Gas pipeline deal would give greater control over supply

The Gazprom clause

The European Commission's original proposals for the third energy package foresaw a sweeping restructuring of EU energy companies, with the aim of preventing them owning the entire value chain from generation to distribution to sales.

But what if a foreign company that had locked up the value chain in its domestic market decided to enter the EU market? Surely EU companies would be at a disadvantage?

Yes, the Commission answered, and it therefore sought to introduce an element of reciprocity inenergy relations with non-EU countries.

Such firms would have been able to acquire shares in, say, an EU transmission system operator only if EU firms were given similar access to the foreign company's domestic market.

Since Russia is the EU's dominant supplier and Gazprom is Russia's dominant gas producer, journalists dubbed thisthe ‘Gazprom clause'.

Under the Commission's plans, Gazprom, a vertically integrated company with no unbundling requirement at home, would no longer have been able to acquire mid- or downstream companies in the EU without providingsimilar access to EU companies.

But Germany and France opposed the Commission's plans, which they viewed as an attack on their integrated power firms, and they were subsequently watered down.

The ‘Gazprom clause' met the same fate. It is now up to individual EU member states to decide whether to protect their energy firms from a takeover by vertically integrated rivals.

EU member states may have signed up to a single market, but they want their traditional distributors (and generators, in the case of electricity) to prosper. The question now is what they will do if a colossal foreign supplier seeks to seize some of the market from their giant distributors and generators.