This drawing was created 10 years ago by the genius of the caricaturist Anatolii Kazansky and has been carried by The Day several times. Back in 1998 the artist’s prophetic gift enabled him to discern the danger concealed in the cheap gas supplies Ukraine received from Russia thanks to the especially friendly relationships between the leaders of the two countries.
It is not worthwhile to bring to the attention of international community our domestic contradictions, something our government has done a number of times, calling for a consolidated position at the same time. In these circumstances the country looked weak, it was given orders, and encroachments were made on its integrity. The target of the latter was not only our gas transportation system but also the integrity of the state as such. One Russian politician and writer, who is well-known in Russia, even suggested paying neat sums of money for our votes at the possible regional referendums regarding secession from Ukraine, thereby purchasing jurisdiction, as he said. Do we have to feel offended? Isn’t it better to put our own house in order so that none of our citizens would be tempted to sell the country for any money?
The confrontation with Russia should not have been fueled so intensively. Isn’t it better to use the tactic employed by experienced businessmen in negotiations: try to understand, rather than only utilize, the partner’s difficulties? We seem to prefer pushing our way through. For example, no one in Ukraine can understand why Ukraine suddenly decided to use its own meager resources to supply gas to Bulgaria and Moldova, while in our cities plants are being closed, apartments are cold, and hot water is often unavailable.
Now Bohdan Sokolovsky, an official authorized by the president to deal with the issues of energy security, claims that Ukraine has used 75 million cubic meters of gas for this purpose and accuses Gazprom of refusing to compensate for this gas. From this Sokolovsky concludes that “the Russian Federation and Gazprom do not sufficient amounts of natural gas to transport to European consumers, and because of this they delay the solution of the gas problem that has to be achieved jointly with Ukraine.”
The conclusion is, evidently, ungrounded, but who, what kind of internationalism forced Ukraine to come to its neighbors’ rescue without legal guarantees and who capitalized on this? These questions remain unanswered so far. Sokolovsky is troubled by something else: is there a justification for the level of financial and image losses that Russia is sustaining now? According to him, with its gas supply to Europe halted, Russia is losing up to $150 million daily, while serious financial problems have emerged within Gazprom, in particular with wages. Isn’t it better to look at ourselves in this issue?
Ukraine has a long-term, but ineffective, energy program. It seems that the government and parliament would have to turn their attention to this program, above all else. This would be a businesslike approach to the problems that have emerged and would convey the message that, rather than being narrowly focused on today, the country looks ahead. I remember that few people believed that Ukraine, acting all on its own, would be able to finish the construction and launch the additional reactor blocks at the Khmelnytsky and Rivne nuclear power stations. However, Serhii Tulub, the then-head of Enerhoatom, solved this task jointly with the government. At the current stage the reactor block construction program again becomes the number one task for Ukraine.
Oleksandr Todiichuk, a well-known expert and president of the International Energy Club, has told The Day about the current energy situation and why we need to focus at preventing it from happening again. “The conflict will end in certain losses for Ukraine, although Gazprom will lose a lot more. Nonetheless, it will not make our life easier,” he said. The decision to transit gas to Europe has to be adopted within hours after Ukraine’s separate opinion is taken out from the transit rules. This opinion is that our country did not steal gas, fines can be paid only following a court ruling, and, as it has already been the case, ‘technical gas’ will be used for the purposes of transit (until the gas price and the transit fee are agreed).
Todiichuk has explained that with multiple increases in the price of gas and the same transit fee, transit begins to cause losses, and in these circumstances any court will acknowledge previous agreements on the transit fee as ineffective. He also said that the European Union gave us its full support in this issue, but Russians, not willing to subject themselves to fines, bluntly denied these amendments. Then the EU for the umpteenth time persuaded Ukraine to include its amendments as a separate document. Todiichuk has surmised that in this situation everyone is defending their own interests.
Todiichuk perceives the roots of the present gas problems in the fact that Russia did not succeed in negotiating a good gas price from Central Asia and now is trying to shift its problems onto Ukraine, although this is totally unacceptable, he said, because it was the mediating company Rosukrenerho that worked with the Asian gas, while now we receive gas directly from Gazprom and it is all the same to us where it comes from. Russians understand this and it makes them nervous. The desire of Rusukrenerho to remain on the market adds fuel to the fire.
What will Ukraine have to do after it has learned the lessons of the current conflict? Todiichuk believes that we will need to begin with installing commercially produced gas-measuring stations at the points where Russian gas enters our system. International audit companies will be responsible for the accuracy of the data. Then all the issues will be resolved much more easily and something Ukraine has been demanding for a long time will become a reality: Russia will give gas to Ukraine on the latter’s eastern, rather than western, border. As a result, Ukraine will be able to follow the EU standards for gas consumption and transportation. Until this switch is made, transparency in these issues will be secured by European observers who will keep us from a situation in which discrepant interpretations lead to an international conflict.
The main thing, says Todiichuk, is that the country needs to “get off the gas needle.” He points to the fact that gas accounts for 50 percent of Ukraine’s energy balance. No country can afford this, he adds. Even in Russia gas does not have such a prominent place. Ukraine is able to cut its gas consumption by 20-25 billion cubic meters, he says, listing alternative sources of energy that our country can make use of: from coal, including brown coal, to peat and straw.
Special attention needs to be paid to the development of the nuclear energy sector. Ukraine should not levy more taxes on its Naftohaz. Rather, the company should be given an opportunity to grow and eventually produce up to 30 billion cubic meters of Ukrainian gas and up to 7-7.5 million tons of oil.
“Cheap gas made everyone relax, says Todiichuk, and the current crisis is giving us a chance. This is a powerful stimulus to defend and enhance Ukraine’s energy security.”
COMMENTARIES
Serhii KUIUN, CEO, UPECO:
“In the current situation (the European commission has arrived in Ukraine. — Ed.) I do not perceive any threat to Ukraine’s gas transportation system. Of course, the leaders of our country have lost the informational and tactical war to Russia. This is humiliating when a commission of European experts comes to check whether Ukraine transports gas without violations. Weren’t the documents previously submitted for audit sufficient? That is why in many respects the current result is a victory of the Russian side.
“In order to avoid the necessity of similar checks in the future, there is only one solution: a single price calculation mechanism for the gas that is transported from Russia to Ukraine needs to be developed and legally prescribed in an agreement. In this way the gas issue will be settled once and for all.
“If we are to believe the foreign press, the cost of 1,000 cubic meters of gas in Poland is $250 or even $300. Therefore, gas from Russia cannot cost more for Ukraine because the price for Poland includes the cost of transit through Ukraine.
“In general, this row, which is revolving around no one knows what, seems strange to me. However, I think it is linked to politics. Let us hope that our government will have sufficient courage and arguments to complete these talks.”
Kostiantyn BORODIN, head of the Energy Research Center:
“This is a predictable conclusion of the unprofessional gas policy we have observed throughout 2008. I would like to remind you that the 2008 gas supply contract was signed on March 14, 2008. For two and a half months Ukraine essentially received gas from Russia without a contract or any legal grounds, just like in 2009. The difference is that in 2008 Russia did not cut off gas for Ukraine, whereas in 2009 it did.
“What do we do? We need to urgently use the mediation of the European Union in order to secure from Russia a transition to the formula-based price calculation for gas in 2009 (starting from January). A formula that will be applied to Ukraine will have to be the arithmetic mean of the prices for Poland, Slovakia, and Romania. This is what the transparent market price will be. Ukraine needs to publicly declare its transition to this formula-based approach with the EU participation. Russians will not have the guts to say “no” before the entire European Union.
“Regarding the gas price, over $400 is a fair price for the first quarter of 2009. In the second quarter it will drop to some $300. In the third one it will go down even more, while in the fourth quarter it will be calculated based on the outcome of the first quarter of 2009. However, there is no arithmetic mean for gas prices, so no one can say what a fair annual average price is. The only solution is to switch to the European formula with the quarterly changes in the gas price (which depends on the oil price).”
Hennadii RIABTSEV, deputy director for educational activities of the Psyche research center:
“Our mistake is that there is no active informational policy in the gas sphere. Because of its lack Ukraine now looks the worst in the eyes of Europe. It may happen that in this gas row the EU will accept Russia’s arguments.
“However, we should not relax. The rules of the game of the energy resource market have changed. Exporters used to dictate the rules, but now it is the privilege of the importers. (The demand for energy resources is shrinking and the exporters need to keep their sales markets.) If Ukraine stands its ground in this struggle, all the importers in Europe will follow suit. This will be extremely inconvenient for Gazprom.
“We need to be concerned about the gas row. However, we should not sign a gas supply agreement with Gazprom on these conditions. In 2009 Ukraine will need no more than 40 billion cubic meters of gas. Now Ukraine has 16 billion cubic meters of gas in its gas storage facilities and will produce another 22 billion on its own. This will be enough for six months. Until the gas supply agreement has been signed between Ukraine and Gazprom, we should not sign the gas transit agreement with Russia. Where will Russia direct its gas then? The maximum volume it can export bypassing Ukraine is nearly half of Ukraine’s pipelines’ capacity. This means that in this case Gazprom’s revenues will go up in smoke. If the oil prices stay at $50 or below, Gazprom will have zero profits from gas sales (gas prices are calculated based on the cost of black oil and gas-oil). In this case the company will have to turn to the government. It is because of this that Gazprom wants to improve its financial situation at Ukraine’s cost.
“The current volumes of gas stored in Ukraine make it possible to avoid pleading with Russia and try signing an agreement on conditions that are acceptable to both countries.
“A further argument to stabilize the gas situation is that we need to return to the intergovernmental and state agreements signed by Ukraine and Russia in 2001-2002. These were ratified by the parliaments and have the force of laws. They clearly define Ukraine’s obligations as to transporting Russian gas and Russia’s obligations as to supplying gas to meet Ukraine’s domestic needs.
“Our country signed the European Energy Charter. Therefore, the question of market prices for gas is inescapable. The main thing is that their introduction needs to based on fair and mutually beneficial conditions without the signs of a shock therapy.”
Vitalii MARTYNIUK, an analyst at the Ukrainian Independent Center for Political Research:
“Gazprom and Naftohaz could strike a deal earlier. The current situation with the supply of Central Asian gas to Europe will more likely affect EU consumers. In other words, this is a political factor of the purest kind. Ukraine can suffer minimal losses in this conflict if the Ukraine-Russia talks will focus on the volumes and terms of gas supplies, the cost of transit through Ukraine’s territory, and other things. If this suspension continues, Ukraine’s economy will suffer, in particular its chemical and metallurgical industries, and the country will incur unanticipated losses.
“Ukraine possesses a gas transportation network through which Russian gas goes to the EU. No matter what you do, this cannot be changed in the next several years. We need to use this chance to our benefit by correctly manipulating gas transit fees.”
Oleksandr NARBUT, a gas expert:
“The problem is that there is no new, clearly defined energy strategy as I mentioned to The Day‘s readers in 2007-2008. There is no unified center that would adopt resolutions on gas and develop negotiations strategies. This enabled Russia to use formal pretexts to launch a massive gas attack against Ukraine.
“Do we need to drag our feet more with the gas contracts for 2009 and subsequent years? Ukraine has delayed this issue for so long; it can be delayed for some more time. But today gas supplies to the country have been stopped. The gas that Naftohaz has will suffice to meet the needs of the population, state-financed institutions, and, to some extent, the utilities sector. The issue of gas supplies to Ukraine is very acute. It seems to me that the government made a mistake by taking 12 days of rest in the new year instead of actively working along this line.
“In the actual fact, the talks on the conditions for gas supplies to Ukraine and transit through its territory have always been the government’s province. On the basis of the effective intergovernmental agreements these talks would have to be regulated by a governmental protocol, which our government failed to do either in 2007 or 2008. Today there are chances that the current government will mobilize its efforts and go through the negotiations with a more or less understandable position. The issue of gas transit fees is a topic for a separate round of negotiations. Now we need to restore the logic of the effective agreement and receive a certain volume of gas in payment for transporting Russian gas through Ukraine’s territory. This gas is needed to avoid using our domestically produced gas and the gas stored for technical purposes to transport gas to Europe.”
Volodymyr OMELCHENKO, a leading expert on energy programs at the Razumkov center:
“All participants will lose in the gas war: Ukraine’s image of a reliable transit country will suffer, while Russia will lose trust as a supplier of gas. In order to avoid similar occurrences in the future, Ukraine will have to switch to long-term contracts (as is the case in Europe).
“After the gas row the EU will change its attitude to our country and the construction of the Blue Flow pipeline bypassing Ukraine will be much more likely. Europe will intensity its efforts in the Nabucco project. As regards the question about who should supply the ‘technical gas’ used to transport Russian gas through Ukraine’s territory, here we need to be guided by the signed documents. According to the Russian gas transit contract and the effective contracts between Gazprom and the European companies, ‘technical gas’ has to be purchased by the transit country. Its cost is included in the transit fee.”
Pavlo KACHUR, Ex-Minister of Construction and CEO of the Nova Enerhiia Ukrainy Alliance:
“Ukraine is displaying its character, showing that it is not going to kneel before Russia. However, we cannot speak about this as an accomplished fact. We need to wait and see the outcome of the Ukraine-Russia dialogue on the gas transit fee. Then we will know whether parity has been attained in the gas issue.
“Russia set a purely political price. It got the price out of the blue and if Ukraine is left with it, our industry will have a hard time. We need to have the stand of the EU countries on this issue. Ukraine can use a whole array of arguments: the logic of calculating the price (following the European formula), documents on gradual transition to market relationships, and the transit fee.
“There are certain positive sides to the Russian price ultimatum. It will force all of us to use gas sparingly and seek an alternative source of energy as soon as possible.”
Borys KUSHNIRCHUK, economist:
“If Ukraine agrees to use its own gas to ensure the transit of Russian gas, the situation will be hopeless. In fact, this will be a great blunder! We will simply not have enough gas. Russia will not be interested in any agreements. It will remove its problem of gas supply to Europe and will delay negotiations with Ukraine.
“I have not heard a declaration to this effect from Tymoshenko. But if she agrees to this, it will cause the collapse of Naftohaz and [Russia] will twist our arms in any way it wants.
“This problem can be resolved in a very simple way: declare Naftohaz’s bankruptcy-there are sufficient grounds to do this. Take out all of its assets that are not to be privatized and demand from Russia an agreement with government guarantees based on new conditions. I see no other solution. Otherwise we will face a very difficult situation. We don’t have enough of our own gas to meet our needs and ensure transit even throughout this winter. In this case Russia will delay the signing of the contract and may sign nothing at all.”
