Today a Ukrainian delegation is flying to Poland to continue to implement the EAOTC declaration of support, signed by Ukraine, the EU, and Poland. Meanwhile, The Day’s experts believe that the grouping resisting the oil transport project is all out to push through its own project of filling the pipeline with Russian oil and putting it in the reverse mode, among other things in order to have the pipeline owned by a certain offshore company and those behind it. But first things first.
In early October, Ukrainian Fuel and Energy Minister Serhiy Yermilov declared that the cabinet had a seven-year contract providing for nine million tons Odesa- Brody pipeline Caspian light oil supplies. He specified that the problem was they could not find enough consumers for that amount of oil in Europe. This means that the current mission of Ukrtransnafta President Oleksandr Todiychuk’s brothers-in-arms could be regarded as a breakthrough. US Vice President Richard Cheney said that his government would help Ukraine carry out the Odesa- Brody project directed by Europe.
Ukrtransnafta’s Supervisory Board gave impetus to the reverse mode trend in early October, giving Europe adequate food for thought. President Kuchma, however, commented on the vote authorizing Ukrtransnafta’s General Director General Stanislav Vasylenko to sign agreements with TNK to have the pipeline filled with Russian technical oil as follows: “No decisions other than those made by the Cabinet of Ministers can be regarded as legitimate with regard to this problem.” He further noted that “an economic decision made on this scope is also a political one.” Fuel and Energy Minister Serhiy Yermilov was also questioning the lawfulness of the Ukrtransnafta’s Supervisory Board decision, The Day was told at the ministry’s press service, because that decision could not be regarded as that business entity’s prerogative.
Premier Viktor Yanukovych said last Wednesday in Washington that the Ukrainian government would make a decision only for the benefit of the Ukrainian economy, after receiving the relevant proposals from oil suppliers, adding that the issue was being solved and teams of experts were at work; holding a tender was the only approach that made it possible to solve the problem. (Russia’s TNK, by an earlier arrangement with Verkhovna Rada, forwarded an ultimatum to the Ukrainian cabinet, demanding that an Ukrtransnafta-TNK-VR agreement be signed forthwith, whereby technical oil could be supplied to fill the Odesa-Brody pipeline; otherwise TNK would recall its earlier offer of oil supplies on credit.) That very day marked the ultimatum’s deadline. The Russian company intends to use the Ukrainian pipeline to transport nine million tons of Russian Urals class oil to Odesa whence it will be exported across the Bosporus and Dardanelles.
Europe, nevertheless, is likely to know how to protect its interests and will find a way to adequately deal with the Ukrainian project — provided, of course, Ukraine does not shortly turn it into a Russian project. Unfortunately, this possibility does exist, as evidenced by the Ukrtransnafta Supervisory Board’s sitting. To use the sports parlance, it was a Ukraine vs. Russia meet, with the Russian team scoring 4:3. Interestingly, the golden share in the vote belonged to the Ukrainian State Property Fund, yet the latter surrendered it to Naftohaz Ukrayiny CEO Yuri Boiko prior to the vote and he used it as the vote of the state the way he understood the situation, in favor of the reverse mode. SPF Chairman Mykhailo Chechetov told The Day that he had not issued any voting instructions, simply because “I trust professional and don’t like dilettantes.”
The Ukrainian side ought to have considered risks other than losing face when dealing with the reverse mode option and the possibility of signing agreements on TNK oil supplies on credit to fill the pipeline. Perhaps the least such risk would be the fact that, according to the experts, a pipeline filled with a conserving agent and complete with an electrochemical protection system, is exposed to less corrosion rate than when filled with Urals oil.
Ukrtransnafta top manager Mykhailo Honchar told The Day that, even if the pipeline were filled with Russian oil, rather than allowed to operate in a reverse mode, however temporarily, “our Western partners will consider this as Ukraine backing down from the Brody direction strategy aimed at the European market,” adding that Russia was even now making every effort to convince Europe that the Odesa-Brody pipeline was a new Russian oil transport route. Some Russian and even Ukrainian media were enlarging on Ukraine’s losses stemming from a belated decision on the reverse deal.
The Day’s source at Naftohaz Ukrayiny commented on the risks involved in five draft agreements on loaned TNK oil supplies to Ukraine, saying that it is a crafty pattern that foresees loans on purchases of this oil, with the latter being subsequently used as collateral, for which purposes a bank account is to be opened with a leading Western bank. The right to manage that loan would then be transferred to an offshore company with a meager (and even not fully paid up) statutory fund in Cypriot currency. That offshore company would be authorized to manage an amount in excess of $90 million. Another interesting contractual clause is that the quality of oil filling the pipeline will remain the same. It actually means that the Urals brand would become a stopper of sorts (to remain in the pipeline for a term of between one and three years) and that it would prevent access to Caspian light crude. The draft reads that breaching this clause would entail serious penalties: repayment of the loan, along with various compensations. The anonymous expert stressed that this is the crux of the matter; the reverse mode idea does not imply economic feasibility but a cover for yet another attempt to torpedo the EAOTC project. If it works, Ukraine will be pushed way back as a transit country, while its market rivals will retain their positions. Also, the opponents of the project could try to use such loans to convert Ukraine’s debts into offshore companies’ property (as was the case with Odesa’s Eksimnaftoprodukt). The SPF’s surrendering its vote to Ukrtransnafta serves only to strengthen an association with the Odesa option.
