The European Commission has given nod to a deal for a pipeline that will bring “new gas” to EU and “increase the security of energy supply for Southeast Europe.”
More precisely, the EC has found the Host Government Agreement between the Greek authorities and the Trans Adriatic Pipeline to be in line with EU state aid rules.
The Trans Adriatic Pipeline, which will bring Azeri gas to the EU, will improve the security and diversity of EU energy supplies without unduly distorting competition in the Single Market, the European Commision said in a statement on Thursday.
Margrethe Vestager, Commissioner in charge of competition policy, said: “Today’s decision opens the way for a multi-billion infrastructure project in Greece. The Trans Adriatic Pipeline will bring new gas to the EU and increase the security of energy supply for Southeast Europe. The investment incentives offered by the Greek Government are limited to what is necessary to make the project happen and in compliance with state aid rules.”
Maroš Šefčovič, Vice-President responsible for Energy Union, said: “Today’s approval of the TAP agreement is an important step towards completing the Southern Gas Corridor. The Energy Union framework strategy of February 2015 identified this project as a key contribution to the EU’s energy security, bringing new routes and sources of gas to Europe. Just on Monday, the Southern Gas Corridor ministerial meeting in Baku, which I attended, confirmed the determination of all participating countries and consortia to complete this key infrastructure project in time. “
The Trans Adriatic Pipeline is the European leg of the Southern Gas Corridor, which aims to connect the EU market to new gas sources. With an initial capacity of 10 billion cubic metres of gas per year, the pipeline will transport gas from the Shah Deniz II field in Azerbaijan to the EU market as of 2020.
The Trans Adriatic Pipeline will run from the Greek border via Albania to Italy, under the Adriatic Sea. The builder and operator of the pipeline is Trans Adriatic Pipeline AG (TAP), a joint venture of several energy companies. TAP will invest €5.6 billion over five years in the project, of which €2.3 billion in Greece.
Specific tax regime
The Greek authorities and TAP concluded a Host Government Agreement. This sets out how TAP will construct and operate the pipeline and defines the respective obligations of the parties. In particular, the agreement provides TAP with a specific tax regime for 25 years from the start of commercial operations. This may give the company an economic advantage over its competitors, who would not benefit from the specific tax regime, and therefore involves state aid in the meaning of the EU rules.
The Commission said it had assessed the measure under its 2014 Guidelines on state aid for energy and environmental protection (the “Guidelines). The Guidelines state that such aid can be found compatible under certain conditions when it furthers objectives of common interest.
The Commission found that the project will contribute to further diversification of European energy supply sources and routes: it will bring gas from the Caspian Sea region and potentially the Middle East to the EU; competition on the European gas market will be increased thanks to the extra volumes of gas and new supply route; the construction of the pipeline requires substantial upfront investment over several years before any revenue will be generated.
Funded by private cash
The project will be funded entirely by private investment and will generate revenues in its Greek part only from the tariffs paid by clients shipping gas on the pipeline.
The Commission concluded that the project would be unlikely to be carried out absent the aid; the aid is in the form of a specific tax regime that, depending on whether tax rates increase or decrease, will lead TAP to pay more or less tax than it would without the aid. If the rates increase the aid will be limited to the minimum tax benefit for TAP; in particular the scheme has a built in adjustment mechanism that limits the maximum benefit for TAP. If the Greek equivalent applicable tax rate were to rise or fall beyond 20%, an adjustment mechanism to recalculate TAP’s contribution will come into effect.
The Greek authorities will monitor this to ensure that TAP complies with the methodology and therefore the aid is limited to the minimum necessary.
The Commission therefore concluded under the Guidelines that the project’s benefits in terms of increased competition and security of energy supply clearly outweigh any potential distortions of competition triggered by the state aid.