OGZPY PJSC Gazprom (PK)

By Natalia Drozdiak and Emre Peker 

BRUSSELS--The European Union is poised to settle its long-running antitrust case against PAO Gazprom as soon as this month, according to people familiar with the discussions, a move that could be perceived as bending to the Russian state-owned energy giant and at a time of rising tensions between Moscow and the West.

A decision by the EU's antitrust watchdog would conclude one of its most politically sensitive competition fights and would allow Gazprom to avoid billion-dollar fines in exchange for commit ments aimed at breaking the Moscow-based company's stronghold on the bloc's natural-gas supply--especially in its eastern members.

The deal could have a relatively limited impact on Gazprom because it would involve commitments to change some business practices it has already altered in response to customer pressure. It also contrasts with record antitrust fines in the billions of dollars imposed on U.S. technology companies, including Alphabet Inc.'s Google and Qualcomm Inc.

The move would come amid strained relations between Moscow and the West over alleged Russian intervention in elections in the U.S. and Europe, Russian policy in Syria, and over the conflict in Ukraine. Tensions rose most recently after the U.K. accused the Kremlin of poisoning a former Russian spy in Britain.

Margrethe Vestager, the EU's antitrust chief, has sought to separate political developments from the Gazprom investigation since taking office in 2014, rejecting suggestions that settling the case without a fine would amount to appeasing Moscow.

The EU has been investigating the Russian gas-exporting monopoly for almost seven years over its alleged unfair pricing and restrictive terms in Central and Eastern Europe. Gazprom supplies roughly one-third of Europe's natural-gas imports, which its highest level since 2010.

Controversy has dogged the case. When the European Commission, the EU's executive body, formally announced the probe in 2012, Russian officials and Gazprom denounced it as politically motivated and aimed at forcing the company to reduce its prices.

In 2016, when the commission unveiled a deal that would let Gazprom avoid financial penalties and an admission of guilt, uproar arose in some EU countries once under Moscow's control. Poland's state-run gas firm, PGNiG SA, has advocated fines and other tough penalties for Gazprom, which could help its European rivals in court should they decide to sue for damages.

Ms. Vestager has defended her decision to strike a bargain with Gazprom, saying a fine for the company's past behavior would lead to lengthy court challenges, and wouldn't necessarily alter the company's business practices. She has also stressed the EU could still fine the company if it fails to meet its obligations.

Gazprom, which once demanded rigid, long-term contracts linked to oil prices, has in recent years shifted commercial practices to sell more gas at prices pegged to market benchmarks. The shift was motivated by a desire to boost revenues as oil prices sank to their lowest level in more than a decade from record highs, and by Russia's desire to maintain gas export proceeds.

Ms. Vestager reiterated her team's efforts to separate politics from the probe when asked last month whether recently-announced U.S. sanctions against Russian individuals, including Gazprom Chairman Alexei Miller, would influence the investigation.

"It is very important to us what happens also geopolitically," said Ms. Vestager at a conference in Washington. "But it is something that we try to keep strictly apart from the case specifics."

An advisory committee of antitrust experts from the EU's 28 member states discussed the case this month, people familiar with the discussions said, meaning the pending deal has reached one of the last stages before a decision.

The EU last year subjected Gazprom's proposed terms to a market test, letting competitors and other market players comment on Gazprom's proposed pledges, which include removing contractual restrictions that prevented customers from reselling gas across borders. Gazprom had also offered to let its clients request price revisions more frequently and to ensure that gas prices in Central and Eastern European countries reflect market benchmarks.

The EU and Gazprom have since been negotiating details of the deal based on the responses to the market test.

The final terms of the settlement appear very similar to the initial pledges, but include a few more changes around more flexible terms on pricing and gas deliveries, people familiar with the talks said.

Those changes could add up to a considerable financial hit for Gazprom, said one of the people.

Write to Natalia Drozdiak at natalia.drozdiak@wsj.com and Emre Peker at emre.peker@wsj.com

(END) Dow Jones Newswires

May 07, 2018 06:09 ET (10:09 GMT)

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