Czech energy regulator and NET4GAS on collision course over new prices

Regulators and their subject companies are not supposed to be on the best of terms. But the latest price moves by the Czech energy regulator, ERÚ, have clearly angered the country’s main gas pipeline company with a long drawn out legal battle now looming.

Illustrative photo: European Commission

In European gas transit terms, the Czech Republic is in the comfortable position of being on some of the main transport routes for Russian natural gas to be shipped towards its major west European markets.

It has two major cards in its hand, the traditional East-West gas pipeline through Slovakia, Ukraine, and to the Russian gas fields constructed during the Soviet era. And there’s the new link under the Baltic Sea, Nord Stream, which cuts through North-East Germany and then the Czech Republic onto the major markets in Germany and the rest of Western Europe.

It’s no secret that that Russia would like to boost the Nord Stream shipments, which avoid Ukraine and deprive Kiev of potential massive gas transit earnings, even to the extent of building a second undersea gas pipeline.

But shifting the shipments to Nord Stream would also hit Slovakia, and its partly Czech-owned gas pipeline company Eustream, and would also threaten to leave the Czech gas pipeline company NET4GAS with an underused ageing piece of infrastructure which still needs to be paid for and maintained.

It is this context, and the fact that some of NET4GAS’ long term gas transit contracts expire on or around 2018, that the Czech regulator has moved to cut some of the company’s gas shipping charges. It argues that the existing charges are a lot higher than those in neighbouring countries and that the cuts will bring them into line. The regulator’s broader strategic spin is that these cuts will also guarantee the long-term use of the main East-West pipeline.

Photo: Tomáš Adamec, Czech Radio

NET4GAS does not agree with most of what the regulator argues in its press release of December 1 giving the reasons for the cuts. It says the moves, which it describes as ‘drastic’, to take effect in 2017 average out at around more than 20 percent compared with those in effect now. And it argues that this is an unprecedented and irregular move by the regulator which will damage the Czech Republic in the short and long term.

And NET4GAS says it is now taking legal action to challenge the price rulings, which the gas pipeline company argues should improve the regulatory framework in the Czech Republic long term. The legal challenge is likely to be a drawn out affair but, if victorious, the company has the prospect of clawing back the extra charges paid in the meantime.

The overall atmosphere for foreign owned utilities is not that positive in the Czech Republic with the government recently releasing a detailed economic analysis essentially charging them with expatriating a large amount of their profits and suggesting tougher regulatory rules might be called for. NET4GAS, and its Polish counterpart, are a case in point at the moment, both dragging their feet on part of a north-south pipeline which was at one stage seen both countries as a strategic priority.