 The trilogue cemented the agreement
suggested by France and Germany, where the application of Gas Market Directive was
restricted to “territory and territorial sea of the Member State where the first interconnection
point is located”.4
Unlike the initial proposal from the Commission, the new wording means that the Gas Market
Directive amendment only applies to the section of the pipeline located in the territorial sea of
the Member State where the first connection point is located. This is an improvement to the
original proposal as it excludes the violation of United National Law of the Sea Convention
(UNCLOS) as well as eliminates the problems arising from multiple jurisdictions applying the
Gas Market Directive to their offshore territories. However, despite of this, several key issues
in the amendment remain problematic.
This article will first provide for some background to the amendment and then move to examine
its details. Before concluding, the article will discuss the tension of the amendment with WTO
rules and general principles of EU law.
1 Kim Talus is the James McCulloch Chair in Energy Law and founding Director of the Tulane Center for Energy
Law (Tulane Law School). He is also a Professor of European Energy Law at UEF Law School (University of
Eastern Finland) and a Professor of Energy Law at Helsinki University. Kim Talus is also the Editor-in-Chief for
OGEL (www.ogel.org). He has provided legal advice on cross-border infrastructure projects, including Nord
Stream 2. The author can be contacted at xxxxxx@xxxxxx.xxx.
2 Trilogue is a part of the EU legislative process where Parliament, the Council and the Commission negotiate
over a legislative proposal.
3 Proposal for a Directive of the European Parliament and of the Council amending Directive 2009/73/EC
concerning common rules for the internal market in natural gas (14 February 2019, 2017/0294(COD)) (hereafter
the “amendment”).
4 This has been widely reported in various news, see for example: https://www.france24.com/en/20190208-france-
germany-compromise-russias-nord-stream-ii-gas-pipeline
1
1. Brief Background to the Amendment
The Gas Market Directive amendment cannot be separated from the ongoing Nord Stream 2
pipeline project.5 Initially the Commission claimed that the existing Gas Market Directive6
would apply to the offshore sections of the project. When the Commission legal service7 and
various energy experts8 had made it clear that this is not the case, the Commission changed its
strategy and sought a mandate to negotiate an intergovernmental agreement between EU and
Russia on the operational aspects of the pipeline. This was based on a claim that the applicable
regulatory framework was unclear, that there was a conflict of laws (between EU and Russian
law) and that there was a legal void in the project. Because of these reasons, the Commission
asked EU Member States for a mandate to negotiate a Nord Stream 2 specific
intergovernmental agreement with Russia. The objective was that general principles of EU
energy law would apply to the operation of the pipeline.9
After examining the Commission’s request for the negotiating mandate, the Legal Service of
the Council of the EU – the EU institution representing the Member States – rejected most of
Commission’s claims.10 The Commission thereafter changed its strategy. Next the Commission
tabled a proposal for a legislative change extending the applicability of the Gas Market
Directive to external pipelines bringing gas to the EU internal gas market. It is this Commission
proposal and specifically the final version accepted by the trilogue on 12 February 2019 that is
the focus of this article.
2. The Commission Proposal for Amendment to the Gas Market Directive
The European Commission tabled its proposal for the Gas Market Directive amendment in a
rush. The first indication of this legislative change came only in September 2017 in the
Commission President Juncker’s 2017 State of the Union letter of intent to the Parliament and
Council.11 Less than two months later, on 1 November 2017, the European Commission
presented a proposal for the amendment.12 The considerable haste in preparing this legislative
5 Katja Yafimava explains: “Indeed, on 11 October 2017, the DG Energy’s Director for the Internal Energy Market
(IEM), Klaus-Dieter Borchardt, presenting at the European Parliament’s Committee on Information, Research
and Energy (ITRE) – which is responsible for scrutinizing the proposal – stated that one of the proposal’s main
aims was to ensure that the amended Directive would apply to (the European end of) Nord Stream 2.
The fact that
the latter is scheduled to become operational at the end of 2019 explains the urgency with which the EC has been
trying to advance the proposal, in order for it to be adopted prior to Nord Stream 2’s starting operation.” in Katja
Yafimava, ‘Building New Gas Transportation Infrastructure in the EU – what are the rules of the game?’ Oxford
Institute of Energy Studies (OIES Paper NG 134).
6 Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive
2003/55/EC, 2009, O.J. L211/94 (hereafter the Gas Market Directive).
7 ‘Legal opinion undermines EU’s ability to block Nord Stream pipeline’, Politico, 7. February 2016.
8 For example, Andreas Goldthau, ‘Assessing Nord Stream 2: regulation, geopolitics & energy security in the
EU’, Central Eastern Europe & the UK (EUCERS report 2016), Simon Pirani and Katja Yafimava, ‘Russian Gas
Transit Across Ukraine Post-2019: pipeline scenarios, gas flow consequences, and regulatory constraints’ (OIES
paper NG 105, February 2016), Kim Talus, ‘Application of EU energy and certain national laws of Baltic sea
countries to the Nord Stream 2 pipeline project’,
The Journal of World Energy Law & Business 10 (2017) 1, p.
30-42
9 http://www.politico.eu/wp-content/uploads/2017/07/NS-Draft-Mandate.pdf.
10 http://www.politico.eu/wp-content/uploads/2017/09/SPOLITICO-17092812480.pdf.
11 Jean-Claude Juncker. State of the Union 2017 Letter of intent to President Antonio Tajani and to Prime Minister
Jüri Ratas
. 13 September 2017.
12 European Commission, ‘Proposal for a Directive of the European Parliament and of the Council amending
Directive 2009/73/EC concerning common rules for the internal market in natural gas’ COM(2017) 660 final,
2017/0294 (COD)
2
proposal and the choice not to conclude a separate impact assessment, as required by the
Commission’s own “Better regulation guidelines”, has been noted and criticized by most
commentators.13 For example, Leigh Hancher and Anna Marhold note:
’The targeted nature of the Commission proposal was used as justification for the
choice not to pursue a full impact assessment. However, the latter decision may
also reflect the sudden urgency attached to a legislative proposal that was not
foreseen either in the Commission's energy union strategy of February 2015 or in
subsequent updates on the state of energy union.’14
This considerable rush can only be explained by the attempt to complicate one single project:
Nord Stream 2. From the initial Commission proposal to the version accepted by the trilogue,
the attempt to isolate the impact of the legislative change to this project with limited collateral
damage to other pipelines has been clear. The intention to isolate the impact of the proposed
legislative change to one pipeline only gets to almost comical proportions when examining
some of the amendments that have been suggested to the original Commission proposal.15 For
example, limiting the applicability of the amended Gas Market Directive to interconnectors
with third countries to those interconnectors with annual transmission capacity of over 40 bcm
would have conveniently limited the applicability to Nord Stream 1 and Nord Stream 2
pipelines only, with exclusion of other pipelines bringing gas to EU internal gas market. Not
only is this problematic from EU law perspective, it also raises fundamentally problematic
questions of WTO law.16 These issues will be discussed in more detail below.
3. The Compromise and the Amendment
After more than one year of negotiations, EU Member States were divided in their approach to
the proposal to amend the Gas Market Directive and extend the scope of the EU gas market
regulation to external pipelines. This in itself is not surprising, given that this would
undoubtedly ‘raise political controversy as well as complex legal issues’.17 The lack of an
impact assessment, the collateral damage to existing pipelines, the competence shift from the
Member States to the European Commission in deciding the faith over existing and future
pipelines, amongst other problematic aspects of the proposal to amend the Gas Directive, made
this amendment highly problematic for many EU Member States that would be affected. The
core countries in favour of the amendment, Poland and certain other eastern European Member
13 Katja Yafimava, ‘Building New Gas Transportation Infrastructure in the EU – what are the rules of the game?’
Oxford Institute of Energy Studies (OIES Paper NG 134), July 2018 and Leigh Hancher and Anna Marhold, ‘A
Common EU Framework Regulating Import Pipelines for Gas? Exploring the Commission’s Proposal to Amend
the 2009 Gas Directive’, Journal of Energy and Natural Resources Law (2019, online version available), Kim
Talus, Discriminatory nature of the proposed changes to the gas market directive – extension to external pipelines
or only one of them?’
Utilities Law Review 22 (2018) 2, 55-60.
14 Leigh Hancher and Anna Marhold, ‘A Common EU Framework Regulating Import Pipelines for Gas?
Exploring the Commission’s Proposal to Amend the 2009 Gas Directive’, Journal of Energy and Natural
Resources Law (2019, online version available).
15 See for example, European Parliament: draft report, Jerzy Buzek 2017/0294(COD) (26.1.2018).
16 Similarly, Leigh Hancher and Anna Marhold, ‘A Common EU Framework Regulating Import Pipelines for
Gas? Exploring the Commission’s Proposal to Amend the 2009 Gas Directive’, Journal of Energy and Natural
Resources Law (2019, online version available).
17 Leigh Hancher and Anna Marhold, ‘A Common EU Framework Regulating Import Pipelines for Gas?
Exploring the Commission’s Proposal to Amend the 2009 Gas Directive’, Journal of Energy and Natural
Resources Law (2019, online version available). Similarly, Kim Talus and Moritz Wüstenberg, ‘Risks of
Expanding the Geographical Scope of EU Energy Law’ (2017) 26 European Energy and Environmental Law
Review 138, 138–41.
3
States, like the Baltic States, have been vocal in their opposition to Nord Stream 2 pipeline and
this appears to be their motivation to support the amendment. Germany, on the other hand,
remained a supporter of the project as did a number of other EU Member States.
After the change in Council presidency, Romania tabled a legislative text to be voted on.
Germany and France appeared to have reached a compromise on some key details of the
legislative text. Under the compromise that was subsequently accepted by other EU Member
States, with the exception of Bulgaria,18 the amended Gas Market Directive would apply only
in the “territory and territorial sea of the Member State
where the first interconnection point
is located”. The text of the compromise states: “first, to unify the wording in order to clarify
that the mentioned rules refer to the territory and the territorial seas of the Member State
concerned. Secondly, it is our understanding that the rules of the internal market should be
applied in the territory and the territorial sea of the Member State where the first
interconnection point with the Member State’s network is located.”19 This compromise
accepted by the Member States and subsequently in the trilogue is now reflected in the text of
the amendment.
4. Details of the Amendment
4.1 Territorial Scope of the Amendment
The most important amendment that was accepted is the definition of an ‘interconnector’ under
Article 2, point (17), read in conjunction with recital five. The new wording now states:
(17)‘interconnector’ means a transmission line which crosses or spans a border
between Member States for the purpose of connecting the national transmission
system of those countries or a transmission line between a Member State[ ] and
a third country [ ] up to the territory [ ] of the Member States or the territorial sea
of the Member State [ ];
As the new provision now indicates, the applicability of the Gas Market Directive and all the
other instruments of EU energy law that follow, is now extended to the territorial sea of the
Member State
where the first interconnection point is located. Recital five of the amendment
makes this clear:
The applicability of Directive 2009/73/EC [ ] to gas [ ] transmission lines to and
from third countries remains confined to the territory[ ] of the Member States. [ ]
As regards offshore [ ] gas transmission lines, it should be applicable in the
territorial [ ] sea [ ] of the Member State[ ] where the first interconnection point
with the Member States’ network is located.
This key amendment eliminates the violation of UNCLOS, which restricts the sovereignty of
coastal states to the territorial sea and does not extend the right to decide over operational
details of a pipeline to the exclusive economic zone.20 Restricting the applicability of the
Directive to the territorial sea of the Member State where the first interconnection point with
18 For example, see http://bnr.bg/en/post/101079390/bulgaria-does-not-support-france-germany-compromise-on-
nord-stream-2-gas-pipeline
19 https://www.politico.eu/wp-content/uploads/2019/02/FR-DR-gas1.jpeg
20 For more details, see Kim Talus, ‘Application of EU energy and certain national laws of Baltic sea countries to
the Nord Stream 2 pipeline project’,
The Journal of World Energy Law & Business 10 (2017) 1, p. 30-42.
4
the Member States’ network is located also eliminates problems arising out of regulation of the
pipelines separately in various neighboring coastal states or having one Member State
regulating the pipeline in the territory of other Member States. This solution is in line with the
existing situation in countries like Denmark where the national law already states that
transmission networks in the territorial sea or the EEZ that are not connected to the Danish
natural gas system are excluded from the scope of the Act.21 This approach is logical as it would
make little sense applying the national (or EU) laws to a pipeline that has no connection with
the national gas markets.
In practice, this means that a virtual entry point is established at the border of the territorial
waters and EEZ of the country with the first physical connection. In the case of NSP2 that is
Germany. The rules of EU energy law will start to apply from this entry point. For example,
third party access is available from this entry point. Given however that there is no access to
the pipeline at the other end, this third-party access is physically only possible later downstream
of the pipeline.22
4.2 Derogations Under Article 49a
Article 49a of the amendment includes wording providing Member States the right to grant
derogations from the applicable gas market rules:
[ ]In respect of gas [ ] transmission lines between a Member State and a third
country [ ] completed before [PO: date of entry into force of this Directive], the
Member State[ ] where the first connection point of the said transmission line
with a Member State's network is located may decide to derogate from Articles
9, 10, 11 and 32 and Article 41(6), (8) and (10) for the sections of such [ ] gas
transmission line located in its territory and territorial sea, [] for objective reasons
[ ], such as enabling the recovery of the investment made or due to reasons of
security of supply, provided that the derogation would not be detrimental to [ ]
competition on or the effective functioning of the internal market in natural gas
in the Union, or the security of supply in the Union.
The derogation shall be limited in time up to 20 years based on objective
justification, renewable if justified and may be subject to conditions which
contribute to the achievement of the above conditions.
While the intention is to provide the Member State where the first connection point of the
transmission line with a Member State's network is located the right to decide over the
derogation for existing pipelines located in its territory and territorial sea, the powers of the
relevant Member State are significantly restricted by the wording of this provision. Even if the
wording “such as” suggests that recovery of the investment made or security of supply are not
the only reasons for a derogation, it clearly suggests that it is along these lines that the national
21 Article 2(4) of the Danish Natural Gas Supply Act (Lov om naturgasforsyning)
22 According to reporting from Euractive, Jerzy Buzek (EP) has noted that “By its very nature, therefore, the rules
will apply to the entire length of the pipeline, because it would be physically impossible to differentiate between
its European part and the above-mentioned short one outside of the EU territory.”
https://www.euractiv.com/section/energy/interview/jerzy-buzek-deal-on-nord-stream-2-is-good-for-poland-and-
eu/. This of course is inaccurate as a virtual entry point can easily be established to the outer limit of German EEZ.
5
decisions will be evaluated by the Commission and possibly by the European Court of Justice.
As such, very limited deviations from these criteria are likely to be accepted.
Also, and very importantly, the same reference to recovery of the investment made or security
of supply will also be central when evaluating the appropriate duration of a derogation. The
new reference “recovery of the investment made” would clearly suggest that older pipelines to
Italy and Spain, like Transmed or Maghreb and possibly Greenstream or Medgaz, would not
be subject to a 20-year derogation. As such, the 20-year duration is not likely for these
pipelines.
Article 49a also includes a confusing element. The fourth section of the article provides that:
Where the gas transmission line [ ] in question is located in the territory of more
than one Member State, the Member State in the [ ] territory of which the first []
connection point with the Member States' network is located shall decide on a
derogation for the [ ] gas transmission line [ ] after consultation with all concerned
Member States.
The confusion comes from the reference to “all concerned Member States”. There is no
explanation on who these “concerned Member States” may be. Given that the derogation can
only apply to the “gas transmission line located in its territory and territorial sea” and the entire
amendment is only “applicable in the territorial [ ] sea [ ] of the Member State [ ] where the
first interconnection point with the Member States’ network is located”, there should be no
other concerned Member States. One explanation for this provision could be that it has been
left in the text from an earlier version and was made redundant by the German – French
compromise confirmed by the trilogue.23
4.3 Competence Shift Under Article 49a
Given the substantial and restrictive requirements over the derogation and its duration, the
competences of Member States to act in this area are significantly restricted. In practice the
Commission will have control over the application of Article 49a derogation. Where it
considers that the derogation does not meet the requirements of EU law, European Commission
may initiate infringement proceedings against a Member State. These proceedings could be
based both on the amended Directive, which includes very restricting terminology, and on
general Treaty law.
When these new restrictions on national decision-making are combined with the new powers
the European Commission would have over all new pipelines under Article 36 of the Gas
Market Directive, as these pipelines would be within the scope of the Directive, the
Commission is effectively granted significant control over all existing and future pipelines
bringing gas to EU Member States. (I expect that all or most new pipelines will seek to benefit
of the so-called merchant exemption24 where Commission would also have the final say over
the application of Article 36 to a specific pipeline project.)
23 This would not be a surprise as various revisions of the amendments have been consistently marked by mistakes
and sections left from previous versions or unrelated EU regulations used as models for details of the amendment.
This is another indication of the pressure to work (too) fast.
24 This is also suggested in recital 35 of the Gas Market Directive.
6
Arguably, this control over any existing or new pipelines may also impact the national energy
rights under Article 194(2) TFEU. Were this the case, the amendment should not take place
without the agreement from the Member State concerned and impacted by the change. In
practice, this means the Member State where the first physical connection takes place. It may
also be that this agreement is not enough but that the entire proposal is outside EU
competence.25 This is significant as the lack of clarity over this question may lead to illegality
of the amendment under Article 194(2) TFEU. The limits of Article 194(2) TFEU where first
tested in T-356/15 - Austria v Commission where the General Court rose to defend the national
energy rights.26
4.4 Empowerment Procedure Under Article 49 aa Entails a Competence Shift
The empowerment procedure under Article 49 aa does not change the transfer of competence
to negotiate any future intergovernmental agreements over external pipelines or renegotiate
any such existing intergovernmental agreements. This new Article provides the Commission
with full control over any negotiations over any existing or future intergovernmental
agreements.
In addition to this, the reference to “conflict with Union law” as a requirement for opening of
formal negotiations as well as for the final agreement, seems to suggest that nothing in the
agreement can be in conflict or deviate from the Gas Market Directive, Gas Regulations or
network codes as these form part of “Union law”.
As such, the amendment marks a significant change to
status quo and entails a competence
shift from the Member States to the European Commission. It appears that the Member States
have accepted this as part of the collateral damage the amendment causes to all Member States.
4.5 Protection of Existing Private Law Agreements
Similarly to what has been described above, the rights that the amendment appears to give the
national transmission system operators is largely illusionary. Article 48a provides that:
This Directive does not affect the freedom of transmission system operators or other economic
operators to maintain in force or to conclude technical agreements on issues concerning the
operation of transmission lines between a Member State and a third country, insofar as these
agreements are compatible with Union law and relevant decisions of the national regulatory
authorities of the Member States concerned. These agreements shall be notified to the
regulatory authorities of the Member States concerned.
However, given that Gas Market Directive, Regulations and network codes (such as the
Network Code on Interoperability and Data Exchange Rules, which appears particularly
significant here) are part of “Union law” and as “decisions of the national regulatory
authorities” of course have to be compatible with Union law, this provision is largely empty of
any real content. Transmission system operators cannot deviate from any of the applicable EU
25 See also Leigh Hancher and Anna Marhold, ‘A Common EU Framework Regulating Import Pipelines for Gas?
Exploring the Commission’s Proposal to Amend the 2009 Gas Directive’, Journal of Energy and Natural
Resources Law (2019, online version available). The impact of Article 194(2) TFEU has been examined in detail
in K. Talus and P. Aalto, ‘Competences in EU energy policy’, J. Wouters ja R. Leal-Arcas (eds)
Research
Handbook on EU Energy Law and Policy (Edward Elgar 2017).
26 T-356/15 - Austria v Commission (ECLI:EU:T:2018:439), the appeal C-594/18 P - Austria v Commission is
pending.
7
rules and all existing private agreements with third country transmission system operators need
to be renegotiated. In addition, it may be noted that it remains unclear what a “technical
agreement” actually is.
5. The Amendment is in Tension with the WTO Rules
In examining the proposal to amend the Gas Market Directive, Leigh Hancher and Anna
Marhold note that “[t]he proposal may open a Pandora’s box in terms and may raise serious
issues of discrimination under the rules of the World Trade Organization – issues that have to
be kept in mind by the Commission.”27 Indeed, given that the amendment appears to primarily
target one pipeline, Nord Stream 2, with collateral damage to other pipelines, there is a real
risk that the amendment violates WTO related obligations of the EU. This is clear from the
recent WTO Panel Report in the
EU – Energy Package dispute brought by Russia (“Panel
Report”).28
The Panel Report contains elements that speak against the WTO-consistency of this new
legislative proposal. A key message from the
EU-Energy Package Panel Report is that
measures to diversify away from Russian gas, either through restrictions on imports or
advantageous treatment of gas of non-Russian origin could constitute quantitative restrictions
and discrimination.29 The developments prior to the amendment and the attempts to restrict the
impact of the new rules to Nord Stream 2 pipeline appear to do exactly that.
6. Violations of General Principles of EU Law
According to the amendment, the possibility for a derogation under Article 49a is available for
pipelines, which are “completed before the date of entry into force of this Directive”. Recital
four of the amendment provides more reasoning for this and explains the reason for the
derogation under Article 49a:
To take account of the previous lack of specific Union rules applicable to gas [ ]
transmission lines to and from third countries, Member States should be able to
grant derogations from certain provisions of Directive 2009/73/EC to such [ ] gas
transmission lines which are completed at the date of entry into force of this
Directive.
This presumably means legal certainty and protection of legitimate expectations for investors
and owners of pipelines where the investments have already been made under the current
regulatory framework where EU energy law was not applicable to these pipelines. This
reasoning, however, is problematic when it comes to pipeline projects were the final investment
decision has been made and significant capital has been committed and spent already before
the intended legislative change became known, while the pipeline has not yet been completed.
27 Leigh Hancher and Anna Marhold, A Common EU Framework Regulating Import Pipelines for Gas? Exploring
the Commission’s Proposal to Amend the 2009 Gas Directive, Journal of Energy and Natural Resources Law
(2019, online version available).
28 European Union and its Member States – Certain Measures Relating to the Energy Sector (
EU Energy Package),
Report of the Panel, WT/DS476/R, 10 August 2018
29 This has been examined in detail in Kim Talus and Moritz Wustenberg, ‘WTO Panel Report in the
EU – Third
Energy Package and Commission proposal to amend the 2009 Gas Market Directive’,
Journal of Energy and
Natural Resources Law (2018).
8
Does this mean that these investments do not merit the legal protection under general EU law
principles like non-discrimination, non-retroactivity, legal certainty and protection of
legitimate expectations? It must be noted that in some cases, the capital already committed in
ongoing projects may exceed the total costs of some existing pipelines.
6.1 Principle of Non-discrimination
As I have argued before,30 the amendment violates the general EU principle of non-
discrimination. As a general principle of EU law, it requires consistency and rationality: it
requires the EU institutions to justify their policies and prohibits them from engaging in
arbitrary conduct.31 A difference in treatment is only justified if it is based on an objective and
reasonable criterion, that is, if the difference relates to a legally permitted aim pursued by the
legislation in question, and it is proportionate to the aim pursued by the treatment.32 None of
these requirements have been respected in this case. In fact, the entire amendment is designed
to affect and complicate one project, Nord Stream 2. Certain collateral damage to other
pipelines does not change this fact.
The fact that Article 36 exemption would in principle be available for interconnectors that have
not been completed by the cut-off point under Article 49a, one could argue that there is no
unreasonable difference in treatment as pipelines that do not qualify for an exemption under
Article 49a, could still qualify to another type of exemption under Article 36 of the same
Directive. This reasoning however is flawed. There is a fundamental difference between the
rationale and function of the two derogations: while the rationale and function of Article 36
(exemption) is to enable investments, the rationale and function of the proposed Article 49
(derogation) is to protect investments. Projects in advanced stages should fall under the
derogation, rather than the exemption.
For advanced projects like Nord Stream 2 where the investment decision has been made, it is
the derogation under Article 49a that should be applied as its rationale is to protect investments
and legal certainty. The rationale of promoting new investments like under Article 36, does not
square well with such projects.
There is also a significant practical difference between the two: while Article 36 exemption is
subject to a wide range of requirements and the European Commission has the final say, Article
49a exemption is more readily available for all projects and the decision-making is national.33
Also, the requirements for the two are different and Article 36 exemption includes a stricter
requirement of “must enhance competition” in gas supply and security of supply, whereas the
derogation under Article 49a only requires that the derogation would not “be detrimental to [ ]
competition on or the effective functioning of the internal market in natural gas in the Union,
or the security of supply in the Union.”
30 Kim Talus, Discriminatory nature of the proposed changes to the gas market directive – extension to external
pipelines or only one of them?’
Utilities Law Review 22 (2018) 2, 55-60.
31 Takis Tridimas,
The General Principles of EU Law (OUP 2006), p.62.
32 C-127/07, Arcelor Atlantique and Lorraine and Others [2008] ECR I-09895, para. 47, see also Case 114/76
Bela-Mühle Bergmann [1977] ECR 1211, para. 7; Case 245/81
Edeka Zentrale [1982] ECR 2745, paras. 11 and
13; Case C-122/95
Germany v
Council [1998] ECR I-973, paras. 68 and 71; and Case C-535/03
Unitymark and
North Sea Fishermen’s Organisation [2006] ECR I-2689, paras. 53, 63, 68 and 71.
33 As noted above, in practice the Commission will have control over the application of Article 49a derogation.
European Commission may initiate infringement proceedings against a Member State where it considers that the
derogation does not meet the requirements of EU law.
9
For projects like Nord Stream 2, this difference is significant. Applying for a merchant
exemption is riddled with uncertainty due to different requirements (based on different
rationale than Article 49a) as well as Commission’s public opposition against the project. This
uncertainty was not known at the time of the investment decision (as the Gas Market Directive
was not applicable to the project at that time) and could have affected the decision. As such,
Article 36 exemption, even if it was available to projects like Nord Stream 2, does not change
the discriminatory nature of Article 49a. Here it must be noted that the wording of Article 36
would suggest that it may not be available for projects where the final investment decision has
been taken.
It must finally be added that this discriminatory intent of the amendment becomes all the more
apparent when it is placed in its context and various developments prior to the proposal to
amend the Gas Market Directive are considered.34 When considering background
developments towards the proposal to amend the Gas Market Directive and Article 49a that
excludes its applicability to Nord Stream 2, it becomes clear that there are no objective and
reasonable criteria that would distinguish various pipelines and enable different treatment. The
true objective behind the proposal appears to be an attempt to limit the ability of Gazprom to
import more gas to EU through this new pipeline.35 That is not a legally permitted aim pursued
by the legislation in question. The decisions on the use of different energy sources and structure
of energy supply is reserved for the Member States under Article 194(2) of the Treaty on the
Functioning of the European Union. Not only would this run contrary to the Member State
national energy rights, but it would also risk being contrary to the rules of the WTO system, as
noted earlier.
6.2 Legal Certainty and Protection of Legitimate Expectations
The principles of legal certainty and the protection of legitimate expectations are among the
fundamental principles of the EU.36 Relevant for the purposes of the amendment is, that they
among other things require that rules involving negative consequences for individuals should
be clear and precise and their application predictable for those subject to them.37 This is hardly
the case with the amendment, which appeared without warning and which would be applied
retrospectively.
The principle of legal certainty normally precludes measures from taking effect from a point
in time before their publication. It may exceptionally be otherwise where the purpose to be
achieved so demands and where the legitimate expectations of those concerned are duly
respected.
38 Neither of the two requirements are met in this particular case. Contrary to
legitimate expectations of Nord Stream 2 being respected, the fact that Nord Stream 2 project
34 The linkage between the three attempts to complicate the pipeline project is obvious and has also bee noted in
Katja Yafimava, ‘Building New Gas Transportation Infrastructure in the EU – what are the rules of the game?’
Oxford Institute of Energy Studies (OIES Paper NG 134), July 2018 and Leigh Hancher and Anna Marhold, ‘A
Common EU Framework Regulating Import Pipelines for Gas? Exploring the Commission’s Proposal to Amend
the 2009 Gas Directive’, Journal of Energy and Natural Resources Law (2019, online version available).
35 http://europa.eu/rapid/press-release_MEMO-17-4422_en.htm. The Commission notes that its priority is
diversification away from Russian gas.
36 C-17/03,
VEMW [2005] E.C.R. I-4983; C-104/97 P
Atlanta v
European Community [1999] ECR I-6983, para.
52; and Joined Cases C-37/02 and C-38/02
Di Lenardo and Dilexport [2004] ECR I-6945, para. 70.
37 C-17/03,
VEMW [2005] E.C.R. I-4983, para 80; 325/85
Ireland v
Commission [1987] ECR 5041; C-143/93
Van Es Douane Agenten [1996] ECR I-431, para. 27; and Case C-63/93
Duff and Others [1996] ECR I-569, para.
20.
38 98/78,
A. Racke v Hauptzollamt Mainz [1979] ECR 69, para. 20.
10
is the only project to fall into the scope of this retroactive application suggests that this change
in the regulatory framework is specifically designed to intervene with the Nord Stream 2
project.
39
As sovereign actors, States and their governments, including EU and its institutions, have broad
rights in amending the regulatory frameworks for the future consequences of situations that
arose under the former rules.
40 However, this right is not without boundaries. Among other
things, this right is restricted by the legitimate expectations of affected market players. In order
to protect those affected by sudden legislative changes, the European Court of Justice has
required that
the implementation of new rules is combined with a transitional period to allow
market players to adapt to the new "rules of the game".41 This transitional period may be
excluded where there is an overriding consideration of public interest.42
There are no public interest considerations involved in this particular situation that would
require the exclusion of a transitional period. On the contrary, circumstances (including
publicly made statements by European Commission) indicate that the rapid change in law is
connected to one specific project, the Nord Stream 2 pipeline, and is only based on
discriminatory considerations, rather than a legitimate public interest, security of supply or
functioning of the EU gas markets.
The retroactive application of the new rules amounts to violations of legal certainty and
protection of legitimate expectations. The situation is made worse by the fact that the sudden
legislative change targets only one project and one company, Nord Stream 2. The collateral
damage that the change causes to other pipelines does not change this intent.
7. Conclusion
After two unsuccessful attempts to complicate the Nord Stream 2 project, the Commission
tabled its proposal to amend the Gas Market Directive. After a compromise between Germany
and France was reached, the Member States accepted the new wording and the trilogue
confirmed the compromise. The amended Gas Market Directive, if formally approved by the
EU co-legislators, will now apply to gas transmission lines in the territorial sea of the Member
State where the first interconnection point with the Member States’ network is located. This is
an improvement to the original proposal which included a number of difficult legal issues.
The amendment still includes a number of confusing elements as well as violations of WTO
rules and EU legal principles. Given its clear objective to undermine one project and the
retrospective application of new rules to Nord Stream 2, it may also be regarded as unfair and
unequitable treatment under the Energy Charter Treaty. As such, it may well be that we are yet
to experience the last turns of this ongoing development.
39 Both the intention to apply the new changes primarily to Nord Stream 2 and the problematic aspects of the
retroactive application of the new rules to Nord Stream 2 have also been noted in Katja Yafimava, ‘Building New
Gas Transportation Infrastructure in the EU – what are the rules of the game?’ Oxford Institute of Energy Studies
(OIES Paper NG 134), July 2018.
40 C-60/98,
Butterfly Music Srl v Carosello Edizioni Musicali e Discografiche Srl (CEMED) [1999] ECR I-3939
para. 25; 1/73,
Westzucker GmbH v Einfuhr und Vorratsstelle für Zucker [1973] ECR. 723, para. 5.
41 C-17/03,
VEMW [2005] ECR I-4983 and C-347/06, ASM Brescia C-347/06, ASM Brescia [2008] ECR I-5641.
See also Anatole Boute, The Quest for Regulatory Stability in the EU Energy Market: An Analysis Through the
Prism of Legal Certainty (2012) 37
European Law Review, p. 675-692.
42 74/74,
Comptoir national technique agricole (CNTA) SA v Commission [1975] ECR 53.
11