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10 November 2017
belgium / EU austria

EU: Lex "Nord Stream 2" in the pipeline

The European Commission has proposed an amendment to the Third Gas Directive 2009/73/EU ("Gas Directive") in order to extend the common gas rules to import pipelines. This will ensure the coherent applicability of the core principles of EU energy legislation (third-party access, tariff regulation, ownership unbundling and transparency) to all gas pipelines to and from third countries.

Under the current legal framework, the Gas Directive only applies to national gas transmission pipelines and pipelines connecting two or more Member States. Following legal analysis it has been concluded that the rules applicable to gas transmission pipelines connecting two or more Member States, which fall within the scope of the definition of "interconnector", are not applicable to such pipelines entering the EU. Currently the Gas Directive only starts to apply once the pipeline has connected to the EU transmission system. Thus pipelines entering the EU, such as Nord Stream 2, despite being on EU territory, would not be regarded as part of the transmission system that falls within the scope of the Gas Directive, but as an external part of the natural gas supply chain that brings gas to the EU's internal market. Nevertheless, there is the practice of applying the core principles of the regulatory framework of the Gas Directive to third countries by means of international agreements concerning gas pipelines entering the EU; but as the international agreements are concluded separately for each pipeline, there is no coherent legal framework applicable to all pipelines entering the EU and creating a legal gap. In order to define and specify an explicit and coherent manner of the regulatory framework applicable to all gas pipelines to and from third countries, the Commission considered that legislative action is necessary and thus proposed the amendments. 

Under the proposal the Gas Directive will become applicable to pipelines to and from third countries, including existing and future pipelines, up to the border of EU jurisdictions. By amending the definition of "interconnector", pipelines to and from the EU will be included in the definition and thus the Gas Directive will become applicable to pipelines entering the EU already at the border of EU jurisdiction.

In a Fact Sheet issued by the Commission on 8 November 2017, the Commission stated that the proposed amendments would not have any extraterritorial application. However, in practice that would lead to a situation where pipelines to and from third countries would be subject to at least two different regulatory frameworks, unless the whole project is governed by the Gas Directive. The solution the Commission proposes is that an international agreement – as was the case in the past – should be concluded with the third country(s). However, in the absence of such an international agreement and where no exemption for new infrastructure or derogation for existing infrastructure exists, the pipeline could only be operated in line with the requirements of the Gas Directive within the borders of the EU jurisdiction. Applying two different regulatory frameworks to one pipeline would be impractical and could have a detrimental effect on future projects. The proposal could thus be interpreted as nevertheless having an extraterritorial effect in practice by somehow forcing the rules of the Gas Directive on pipelines to and from the EU. 

In the very same Fact Sheet, the Commission states that it does not intend to prevent the realization of the Nord Stream 2 pipeline. By amending the Gas Directive the Commission is instead promoting a comprehensive regulatory framework and legal clarity. Thus the rules will apply to the Nord Stream 2 pipeline in the same way as to all other projects. However, in light of past discussions around Nord Stream 2, this statement seems more of an excuse. The way in which the amendment is drafted and the timing of the proposal raises questions about whether the proposal is in fact a "disguised" lex Nord Stream proposed to prevent Nord Stream 2 or to at least make it more difficult for the project to be finalised. 

The proposal also stipulates exemptions for new and existing pipelines. New pipelines to and from third countries will be able to apply for an exemption from certain core principles under Art 36 of the Gas Directive. As regards existing pipelines, Member States will be able to grant derogations from certain key requirements, provided the derogation would not be detrimental to competition, the functioning of the market and security of supply of the European Union. The new proposal also clearly stipulates which Member State is competent to grant derogations in case the pipeline crosses multiple Member States: the Member State where the first interconnector point is located will be competent to decide on the derogation. In this way a coherent regulatory framework will be ensured for each pipeline. 

As far as EEA countries and Energy Community Contracting Parties are concerned, the proposal will not have a great impact on pipelines entering the EU from these countries, due to the fact that the Third Energy Package is already applicable or will become applicable in the future in these countries. Nevertheless, under the new proposal the Member States would still be able to grant derogations to the application of the Gas Directive, if necessary. 

The proposal needs to be agreed by the European Parliament and the Council before the changes become law. At this point there is no indication of how long the legislative process in the European Parliament and the Council will take or of when the proposed amendments will enter into force.


Attorney at Law

austria vienna