Last week, Naftogaz addressed the German energy regulator Bundesnetzagentur requesting that the administrative procedure be applied to a settlement agreement between itself, Gazprom and its affiliates resulting in amendments to the 2009 exemption decision on OPAL gas pipeline.

Naftogaz insists on being summoned to participate in the administrative procedure and officially present its position as well as on being granted access to the text of the settlement agreement and the decision of the European Commission dated 28 October 2016, which has not been published yet.

As it was reported in late October, the European Commission approved the decision of the German regulator to amend the 2009 decision on OPAL whereby exemption from certain requirements of the Third Energy Package was granted to the pipeline operator. The amendments will significantly expand Gazprom’s access to OPAL capacity, and thus increase gas transit through Nord Stream bypassing Ukraine.

The OPAL settlement agreement affects interests of a number of gas operators in Eastern Europe, including Naftogaz as a party to the transit contract with Gazprom and a major natural gas importer to Ukraine.

According to German legislation and international obligations of the EU towards Ukraine, interests of these concerned parties must be taken into account by the EU institutions and authorities of member states when relevant decisions are made.

The OPAL settlement agreement approved by the German regulator and the European Commission restricts and distorts competition in Ukraine and other countries of Central and Eastern Europe. It enables Gazprom to considerably strengthen and abuse its already dominant position in the markets of Germany, Poland, Ukraine, Slovakia and other countries of the region. The agreement does not comply with the Energy Community Treaty as it impairs gas flows between the Energy Community Contracting Parties and the EU member states.

Gazprom’s wider access to OPAL capacity is likely to have the following implications for Ukraine:

1. termination of gas flows from Poland;

2. decrease in gas transit though Ukraine’s GTS and substantial reduction of Naftogaz revenues from transit;

3. higher gas procurement and transportation costs;

4. gas balancing risks within the country;

5. decline in gas imports to Ukraine from the EU market;

6. additional costs to optimize Ukrainian GTS and UGS facilities according to new operating conditions.

German legislation requires an administrative procedure when the regulator makes decisions on exemption from requirements of the Third Energy Package. It also entitles Naftogaz as a affected party to participate in the procedure and have access to the case file.