Ukrainian government shows maturity and unity in deciding on Odesa-Brody pipeline

On February 4 the Ukrainian cabinet unanimously decided that the Odesa-Brody oil pipeline would operate only in the western direction, Vice Premier Andriy Kliuyev briefly told journalists after the meeting, adding that a task force had been formed to make arrangements for joint use of the pipeline with oil owners. He also announced that the cabinet supported the bill granting concessions on Odesa-Brody and the Southern Oil Terminal. Fuel and Energy Minister Serhiy Yermilov believes the pipeline will transport 4-5 million tons of Caspian oil this year.

A long-awaited and complex decision was finally made. It will also activate the Eurasian Oil Transportation Corridor project, which envisages top quality Caspian crude to Europe, showing Europe and the rest of the world that Ukraine is not only willing to integrate into the community of European nations, but is also taking certain steps in that direction. The importance of the cabinet decision on the reverse mode is further evidenced by a recent poll with respondents placing the pipeline issue second after the political reform.

At this point one is strongly reminded of certain conflicts addressing the Ukrainian oil pipeline project. The Day asked Defense Minister and former NSDC Secretary Yevhen Marchuk for comment (the more so that he had on more than one occasion handled Odesa-Brody problems while with the NSDC). Below is his story.

“Today we are witness to the end of the Odesa-Brody saga. In 1998, President Kuchma ordered arrangements to be made for the EOTC. I recall an NSDC sitting in 2000 (one of the first that I presided over), dealing with energy security, when the Odesa-Brody project was deliberated in precisely this context, so it was decided to speed up its construction. Regrettably, the government did not comply with the resolution and NSDC had to deal with the matter twice. Our decisions read that, alongside construction, comprehensive talks should be held with the Caspian oil-producing countries, large oil companies on the energy market, along with oil-consuming and transporting countries. It was necessary to involve them all with the project, so that the pipeline would be filled with oil very soon after completing its construction. This aspect gave rise to numerous political speculations, including accusations of obstructing the building process. Of course, the arguments presented proved bottomless. The issue was repeatedly analyzed by NSDC at length and finally it was decided to set up Ukrtransnafta with the [head] office in Kyiv, to unite both oil pipeline systems in Ukraine: Druzhba and the Prydniprovski Oil Mains. At the same time, the post of Ukraine’s Special EOTC Representative was instituted for holding talks with all foreign partners.

“Viktor Yushchenko’s cabinet ignored routine and uninteresting tasks such as looking for partners, negotiating deals with them, drafting contracts... Instead, they focused on construction. Even then the NSDC and the president warned the cabinet that such approach could result in the pipeline remaining empty, and that large investments could be frozen. These warnings were not heeded and the best time for attracting partners was lost. We know what happened after. The oil pipeline has remained practically empty for two years, with only a small section operating in the reverse mode to earn just enough to pay maintenance costs. Of course, this situation was unbearable in a market economy. It was then we received what looked at first sight an attractive proposal: reverse mode for the whole pipeline. The idea had exponents and opponents. However, those in a position to assess the project strategically had a unanimous opinion. Today [Feb. 4] this opinion has been finally officially approved, even if after three years’ delay. Fuel and Energy Minister Serhiy Yermilov, Vice Premier Andriy Kliuyev, Ukrtransnafta President Oleksandr Todiychuk spoke at the cabinet meeting, giving exhaustive answers to all questions. Should Ukraine agree to the reverse mode, the Polish side would immediately loose interest in the project and would not take part in the completion of the Brody- Plock-Gdansk section. In fact, even putting the pipeline in the reverse mode temporarily would cause Europe to lose interest in Ukraine. And so the only proper decision was made. It will help energy security in Europe and will not allow rival Caspian oil transportation projects to get ahead of the Ukrainian one (in which case Ukraine would simply drop out of the market). Simultaneously, Ukraine does not in any way confront Russia, offering it partial use of the Prydniprovski Oil Mains, which is a good option for Russia.

“Therefore, we have succeeded in defending the Odesa-Brody oil pipeline as a Ukrainian national product. It is an extremely important fact that the decision was unanimous. It was supported by the pertinent Verkhovna Rada committee headed by Stanislav Hurenko. From the domestic political point of view, this decision is part of the big consolidated future of the Ukrainian nation and society. It will help us solve all problems at the state level. This decision can be regarded as a sum total of national interests and opportunities to translate into life this extremely necessary motto: Ukrainians, Forward March!”

Serhiy Yermilov told The Day he also attached great importance to the cabinet decision on February 4. He had of late been exposed to pressure and insinuations from exponents of back-pumping. “I acted in keeping with purely professional, not political considerations, and paid no attention to that pressure. Today, no cabinet members showed any doubts concerning the decision. In fact, no one abstained during the vote. This is a genuine political stand,” he stressed.

Stories by participants in the working out of the [political] course and those witnessing the February 4 cabinet meeting make it possible for one to conclude that Ukraine is about to embark on the process of becoming united as a single political nation. First it was Tuzla, now another far more important step made, as it not only guides Ukraine to Europe, but also everyone of us to our true selves.

Stories by participants in the working out of the [political] course and those witnessing the cabinet meeting of February 4 allow one to conclude that Ukraine is about to embark upon a process of consolidation as a single political nation. First it was Tuzla, now another far more important step made, as it not only guides Ukraine to Europe, but also everyone of us to our true selves.

“The pipeline should be put into operation in two or three months at the latest,” Vice Premier Andriy Kliuyev told a Ukrainian Union of Industrialists and Entrepreneurs meeting. He has confirmed that 2004 will see at least four million tons of oil pumped from Odesa to Brody at flexible rates that will depend on the volume of oil transported. Kliuyev expects the pipeline to yield between $8 and $67 million annually, provided the volume of oil deliveries reaches 9.5 million tons a year.

Meanwhile, Oleksandr Horodetsky, president of the TNK-Ukraine trading house, who represents in Ukraine the key promoter of the reverse operation of the pipeline, has stated that his mother company, TNK-BP, will continue attempting to convince Ukraine of the expediency of backpumping.

Ukraine’s Premier Viktor Yanukovych was unmoved by this statement. As he put it, if need be Ukraine will look into the possibility of increasing the volumes of oil transported across its territory, but in no case will this be done by reversing the flow of oil in the Odesa-Brody pipeline. He further pointed to a possibility to increase by six million tons the volume of oil transported via Transnistrian pipelines. “If they use these possibilities and increase volumes of oil pumped via the Transnistrian pipelines, and if we receive more proposals, we will consider them. But as far as the Odesa-Brody pipeline is concerned, the decision has been made. TNK-BP will also be able to deliver its oil to Europe via this route,” the premier said, adding that if we combine the capacities of the Transnistrian and Odesa-Brody pipelines, Ukraine will increase both the volume and efficiency of its oil transport.

According to SDPU(o) parliamentary leader and Ukraine’s first President Leonid Kravchuk, the government’s decision is right in principle and will not affect Ukraine’s relationship with Russia. “Now TNK-BP is thinking how it could use the pipeline from Odesa to Brody and not the other way around. They also see that there are economic interests, since we should not sacrifice economic interests for some relationship. Relationships are built on interests,” Kravchuk stressed.