Analysis: Nord Stream 2 Protection Front

By Grzegorz Kuczyński

Not German, but now European - Germany still protects the Nord Stream 2 project, also with words of the new ambassador to Warsaw.

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First, there was the interview with Arndt Freytag von Loringhoven with the Polish Press Agency. Which can be considered as a protective shield for what the ambassador said. This shield, simultaneously criticising Polish interests and statements on this matter concerns the issues of history and energy security, which are the two major problems between Poland and Germany. Let’s focus on the way Berlin and their allies from the EU defend Nord Stream 2. They attack Poland. And this is not about the article in “Politico” which was the reaction to the decision of the Polish Office of the Consumer and Competition Protection (UOKiK) to impose a record fine on companies involved in the construction of the pipeline on the bottom of the Baltic Sea. The statements of the German Ambassador to Poland are aimed at undermining Polish (but not only) arguments about completion of the Nord Stream 2 project.

Diplomatic interpretation?

The ambassador has heard two questions. The first was about the German support for NS2, and the second about how this support pertains to the idea of the European solidarity? The answer from Mr Freytag von Loringhoven was, to say the least, astonishing. First, he avoided the questions asked, while his arguments were far-fetched if not false. They sound like the rhetoric of the German NS2 protectors used for many years.

This was typical, that first, the ambassador emphasised the need to follow the law and stressed that “the project has to be in line with the EU gas directive, an amendment of which was also approved by Poland.” But the dispute about NS2 has a political-economic character, not a legal one. It is worth mentioning that Berlin was literally forced – after years of disputes in EU offices – to amend the gas directive and allow the investment to fall under the regulations of the Third Energy Package. In addition, when these regulations were incorporated into the Germany legal system German politicians did a lot to ensure that its entries allowed as broad as possible interpretation of the conditions for the completion of the investment.

So if the first argument of Mr Freytag von Loringhoven is an attempt of manipulation, the second is obviously fake. Let’s quote it: “Moreover, the diversification of the energy sources is in line with the purposes of the Energy union – this is also a Polish initiative.” So, Poles wanted it and now they protest. Really, the interpretation of “energy sources diversification” is astonishing. If the ambassador said “diversification of energy supply routes” it would be possible to discuss it. But he said “energy sources diversification”. Either he does not know what he is speaking about or he is deliberately misinforming, NS2 is not aimed at diversifying energy sources at all. The source remains the same – Russia. On the contrary, NS2 would be used to combat such a diversification, because it significantly increases the capabilities to import Russian natural gas into the EU market in a situation, when Russia is already the largest gas supplier for Europe. NS2 empowers Moscow’s position on the gas market of the EU by decreasing the risks taken by Gazprom caused by the necessity to transit the resource through Ukraine, Belarus and Poland, but also Slovakia, the Czech Republic and Hungary.This means a tighter cooperation between Moscow and Berlin now only without the participation, but also against the interests of the countries of Central-Eastern Europe.

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Going further, the ambassador said: “It is important for me to emphasise that my government is involved in preventing possible political consequences of such a European undertaking (Nord Stream 2 involves more than 100 European companies), for example in reference to the transit through Ukraine. This is how we show our solidarity with the neighbouring EU Member States.” As we can see, Germans finally admit that the project has not only commercial but also political character. Until now, with the exclusion of a single statement of Chancellor Angela Merkel in 2019 – Berlin stood by the statement that NS2 is not political.

Secondly, attention should be paid to “European” accents in this part of the diplomat’s statement. We hear that this is “a European undertaking” and there is an argument of “more than 100 European companies.” Well, it looks like the ambassador included screw producers and catering suppliers to the pipeline project. The truth is – from the commercial side – that this is a Russian undertaking. How can one call “European” a project in which Gazprom holds 100-percent of the shares?

It is worth mentioning that thanks to the negative opinion of the UOKiK from 2016 about whether companies from the EU taking shares in the consortium complies with competition law, they have withdrawn from formally purchasing shares in Nord Stream 2 AG company. Instead, they promised to finance the project. These are Engie, Shell ÖMV, Uniper and Wintershall DEA. The latter two are German companies, but one-third of the shares in Wintershall DEA are owned by Russians, although not those from Gazprom. In such a situation, speaking about a “European” project is far-fetched, to say the least.

But it is obvious why the ambassador uses such an argument. It reminds us of the reaction of Ms Merkel to the attempt on the life of Alexei Navalny. What did she say when she was under the pressure of German opponents of NS2 (also her party colleagues)? She stated that this is not only a matter of Germans and the decisions should be made in a wider, “European” group and pointed to the upcoming EU Summit, which was delayed by the SARS-CoV-2 coronavirus and which did not bear any fruit concerning NS2. But Ms Merkel and supporters of the Russian-German pipeline bought themselves some time.

They can still spread the argument that this is not a German-Russian project, but a “European” one. Did they forget that at one time, a former deputy chancellor and leader of SPD party, Sigmar Gabriel, during a conversation with Vladimir Putin said that this investment has “a strategic character for Germany” and presaged struggle with the European Commission over it? “The realisation of the project is not only in our interest but the interest of other countries too. As a result, the most important matter is leaving the legal issues in the hands of German authorities. If we do it like this, we will be able to limit external intervention,” he said.

At the end of the German ambassador’s statement concerning NS2, there is the part about Ukraine. The diplomat says that Berlin expresses solidarity with this country, allegedly trying to prevent the negative consequences of constructing the pipeline under the Baltic seabed for the gas transit through Ukraine. Let’s settle some facts. First of all, if Ukraine protected itself from the gas spigot being turned off – at least for a couple of years – it was possible thanks to Americans, not Germans. Contrary to the German statement. The sanctions laid by the US on companies constructing the pipeline halted the investment in December 2019 and resulted in forcing Gazprom to prolong the transit deal with Ukraine. If someone tried to block those sanctions and still fights with them, it was Germany. How can the German ambassador say that his country tries to protect Ukraine against the negative results of NS2?

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In an interview with “Handelsblatt” in April 2018, the then President of Ukraine Petro Poroshenko called on German politicians and businessmen to change their approach towards NS2, saying that the pipeline would be “a bribe for Germany from Russia in exchange for loyalty.” The purpose of NS2 is doubling the throughput of the gas line between Germany and Russia under the seabed of the Baltic Sea, from 55 bn cubic metres to 110 bn cubic metres. But it would not mean a rapid increase in the Russian gas exported to the EU. The reason is simple: Russia will not have new sources in the near future. It means that gas pumped through two new lines of the Baltic pipeline will not go through the other, already existing export route. Nord Stream 2, just like Nord Stream, is about the independence of Russia from gas transit through Ukraine in face of increasing consumption of this resource in Europe. Redirecting the stream of Russian export from Ukraine to the Baltic Sea would mean annual losses of USD 2 bn for Kyiv (this is how much they receive every year from the transit fee), while Germany will have cheaper gas. Where is the solidarity mentioned by the ambassador?

This Poland again...

Shortly after the interview with the ambassador, “Politico” published an article “Poland hits Gazprom with the world’s largest competition fine.” It reads that Brussels is surprised (by implication – unsatisfied) that Poland “fined Gazprom with the highest-ever penalty.” If one could assess this text with one word, it would be “sulk”. It was their outrage that Warsaw did not notify Brussels and “has been making the life of the Russian giant harder for a long time.”

It reminds us of accusations that Poland ruins Europe’s relations with Russia on purpose and that article, written from the point of view of Brussels, has, in fact, a lot in common with surprisingly inconsistent and false statements of the German ambassador about NS2. The authors are surprised that Poland made such a harsh decision when Polish policy aims to decrease dependence on Russian gas imports, so NS2 would not be such a threat. But it is, its construction hits the Polish diversification efforts.

But why are the authors or maybe EU officials surprised that Poland did not report its intention to impose the penalty? First of all, notifying Brussels would mean notifying Moscow and Gazprom. Russia has a developed network of lobbyists and informers in EU institutions. Secondly, the authors themselves mention that in 2018 “the European Commission was unable to fine Gazprom in a breakthrough anti-monopoly case concerning domination on the EU gas market.”

UOKiK had no real basis to count on the support of Brussels in this case. The article states that the decision of the Polish anti-monopoly office is “definitely a blow at the interests of Russia, a country that was accused of attempting to regain its control over their former influence zone in Eastern Europe by all Polish governments, regardless of political affiliations. “Of course, it is a blow at Russian interests, but also based on economic reasons. It is not only about the political struggle of Warsaw against Russian expansion attempts in our part of Europe.”

More interesting is a statement that “the sentence is also partially aimed at Brussels, which was not notified about the decision.” Why is this ruling targeting the EU? It looks that the only reason to talk about the alleged anti-EU connotation of the UOKiK sentence is that Poles dared not to notify Brussels. It would be interesting to know if the German regulator, making the decision about the Nord Stream 2 or OPAL pipelines, notified Brussels or consulted them about it.

The authors of the article point to the decreasing dependence of Poland on supplies of Russian gas, saying that “this gas independence might undermine UOKiK argumentation that Nord Stream 2 is a threat to the Polish gas market.” “Politico” refers to the report about the possible influence of the NS2 project on the European gas markets. The report, which was commissioned by the Nord Stream 2 AG company. It is quite clear that it presents conclusions beneficial for the project. “It is not obvious why starting Nord Stream 2 would have a negative influence on the security of gas supplies to Poland,” the authors of the text wrote, adding that such argumentation “for sure will be used when the Russian company will challenge the decision of UOKiK.”

Before we move on to the question of whether NS2 is a threat to Poland or not, we should look at the key element of the UOKiK ruling, the reason why the penalty was imposed. Gazprom and its partners – according to the Polish office – have not followed the decision of UOKiK from 2016 which recognised that the possibility of European companies taking over shares in the consortium building the pipeline as a violation of the anti-monopoly law. The procedure which resulted in the record fine began in May 2018. As the justification presented by UOKiK states, “the companies have not resigned from concentration, but realised it in a different form.” They did not formally obtain shares in the company but signed an agreement with Russians about the rules of financing the project. According to UOKiK, the companies decided to bypass the regulations which still means a violation of the competition law. To conclude, the fine was imposed for violating the UOKiK’s earlier rulings.

Let’s move on to the issue of whether Nord Stream 2 is a threat to Poland. The authors of the article in “Politico”, like Gazprom, say that Poles have already made themselves so independent from Russian gas, that NS2 is meaningless to Poland’s security. Let’s look at two elements of the UOKiK ruling. Firstly, the threat of “territorial limits for natural gas supplies” and secondly, “the threat of increases in gas prices for final recipients.” The first concerns the possibility of cutting supplies of the resource from Russia. Even if Poland is safe, other countries of the region are not. With the direct connection with Germany, Gazprom might turn the spigot off for recipients in Central-Eastern Europe without endangering supplies to the West.

And what about the second threat concerning gas prices? Initiating the use of NS2, resulting in a significantly higher amount of Russian gas in Germany, which wants to be a hub for Central Europe would influence the market in the region, including Poland. One cannot say that because Poland opens itself for other suppliers and decreases supplies from Russia, Nord Stream 2 would not influence the Polish situation. Poland’s gas market, like everyone else's, is not isolated.

There is no doubt that if Nord Stream 2 is finally completed, Russians will redirect through it the gas currently transported through Ukraine. The annual combined capacity of four lines going through the Baltic Sea seabed (two of Nord Stream and two of Nord Stream 2) is planned to reach 110 bn cubic metres, which can reach the German gas hub and then be distributed around Germany and to neighbouring countries. This would seriously interrupt the attempts of the countries of the region to diversify gas supplies. For example in Poland, it would mean that in an extraordinary situation, when the volume imported through the Baltic Pipe and LNG had to be limited, the gas brought to Poland from Germany or the Czech Republic would be Russian and more expensive because of the transport through the Baltic Sea and the German-Czech brokering.