The latest from Ukraine-Russia’s gas front presents a strikingly controversial picture. Gazprom’s spokesman Sergei Kupriyanov has openly threatened Ukraine with rerouting some supplies to Europe through the Nord Stream pipeline, another across Belarus, and “new undersea pipelines.” The man appears to mean business, considering that Ukraine’s pipeline transit has dropped by 19.2 percent in the first quarter of the year, with gas supplies to the EU countries going down by 20 percent. Add here a steady transit pipeline payload downward curve. Europe received almost 35 percent less of gas in March 2012 than during the same period last year. Naftohaz Ukrainy shows a markedly tolerant attitude. Vadym Frolov, chief engineer, Ukrtranshaz’s uniform pipeline dispatch control, insists the March decline was caused by the temperature going up in the importing countries.
Kupriyanov’s statement was obviously lacking something, so Ivan Grachev, chairman of the Russian Duma’s energy committee, tried to upgrade it (maybe to try to shake the unshakable ones who control Ukraine’s gas transportation system). He said: “It is possible to reduce the amount of gas transited through Ukraine, but I regard this as inexpedient.” He went on to hint that the Ukrainian and undersea transit costs were incomparable, ending up by saying that it’s best to come to terms with Ukraine, that there is enough time left for both countries to reach an agreement before the end of the year (before the start of the South Stream project in December).
Whereas this part of his statement sounds tranquil, the rest is very much like an ultimatum, to the effect that Ukraine has a limited timeframe for negotiations, that it’s best to accept Russia’s terms and conditions.
Yevgeny Kashitsin, deputy CEO, Gazprom Export Prague, is more realistic. He told a news conference in Slovakia: “Ukraine’s overall transit of more than 70 billion cubic meters [down by at least 30 cubic meters compared to last year. – Author] …is impossible to be rerouted.” He reminded that, in January 2009, Gazprom and Slovakia’s gas transportation system operator, Eustream AS, had signed a 20-year natural gas transportation agreement, providing for a total of some three trillion cubic meters, with about 50 billion transited every year. “In all good conscience, I can state that all commitments in terms of transit and supply contracts [i.e., gas supplies to Slovakia and the Czech Republic via Ukraine. – Author] will be met. None will be left without transit and transit-related jobs,” he assured. He went on to say that Slovakia is Europe’s second Russian-gas-transiting country after Ukraine (last year it received some 60 billion cubic meters and transited 50 billion to Europe). After reaching Western Slovakia, part of Russia’s natural gas is pumped to Germany and France through the Czech Republic. The rest is transited to Austria and Italy.
Russia’s threat to leave Ukraine’s pipeline empty appears to be part of Moscow’s blackmail game aimed at forcing Kyiv to keep paying the unfair natural gas price. Will the old/new President Vladimir Putin of the Russian Federation temper justice with mercy and change the oil-and-gas payment formula for the benefit of Ukraine, the way it was done for a number of European countries? Hardly likely. According to Tamara Guzenkova, departmental head, deputy director, Russian Institute of Strategic Studies, “the gas talks aren’t likely to be completed for the benefit of Ukraine in the near future… I guess this is largely because Ukraine is trying to maneuver between Moscow and Brussels, without accepting any integration arguments on the part of the Russian political leadership, while trying to make an association agreement with the European Union.” She adds that official Kyiv is also trying not to fall out with Moscow, that this policy will continue until the parliamentary elections, so the Party of Regions can receive the largest possible number of ballots from those who support European integration and closer cooperation with the Russian Federation: “Ukraine’s attempt to force the Russian government to lower the gas price will fail, and this effort shows increasing evidence of political blackmail.” Guzenkova stresses that [pipeline] projects bypassing Russia will most likely be implemented, but Ukraine needs [Russia’s natural] gas today.
In other words, Ukraine’s effort to resist Russia’s gas blackmail has been noticed and assessed. The trouble is that Russia doesn’t seem to take seriously Ukraine’s attempt to defend its energy independence. There is no political blackmail on the part of Ukraine. Ukraine is simply trying to work out energy import alternatives, like any other country, Russia included. In response to lower gas transit, Ukraine may considerably lower gas purchases from Russia. There is a feasibility study on a liquefied gas terminal at Pivdenny Port. It will be capable of handling 10 billion cubic meters a year. Ukraine has an experience of using its gas transportation system (GTS) in the reverse mode. Naftohaz’s CEO Yevhen Bakulin and Enegry and Coal Industry Minister Yurii Boiko recently said they were planning to shortly start buying up to 10 billion cubic meters of gas on the European wholesale markets.
“All I can say is that such talks are underway; that some progress has been made, which means that Ukraine will have different [natural] gas supply sources,” First Deputy Prime Minister Valerii Khoroshkovsky declared recently.
Prime Minister Mykola Azarov, visiting Baku, the capital city of Azerbaijan, declared that Ukraine is interested in the implementation of the Trans-Caspian Gas Pipeline that will transit natural gas across the bottom of the Caspian Sea, from Turkmenistan to Azerbaijan. These countries are working out two agreements relating to the project. Both can be signed with the participation of the European Commission. These news obviously hit the Kremlin’s nerve, considering that Russia’s political leadership counts on making Ukraine join the Eurasian Union, using stick-and-carrot tactics.
Should the Ukrainian government play into the Russian counterpart’s hand? I don’t think a single Ukrainian in the street would answer this question in the affirmative, but apparently there are certain members of our government who would do just that. Otherwise there would be no issue of two billion dollars’ worth of loan from Gazprombank (owned by Gazprom) for natural gas supply from Russia. This loan will mean that Ukraine is not only paying several times the price, but will also have to pay the interest. The IMF tranche would come in pretty handy, except that the current Ukrainian administration isn’t likely to accept the Fund’s requirement to increase the household gas bills before the elections, although Khoroshkovsky told Reuters in late March that Ukraine is working out a plan aimed at gradually increasing individual gas consumer prices. If so, how will the people receive the bad news? How will this affect the government, considering its promise to keep these bills intact until they can figure out the situation with the utilities?
Bohdan Sokolovsky, former president’s energy security adviser, told The Day: “This will certainly have a negative effect on the current administration; its ratings will go down. For the man in the street it is important to know how much he will have to pay for gas and how much he will get in terms of salary and pension. Today these tariffs don’t constitute the number-one family budget expense item. Tihipko says salaries and pensions will be increased by four, even five times during the year, but we don’t know about the tariffs. They aren’t high today, but our salaries are among the lowest in the world. That’s the problem. We must have market-oriented tariffs, the sooner the better. Above all, we must have better salaries and pensions.”
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The Ukrainian Cabinet proposes to allow Naftohaz, as a government-run company, to buy natural gas trade services without tenders. A bill entitled “On Changes to Article 2 of the Law of Ukraine ‘On Public Procurement’” has been duly submitted to the Verkhovna Rada. If passed, it will authorize Naftohaz to purchase “natural gas, services relating to the transportation thereof (specifically, transfer, freight, insurance, filling/emptying, quality and quantity inspection), as well as distribution, supply, and storage without tenders.” Naftohaz will also be able to avoid tenders when buying services from financial instruments, performing operations involving derivatives and risk control, financial services, those of stock exchanges, auctions, electronic trading systems, as well as other internationally practiced services sought in the course of natural gas purchase and sale transactions.
The explanatory note attached to the bill reads that, when passed, this bill help upgrade and further Ukraine’s oil-and-gas complex while meeting individual consumer needs and enhancing national energy safety.
These preferential clauses are conferred on Naftohaz in conjunction with Gazprom’s statements threatening a substantial decline in Russia’s gas supply to Europe using Ukraine’s GTS. In view of this, Ukraine is considering the possibility of using GTS in the reverse mode.
