A double-edged pipe

Continued from the previous issue

“RUSSIAN DOLL PRINCIPLE”

The energy problem may become a lever for drawing Ukraine, fully or partially, into the Eurasian Union. As experience shows, the gas transportation system (GTS) and Russian gas is today a source of many problems. How do you think Ukraine can avoid this risk today? Can our membership in the European energy community be an instrument of protection?

Oleksandr Chaly: “The Russian ambassador has said the gas question is no longer linked with integration. It is Zurabov, not I, who said it.”

Mykhailo HONCHAR: “It is an ungrateful thing to believe diplomats.”

O.Ch.: “We should trust the Russian ones.”

M.H.: “Still more ungrateful if it is about the Russian ones. As Talleyrand used to say, a diplomat uses the tongue to hide his thoughts.”

O.Ch.: “They have already understood there would be no EurasEC under any circumstances.”

M.H.: “They may have understood this, but they continue to stick to their guns, applying the ‘Russian doll principle.’ If we can’t be fitted into a ‘doll,’ we can put it off for some time and use another one and fit it into the previous one.

“Putin’s well-known article on the Eurasian Union sidesteps the energy problem. But it is just the instance when one must look at what has been omitted. As for Ukraine, the Russians surely wanted to solve the gas problem in one fell swoop this year. But, as we see, they failed to do so. Why? Today’s Ukraine has an oligarchic and parasitic economy adjusted to suit certain oligarchic groups. The latter are expected to have their self-preservation instinct aroused. The point is that when these small ‘predators’ feel the danger that a stronger one will come and use them as prey, they will begin to resist this prospect as much as they can.

“The political leadership is today unable to resist Russia, but, as it is being sponsored by certain oligarchic groups, it will have to hold out.

“We can remain undecided for a long time and consider our uncertainty as a potential, but all the same we will have to make a choice. If we ourselves do not do this, somebody else will do it for us.”

Yurii KOROLCHUK: “Today, the Ukrai-nian leadership is trying to play its own game with the Russians. But Russia is a very efficient and skillful player in the gas game. It has learned very well to hold gas negotiations with other countries, such as Poland, Moldova, Lithuania, and Slovakia. But, instead of preparing bargaining chips, the Ukrainian leadership goes on simulating the preparation. The proof of this is the way we are overtly fulfilling (to be more exact, not fulfilling) our pledges about getting ready for EEC membership.

“As a matter of fact, we should have liquidated Naftohaz Ukrainy as an unnecessary superstructure long ago and left Ukrtranshaz and Ukrhazvydobuvannia. That’s all. But this arouses the government’s instinct of self-preservation in the oil and gas sector because, although the companies that make part of Naftohaz are formally independent, they cannot make a financial decision without instructions from above.”

Does Ukraine have a chance to emerge victorious in the gas hassle with Gazprom, Russia, and the EU? Do you think there will be a consortium? And what can Ukraine surrender to Russia in exchange for cut-price gas?

O.Ch.: “A counter-question to you: what do you mean by ‘victorious’?”

An agreement that suits Ukraine’s interests.

Hryhorii PEREPELYTSIA: “I am sorry to cut in, but even if we do, there still is an important thing here. Firstly, Russia may change it is current hard-line attitude to the Third

Energy Package within one or two next years because it is unable to overcome what was decided at the EU top level. Secondly, the next year is going to see negative trends in the EU imports of Russian gas.”

In other words, you mean that Ukraine could get a low oil price even without establishing a consortium?

H.P.: “In principle, I do. In my view, there is no reason why we should follow this artificial paradigm. They want to obtain from us what they did from Belarus.”

O.Ch.: “The whole point of today’s struggle is the rules of the game or an impact on this territory. If we are patriots of this country, we must focus on this and support the now ratified law which we cannot change. We should act positively and say that this government has ratified it because this is what may help us hold out even if a consortium is established. In all probability, this will happen and the Petersburg model will be repeated – at first, they will lay the table and then invite the EU to eat the leftovers.”

Valerii CHALY: “It is not normal when all our people have suddenly become gas experts. Everyone is pondering over Russia and gas prices. This is occurring because we have chosen a wrong way. Do we need this much gas and will society support the government if it takes an unpopular step by raising gas charges in order to cut its consumption in a year or two?

“We are just on the Gazprom’s ‘needle’ and have very unfavorable supply conditions, as we have to take in large quantities of gas. As long as somebody on both sides of the border continues to cash in on gas, nobody will ever stand shoulder to shoulder with someone else, for there are vested interests in Ukraine, who would like this system to be instilled for many years ahead.”

M.H.: “It is the so-called business exploitation of the existing gas dependency. We are saying that the state should set a strategic goal to achieve energy independence. But we see now, 20 years on, that things haven’t got forward even an inch. Why? Because ‘business exploitation’ is beneficial.

“The consortium, over which lances are being broken, is not a panacea. Look at Lithuania. They have a trilateral consortium. They have exercised a classical option: privatization of the state’s main block of shares. As a result, Lithuania is paying one of highest prices for the gas supplied by Gazprom.”

As this situation has existed for many years, can you see anybody, for example, among our politicians, who is taking an entirely different approach to the possibility of jumping off the “gas needle”?

M.H.: “I do see some among the experts, so, sooner or later, there will be a leader like this. But if you take the political level, I don’t.”

Yet it is sometimes difficult to imagine European rules of the game, when it comes to gas. For example, Alexander Rahr said recently that German business had welcomed very much the results of the Russian elections. This is as a European rule, isn’t it? So we are sometimes naive enough to repeat certain things, as if we don’t see the way they look in reality. But, to have politicians of a certain level, we should see at the earliest time whether they can offer any independent idea, doctrine or approach to discontinue the ever-lasting wrangle with Russia over the pipelines. Can anybody see one?

V.Ch.: “The president has in fact always been the key figure in gas-related matters. I think the real problem is how to control these actions. Parliament has now officially requested that our energy minister, who is holding almost secret negotiations, disclose the directives he is guided by. Naturally, when negotiations are underway, this should not be a matter of publicity, but the trouble is that all, including heads of standing parliamentary committees, are denied this information. There is no control over this sphere. So any politician who is able to be a statesman can be in charge of all this, but he or she should be under supervision. The question is how to create this mechanism.”

M.H.: “The situation looks even more dramatic. We have so striking differences even at what seems to be statistic level that even if there is some information, moreover, official information, it is still doubtful whether it is credible. It is impossible to check it. We recently sent inquiries to the relevant ministries, Naftohaz, and subsidiaries as part of an international project: together with our foreign colleagues, we assessed, by a certain yardstick, the transparency of transit in Georgia, Ukraine, and Bulgaria, which really transport gas, and Turkey, a prospective transporter. There are problems everywhere.

“But what struck us was the answer: in principle, the Law ‘On Access to Public Information’ works quite well. We were surprised to see that, as far as gas transit was concerned, the difference between the data furnished by the State Customs Service and those by Naftohaz and Transhaz could be measured by tens of billions of cubic meters rather than just percentage points. We inquired again and sent them back the copies of their answers with a request to explain away this blatant difference. And we received very interesting answers.”

Did they perhaps tell you about smuggling?

M.H.: “No. Naftohaz wrote that, in response to our query about the transit of natural gas, the national joint-stock company had sent this information in a letter dated so and so. They also noted they were not authorized to comment on the information furnished to the inquirer by other governmental bodies. The State Customs Service answered that they had already given us this kind of information and refused to comment as well.”

Did they measure at the inlet or the outlet of the pipeline?

M.H.: “The customs men did it at both the inlet and outlet. It is also a serious problem. Whenever we see a picture painted by the go-vernment, this does not yet mean it is true to fact. But, for the reasons Valerii has mentioned before, we cannot in fact verify all this and, coming back to the consortium question, we may be building all kinds of models and consider this to be better, and it looks so in theory, but the result may be absolutely opposite.”

Speaking of the pipeline having two ends: we once asked what we consider an interesting question on our website: what factors can bring about qualitative changes in Ukraine? Will the domestic situation mature under Western pressure or under the influence of a new Russian revolution?

V.Ch: “The situation of a quagmire may continue. Why should we think it is bound to change?”

In any case, it will not last for 100 years. There will be some stage of changes.

V.Ch.: “It might last for another five years.”

We are not speaking about five years.

V.Ch.: “We will approach this stage very soon – in the next 10 years.”

Under the influence of what factors?

V.Ch.: “The resource of the Soviet economy has been fully exhausted, as have all the fixed assets. Secondly, a powerful trade union movement, when people will not just be taking to the streets but going on mass-scale strikes for economic reasons. This will be a signal that the society is organizing itself. As for the mechanism of modernization, it, unfortunately, seems that it will be formed under foreign influence. Unpatriotic as it may sound, I believe that Ukraine might still make use of the mechanism of European integration as an impulse for modernization. I can see nothing else so far.”

Let us look at the latest gas talks between Russia, Ukraine, and the European Union, which revolve around the same topic. How is this sector going to develop further? What shall we do and who is going to manage?

What is the probability of bypass gas pipelines, such as White Stream and Nabucco, contributing to Ukraine’s energy independence?

M.H.: “This may occur if the government of Ukraine shows political will and takes proper actions. But if it is the way it was in 2008.”

And what is your expert flair saying?

M.H.: “I am pessimistic in this case because the ‘window of opportunities’ is closing.”

Does Ukraine have a chance of alternative cooperation?

M.H.: “Ukraine always has an alternative, but why has nothing been done in the past 20 years? Because preference has always been given to the business exploitation of the existing dependency, not to mention investing in the alternative or at least pondering it from the angle of strategy. The situation has not essentially changed now. What is going on around the liquefied gas terminal so far resembles si-mulation.”

Yu.K.: “In all probability, Yanukovych is waiting for December 19, when what he wants will be signed at the Ukraine-EU summit and there will be certain grounds for establishing a Ukrainian-Russian consortium (50x50). This will allow making offers to European companies. But will the latter want to tale part in the establishment of the consortium? This is quite a possible option because it is several, let us say, vested interests that are conducting the negotiations and we will perhaps have an intermediary. Moreover, when certain lobbying groups take the upper hand in Gazprom, we will perhaps get back to the 1990s, in the best meaning of the word, i.e., there will be several companies dealing with gas supplies to Ukraine. Firstly, let us not forget that Gazprom-Sbyt is Russian. The talks are very difficult. As far I can see and know, no political deal has been made. Nothing has been agreed upon, everybody is waiting. Yanukovych is trying to play a game of his own. It is not clear to what extent he will succeed: my impression is that he forgets who he is playing with. Gazprom really means imperial thinking, they won’t give in to anybody, and they will always pursuing their goal to the end. So the best option for them now will be to get a 50-percent stake in the GTS and, accordingly, Ukraine is interested in an ideal joint-venture arrangement.”

But is it really impossible to leave the Ukrainian pipeline alone, without any partnership schemes?

Yu.K.: “It is possible, of course, but this requires money. But, much to our regret, the problems of the consortium and gas in general have put Ukraine between a rock and a hard place – we have made no choice and do not have a strategy. Incidentally, I’d like to remind you what Oleksandr said in the beginning: he said it is not so important for us to be formally in the European Union and have an EU passport. We must first learn to live by those traditions.”

Would you like perhaps to sum up the discussion?

O.Ch.: “If we are guided by national interests in Ukraine in the gas negotiations, we are taking very strong position because we were and still remain monopolists, as far as transportation of Russian gas to Europe is concerned. If we want to pursue our national interests in the gas talks with Russia and achieve good results, we must understand that we cannot do so all on our own. We must fit the gas talks with Russia into the all-European context and resort to the rule of law – I mean the European Energy Charter and European Energy Community regulations. But the crucial strategic question today is not whether or not there will be a consortium, whether the gas price will be X or Y. The question is whether we stay behind in the regulatory field of the European Energy Community or leave this field as a result of these negotiations. I am convinced that today none of the Ukrainian branches of power would enlist popular support for leaving the gravity field of integration with the European Union. This inspires a hope in me that, in spite of rather hard times, our course towards European integration, approved by the people, will remain unchanged and we will reach our goal.”

M.H.: “The chief problem for us is to restore trust in this country as a gas transit partner. Clearly, it is not only the result of our own ‘efforts,’ and our neighbors have also helped us project the current image. We are not trusted because we are hard to understand. We are not transparent enough, and even when we are saying that we have underground gas storages that can be used, nobody will venture to use them in this way – it is a pig in a poke.”

V.Ch.: “I want to stress again that many problems have been created artificially – and not only by our partners. It would be wrong to always shift the blame to them. The conclusion is that the solution of gas problems depends on the solution of general problems inside Ukraine. I mean transparency, not only in this sphere, and the ability to use partnership with other centers of influence to balance the positions. There is a mechanism for doing this. And the last, but not the least. Ideally, it is our people who should form policies. We have a huge gap here, as does Russia. The Russians are also on the receiving end of the models being applied today. Therefore, I do not think that gas problems can be solved by way of changes in the gas sector.”

H.P.: “As for pursuing national interests, this problem, too, is not in Russia or Asia but in the absence of a political force guided by truly national interests. It is mostly experts, not politicians, who are guided by them. If a political force guided by these interests comes to power, it will be possible to build a devise a host of strategies and schemes. But the first thing to be done is to withdraw politicians from the Russian gas issue. In this case we will be able to build economic partnership the way it is done all over the world. Unless we withdraw them, the situation will only be deteriorating.”

Yu.K.: “We should have gone to the Stockholm Arbitrage – this would have been transparency. We have a contract, and it is not transparent. And we should have pressed the gas transit case there. We should have raised gas and electricity prices. Why are we saying we need a lower price? Why 200, not 100, dollars lower? Because this country is cash-strapped, has no foreign sources to borrow from, and it has a disastrous rating. The elections are a year away. This is where politics come in. To raise gas prices, one must raise wages.”