[Fair Play] By Thibault Larger and Christian Oliver | tlarger@politico.eu and coliver@politico.eu | @frogontheroof | View in your browser _With thanks to Cat Contiguglia, Emmet Livingstone, Steven Overly and Carmen Paun._ _CHÈRES LECTRICES, CHERS LECTEURS_, WELCOME TO POLITICO’S FAIR PLAY, our new weekly newsletter dedicated to an increasingly high-profile territory in which the EU is a genuine big hitter: competition. Our mission is to explain the broad geopolitical agenda lurking behind the often bewildering competition cases concocted by European Commissioner Margrethe Vestager and her mandarins in the Madou Tower here in Brussels. We’ll explain how even the most obscure cases fit into the EU’s broader policy ambitions in sectors ranging from retail and energy to tech and taxation. Fair Play will hit your inboxes every Monday at 11 a.m. (Apart from next week, when it’s Tuesday!) We will also be sharing our news and analysis throughout the week with our shiny new service, Competition Pro. You, our dedicated readers, have complimentary access to this newsletter, and we’d be delighted if you trial our first few editions and let us know what you think. (If you are interested in a complete trial of the _full _service, including in-depth articles and analysis, please email pro@politico.eu). My name is Thibault Larger, originally from Paris and a former economist at Ofcom in London and Oxera in Brussels. I am holding down the fort until the arrival next week of Simon Van Dorpe. Some of you may already know Simon from his work as a competition reporter at Parr, covering technology cases. STAY TUNED: Later this week, we will look at why the EU is so worried about a tunnel between Denmark and Germany, and we will report on state aid reform in the farm sector. YOUR SOAPBOX: We want Fair Play and the Competition Pro news service to become a forum for the latest smart ideas in the competition realm, so please contact us with the latest tips, theories and gossip. We are always up for a great op-ed, too. To kick off, we are looking for provocative thoughts on cross-ownership or joint dominance. Please send us an email: fairplay@politico.eu. MONDAY ANALYSIS: MAGGIE AND THE BEAR All the signs are that Vestager is poised to close one of the most politically charged cases of them all: Gazprom. So there’s no better time to take stock and see how the EU has fared in taking on Russia’s mighty gas export monopoly, and whether the settlement (barring any big surprises in the final version!) will work. Continue reading to see our post-match analysis and scorecard on the Gazprom case and our take on whether it fits into the EU’s goals of building an energy single market and reducing gas import dependence on Russia. We are giving her a thoroughly respectable 7 out of 10. You’ll have to keep scrolling for the rationale behind our score. But let’s have a look at some other news first. HAPPENING TODAY: MORE POWER TO THE PROVINCIALS A trilogue meeting on a proposal to make national competition authorities stronger is set for today, and EU ambassadors will be briefed on the outcome Wednesday. The big idea behind the proposal is to make sure that EU antitrust rules (Articles 101 and 102) can be applied consistently across member countries. There are measures to strengthen the independence of national competition authorities and ensure sufficient resources. The proposal also seeks to harmonize leniency programs and access to enforcement tools, from imposing sanctions to holding parent companies liable for subsidiaries. We’ll keep tabs on the meeting for you. SPEAKING OF THE INDEPENDENCE OF NATIONAL AUTHORITIES: A row is rumbling in Romania. More than 100 governing party members in the country’s parliament are pushing for changes to the way the competition authority leaders are elected. In short, the proposed reforms are being viewed as a power grab. The changes would make it easier for the ruling Social Democrat Party to control the institution, according to opposition politicians and the Economic and Social Council, a consultative body of the Parliament and the government. Critically, the changes would give more power to the prime minister. If the law is approved, the PM could select and fire the authority’s secretary-general, who is now appointed through an internal procedure. POLITICAL APPOINTEES ARE A BIT OF A MESS IN WASHINGTON, TOO: It’s a full house at the U.S. Federal Trade Commission — too full, in fact. The U.S. Senate confirmed all five of President Donald Trump’s nominees to the antitrust regulator late last month, after the FTC operated with just two commissioners for more than a year. But one Obama-era holdover isn’t budging. Republican Commissioner Maureen Ohlhausen, once thought to be a contender for a permanent promotion to chairman, will not leave her perch until her term ends on September 25 or the Senate approves her appointment as a federal judge. That means Delta Air Lines executive Christine Wilson must wait to be sworn in. — ONCE THAT GETS SORTED, A FULLY CREWED FTC COULD HAVE RENEWED MIGHT. The new commissioners inherit a number of ongoing investigations, including the agency’s review of Facebook’s data leak to Cambridge Analytica. With that controversy, Facebook may have violated a 2011 consent decree, which would carry a hefty fine for the social networking giant. Chairman Joe Simons pledged in February to scrutinize industries with concentrated market power. “If some anti-competitive conduct is occurring there, that’s where you get a big bang for the taxpayer buck, by enforcement in those areas,” he said. GAME OVER, GAZPROM: TIME TO SETTLE GRUMPY IN GDAŃSK: The first thing to note is that many Eastern Europeans will hate the impending Gazprom settlement, no matter what. For them, the charges against Gazprom were the “case of the century,” and they wanted to see Moscow punished with a multibillion-euro fine for overcharging them for gas. In many ways, this was symbolic. The case was meant to prove that Brussels cared about the east as much as the west, and was willing to poke the Kremlin in the eye. That just ain’t gonna happen. A fine briefly seemed possible in 2015, when Vestager rolled out her charge sheet, but life has moved on. On the one hand, no one in Brussels is keen to burn political capital for the Poles any more after the Law and Justice party came to power. On the other, Germany is eager to avoid any trouble with the Russians as it sets its sights on the North Stream gas pipeline through the Baltic. What we are looking at now is a peace deal, not punishment. In a sign that the Poles know what’s coming, Piotr Woźniak, the chief executive of Polish gas company PGNiG, expressed his disappointment in POLITICO: “You cannot find a compromise with a company that does not want one. Gazprom’s sole intention is to monopolize the Central European market, either through breaching or ignoring EU law.” WHY NOT DO THE SPLITS? Alan Riley, a senior fellow at the Institute for Statecraft in London, also reckons Gazprom deserves a fine. If the European Commission really wanted to settle for reasons outside of the scope of competition law, he said “it could have split the case.” He suggested the Commission could have imposed a fine to punish the Russians for using contractual restrictions to stop eastern European buyers from re-exporting their gas. It could then have settled on the remaining charges. THE POLITICS OF PRICE: By the time Vestager unleashed her charges (carefully choreographed one week after hitting Google in April 2015 to make her look extra tough), Gazprom was largely ready to settle. The one point that Gazprom was always going to fight tooth-and-nail was the somewhat maverick charge from Brussels that its prices were “unfair.” On the two other charges (market segmentation and linking supply contracts to Russian-backed pipelines), Gazprom had already accepted that it would have to mend its ways. Brussels insisted these Soviet-era divide-and-rule tactics stopped the creation of a free-flowing, competitive gas market by preventing re-export, and Moscow basically agreed. But Brussels tried to push the boundaries further and accused the Russians of “unfair” pricing. To support this claim, the Commission’s competition department compared Gazprom’s prices in Central Europe to different benchmarks over time, and concluded that prices were abnormally high. It was a trailblazing claim as the Commission itself normally prefers to target underlying causes of price (like the contractual bans on re-export) rather than focusing on overpricing per se. THE EXPERIMENT MAY HAVE WORKED, HOWEVER: In 2015, most economists were very skeptical that the overpricing charge would stick. “Unfair prices is a vague notion,” said Avantika Chowdhury, partner at Oxera, noting that “these cases are difficult.” (Full disclosure: Thibault’s last gig was at Oxera, where he worked as senior consultant.) And OK, we grant you Vestager’s overpricing gambit didn’t ultimately result in a decision that confirmed wrongdoing and imposed a fine. A major new precedent was not established. Gazprom has, however, moved far further in this direction than anyone believed possible in 2015. In its proposed commitments, Gazprom offered to benchmark its prices against Western European gas prices, to which the company may add a markup. If the markups are too high, Gazprom allows for price reviews at the request of customers. The Russian energy giant will also then permit mediation in case an agreement is not reached in the price review. Crucially, Gazprom has also moved away from indexing its prices to oil, something Russia still vociferously defended three years ago. There is obviously a big question over whether this settlement (and Gazprom’s markups) works in practice. Gazprom could still have the upper hand in expensive, lengthy arbitration cases with poorer customers. But the underlying message is that Gazprom saw that the lion’s share of its exports go to Europe, and that it made sense to dance to the EU’s tune. In a more competitive market it can still be the kingpin. DANGERS OF DEPENDENCE: So, does this case mean Europe will buy much less Russian gas — something the EU has set as a major strategic goal? In a word: no. Europe’s production is falling, and Russia produces a whopping 44 percent of EU imports. Sure, Gazprom has to change its pricing in Central Europe, but Central Europe is not where it is making most of its money. In 2017, the value of Gazprom exports in Central Europe represented broadly 20 percent of its total exports. In addition, the Groningen pricing formula Gazprom was using became a threat to its own profitability. As oil prices dropped, it was no longer in Gazprom’s interest to peg its gas price to a commodity whose value was sinking. Finally, a settlement was assured by mutual dependence. Europeans still need Russian gas (loads of it) and Gazprom really needs this European market. FINAL SCORECARD: Vestager did what she could. Competition policy is one of the EU’s key weapons to build an energy union that pulls fractured national power networks into a unified common market. Her settlement has brought about significant structural changes in the way that gas prices are set and the way that the fuel flows across borders. In that sense, this settlement can be seen as a political win. We’ll give her a solid 7. (Conditional on the benchmarking commitment actually working.) However, none of this matters too much if the gas infrastructure in Europe does not find additional supplies. Liquefied natural gas is expensive, and the EU faces a battle to bring in gas from the Caspian and Middle East along the so-called southern corridor. Italians in Puglia don’t want the TAP pipeline to make landfall among their bucolic olive groves. In addition, we have yet to see whether the Greek-Bulgarian interconnector ever gets built to allow broad diversification away from Russia. The truth is there was always a real limit to what Vestager could do to diversify away from Russia. Competition policy is no silver bullet. IN CASE YOU MISSED IT AT WHAT PRICE A EUROPEAN CHAMPION? Vodafone, the British telecoms giant, agreed to buy assets in Germany and Eastern Europe from its competitor Liberty Global for €18.4 billion. This deal is likely to force EU regulators to decide on the shape of Europe’s telecoms markets for years to come. — CLEARANCE DEPENDS ON WHICH JURISDICTION REVIEWS THE DEAL: The takeover is highly likely to be referred to Brussels because of the pan-European nature of the deal. “There is some noise in Germany, but at the end of the day this is a decision that will be made at the EU level,” Vittorio Colao, Vodafone’s chief executive, told investors Wednesday. “The EU has been in favor of the creation of pan-European players.” If the case does come to Brussels, the Germans will lobby for hefty divestments and Vodafone could lose feathers depending on the European Commission’s vision for its telecoms markets. Read Mark Scott’s full report._ _ DID ROMANIA ARTIFICIALLY EXTEND A COMPANY’S HALF-LIFE? The European Commission is investigating whether public funds received by the National Uranium Company are in line with state aid rules for companies in difficulty. MEGA MATCH-UP: The European Commission gave its blessing to the marriage between ArcelorMittal and Italy’s Ilva to form by far the largest steelmaker in Europe on the condition that they sell some of the family silver. FOILED: The European Commission announced May 3 that it carried out unannounced inspections at the premises of companies active in the metal packaging sector. CRASH COURSE IN FORMING CARTELS: Let’s call it Cartels 101. President Emmanuel Macron asked the French Competition Authority to teach France’s beleaguered farmers how to form cartels. The syllabus is here. ELECTRICITY IN THE AIR: The U.K. Competition and Markets Authority is not satisfied with the merger deal between SSE and Npower. It fears that customers will pay more for their electricity. To determine that the deal can proceed, the CMA is opening an in-depth investigation. Verdict in 24 weeks. MUSICAL CHAIRS CHRISTOS MALAMATARIS recently left Latham & Watkins to join the European Commission’s competition department. He is now a case handler in Unit D2: mergers-financial services, pharma and chemicals. In more news from Latham & Watkins, JACQUES-PHILIPPE GUNTHER, ADRIEN GIRAUD and their crew joined the law firm’s competition team from Willkie Farr & Gallagher. In the economists’ paddock, some promotions at Oxera: AVANTIKA CHOWDHURY was promoted to partner; MICHELE GRANATSTEIN and ALEX GAIGL were promoted to principals. Oxera’s senior team grew stronger, while MAPP lost one of its Paris-based partners, ROMAIN DE NIJS, who left for Ecole Polytechnique as an associate professor a couple of months ago. _This article is part of _POLITICO_’s new coverage of competition, antitrust and state aid issues, Competition Pro. This coverage includes the Fair Play newsletter every Monday morning. Emailpro@politico.eu to request a complimentary trial._
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