German Court Rejects Nord Stream 2 AG Appeal
The Higher Regional Court of Düsseldorf on 25 August rejected Gazprom-owned Nord Stream 2 AG’s appeal regarding the Nord Stream 2 pipeline (NS2). The company attempted to challenge the decision of the German regulator to deny a derogation for the pipeline, which would mean exempting it from some EU regulations, as sought by NS2AG. In practice, the derogation meant that some EU rules would not be applied to NS2, including the need for transparent management. It cannot be ruled out that Russia will try to pressure the EU to make concessions in this matter by, for example, refusing to supply additional gas volumes by a different route than NS2.
Photo: Reuters
What was the decision?
The German court rejected NS2AG’s interpretation of EU law. According to EU regulations, pipelines that were completed before 23 May 2019 could receive a derogation from some EU rules, which would not be applied for a period of 20 years (after this period, the derogation can be renewed). For pipelines not completed by that date, an application for an exemption is possible. This second procedure is more complicated and requires consultations with countries whose markets might be impacted (e.g., Poland). For NS2AG, that would mean long, burdensome talks, which might result in failure anyway.
In its attempt to retain full control over the pipeline, NS2AG applied to the German regulator BNetzA for a derogation, claiming that NS2 was completed before May 2019 from the perspective of the investment decision. In May 2020, BNetzA rejected NS2AG’s application for the derogation, and the company appealed the decision. The new verdict means that NS2 must be managed by an independent operator that ensures transparent tariffs and access to the pipeline for companies besides Gazprom.
What will be the next steps for NS2AG and Gazprom?
NS2AG stated it disagreed with the ruling. The company might appeal it, but this most likely will be unsuccessful. NS2AG maintains its interpretation of EU law and noted that it also has challenged the EU regulations in the European Court of Justice. The decision of the German court means however that it is legally impossible for NS2AG to violate EU law by imposing its own interpretation of the gas directive. In the nearest future, the company will focus on adjusting the legal regime of NS2’s functioning, but attempts at circumventing the law cannot be ruled out. This is because the company is trying to achieve two contradictory goals: first, it wants to quickly launch NS2, which should be ready for the first deliveries this October (although certification of the operator is required first; NS2AG applied for this to BNetzA on 11 June) and second, to retain total control over it, although EU law clearly prohibits it. So, it cannot be ruled out that the company will try to pressure the EU in other ways, for example, by provoking an energy supply crisis by refusing to ship additional gas via routes other than NS2, with Gazprom likely citing opaque technical reasons.
What does the verdict mean for the EU and Poland?
The verdict reflects both the letter and spirit of EU law. BNetzA, whose decision the court supported, is involved in the certification procedure. A draft decision on certification should be prepared by 11 October, then the European Commission (EC) will have two months to review it and BNetzA another two months to publish the final decision. However, given the controversies around ensuring the independence of the operator, as well as Polish state-owned PGNiG’s application for admission to the procedure, the process will be lengthy. The Polish company maintains that NS2AG cannot be certified as an Independent Transmission Operator (ITO). The EU requirement to factor in the solidarity principle will make it easier for PGNiG to present its position. Gazprom might resort to energy supply blackmail to pressure BNetzA to issue a decision favourable for the company and then on the EC to maintain it. EU institutions and Member States should not bend to Gazprom’s pressure, but guarantee the full applicability of EU law to NS2.
