Legal Eye: Securing energy supplies
Although short lived, the interruption in oil supply marks the second (or third if you count Georgia) stoppage in oil flow from Russia to Europe in as many years. How can this happen? Surely treaties between the Russian government and the EU must protect against such interruptions? The answer, it turns out, may come as bit of a surprise.
Who owns the pipeline?
The Druzhba pipeline, or if you prefer the "Friendship" pipeline as it is called in Russian, is owned by the Polish government, albeit indirectly. Formally, the pipeline is owned by a corporate entity, PERN Przyjań SA, a joint stock company wholly owned by the Polish State Treasury.
Who contracts for the supply of oil?
Private oil refineries, such as PKN Orlen and the Lotos Group, contract directly with Russian oil producers, who in turn contract with PERN to transport the oil from abroad to their respective refineries. PERN also contracts with German refiners to transport oil originating in Russia via the Druzhba pipeline to refineries located in eastern Germany.
Formally, contracts for the supply of oil are executed by private enterprises, although the State Treasury may have a controlling stake in each entity. No treaty exists between Poland and Russia with respect to the supply of oil or natural gas.
Does EU law apply?
The short answer is no, but not for a lack of trying by the EU Commissioner for Energy. Each member state is free to secure outside sources of energy without the intermediation of the EU (atomic energy being a notable exception). This is not to say that EU law does not apply to the energy sector, just not to the supply of oil and natural gas from outside the EU.
EU law obligates each member state to stockpile the equivalent of 90 days' worth of oil and natural gas as a safety cushion in the event of an unexpected interruption in supply, as we recently witnessed. The recent debate over the German-Russian gas line illustrates the lack of central EU power with respect to energy policy throughout the EU.
Negotiations continue...
Negotiations between the EU and Russia regarding the supply of oil and natural gas have been ongoing since October 2000. Referred to as the Energy Dialogue, the EU Commissioner for Energy and his Russian counterpart have engaged in a series of discussions in order to address issues of common interest in the energy sector, including not only the security of supply to EU member states on favorable commercial terms, but also securing the opening of the Russian energy market to foreign investment in order to upgrade Russia's energy infrastructure.
The results have been mixed, as evidenced by a joint communiqué issued by EU Energy Commissioner Andris Piebalgs and Russian Minister for Industry and Energy Victor Khristenko in November 2006, in which both sides stressed the need to "strengthen mutual confidence and encourage a closer convergence of Russian and EU positions on a wide range of issues in the energy sector in order to increase energy security." Considering the recent interruption in oil flow to Poland and Germany I would classify this as bit of an understatement after more than six years of negotiations.
Paul Fogo is a senior attorney with Miller, Canfield, W. Babicki & Partners. E-mail: fogo@pl.millercanfield.com
