Ukraine Will Deliver Caspian Oil to Europe by Concession

The Ukrainian and the Polish side carefully avoided using reverse mode [during talks] Friday and made good progress in cooperating to establish the Eurasian Oil Transport Corridor (EOTC) to be operated in the “obverse mode” — in other words, meant to supply high grade Caspian oil to Europe. In Warsaw, officials of both countries exchanged notes attesting the completion of all the legally prescribed procedures to reaffirm the intergovernmental agreement (signed Nov. 25, 2003) on use of the Odesa-Brody pipeline capacities to transport hydrocarbons and its integration into the Polish capacities. In furthering the agreement, the joint stock company Ukrtransnafta and the Polish oil pipeline exploitation company Przyjazn signed an agreement Plock-Gdansk project. Among other things, it envisages 25 million tons of oil flow rate a year (the Polish sector is 500 km long, so the stated rate will apparently be reached after completing and making operational the last pipeline stage — Author). The project’s full cost (most likely that of the Polish sector) is estimated at 350-450 million euros. Ukrtransnafta President Oleksandr Todiychuk said in a lobby exchange with journalists that the EOTC would start operating in the European direction even before completing the Polish sector. “We can supply oil to Poland, using a composite pattern, pumping oil to Brody and then delivering it to Polish refineries by rail. We are negotiating this and agreed on supplying 500,000 tons a year to the oil-refining concerns Orlen and Lotos,” he noted, adding that “We already have business proposals from Caspian oil companies, amounting to 14 million tons in supplies. At the first stage we want to supply 5-6 million tons, so we can make the project pay off even that early.” Mr. Todiychuk believes that the Plock-Gdansk project means competition, as does any given large investment project, and that “the vice prime ministers have agreed today that it’s a natural process.”

Should this project be studied in detail? The man in the street appears to understand everything and see more than meets the eye, although this awareness is more often than not expressed in the form of jokes, as was the case under the Soviets. Two peasants are sitting over a bottle of vodka. One says, look, there’s something I just don’t get. What’s the difference between the reverse and obverse mode? His friend pours another round and they down their glasses. Then he says, well, it went down nice and hot, didn’t it? His friend wholeheartedly agrees. Then the man says, see, that’s what I mean. If it didn’t go down but went up instead, then you’d have the reverse mode.

Warsaw was wrapped in an atmosphere of undisguised enthusiasm, if not euphoria last Friday. Those present at the ceremony of exchanging the notes and signing the agreement, even if eager to learn more about the deal, clapped their hands and spoke warm words. There were certain aspects, however, which, when studied closely, reveal a certain force that has nothing to do the predominant mood, positive or negative. Suppose we start with the positive signs. Among those present was the European Commission’s executive Fauzi Bensarsa who even addressed the project and the attendant accords with a well-worded and well-wishing speech. He said that several months, rather than several years, would be required to test and assess the pipeline’s efficiency. The US and Kazakh ambassadors remained silent, but their silence was convincingly approving. The enigmatic aspects included the absence among the Ukrainian delegates of Yury Boiko, Minister of Fuel and Energy, CEO of Naftohaz Ukrayiny (although he was on the lists and was supposed to be there). He may have considered lending his company jet to fly the Ukrainian delegation to Warsaw enough and stayed in Kyiv (contrary to the board resolutions of two ministries) to take part in another round of lobbying for higher gas prices on the domestic market. In actuality — and this is a fact well known to the media people — Mr. Boiko is an outspoken exponent of the Odesa- Brody obverse mode, which could well explain his absence. Also, and even more enigmatically, the Ukrainian delegation had a last minute membership change, as Deputy Foreign Minister Oleksandr Chaly was replaced by Oleksandr Motsyk, one of his lower-ranking colleagues.

Another noteworthy fact was that both sides did their best to describe the situation with the EOTC project as going smoothly, without any problems. Perhaps the situation is really so good and those concerned know something important allowing them to feel that way, something those following its progress from outside fail to grasp (proof of this is provided further on).

Be that as it may, Polish Vice Premier and Infrastructure Minister Marek Pol told The Day (not without a sly touch) that, “although there is a degree of negative press following (as phrased by the Foreign Ministry’s staff interpreter, although this author’s tape contains the word speculations, addressing certain interested media), for more than a year the Polish side has had no doubts about this project.” The Polish Premier explained that the intergovernmental agreement signed on November 26, 2003 would take effect only thirty days from the date of the exchanging the enactment notes not because of some doubts, but because it was a standard term meeting the requirements of both Foreign Ministries. After all, diplomacy is an art of concealing one’s thoughts behind words. The Polish government is, of course, well aware of the heated debates on the obverse/reverse Odesa-Brody pipeline mode (particularly in 2003), when Naftohaz Ukrayiny CEO Oleksandr Todiychuk was practically relieved of financial control and other company responsibilities (among other things owing to the efforts of Mr. Boiko and other reverse lobbyists). He could retain control over the company’s international efforts only because he remained Ukraine’s special EOTC representative. Boiko, of course, could not act contrary to the presidential edict appointing Todiychuk as one, but Stanislav Vasylenko, reverse lobby prot О g О and himself an ardent exponent, was then practically in charge of Ukrtransnafta. The Polish side likewise could not but worry about an expose carried by Ukrainian media, in which a reliable source shared Energy Solution’s tentative findings while preparing a feasibility study of the reverse mode. The said source insisted that the main conclusion was to the effect that reversing Russian oil via the Odesa-Brody pipeline would pay off.

Andriy Kliuyev, head of the Ukrainian delegation, spoke to Ukrainian and Polish journalists also diplomatically. When asked about the stand taken by the Ukrainian government after the president instructed the cabinet to finally choose between the obverse and reverse modes, Ukraine’s number-one power engineering specialist and industrialist replied, “I watched EuroNews recently. They showed tankers standing in line to pass through the Bosphorus. Therefore, the Odesa-Brody project is very relevant and very promising.” A remarkably exhaustive answer, it nevertheless allows one to infer that (a) Mr. Kliuyev is aware of the advantages of the Ukrainian and Polish Caspian oil routes to Europe; (b) he knows about the reverse lobby’s pressure and is thus still unsure about the Ukrainian government’s decision. True, in reply to yet another question about the pipeline flow direction, he simply said, “Of, course it will be the project’s design direction” (fine, but the opponents insist that the project design originally envisaged also the reverse mode).

The following exclusive interview the Vice Premier gave The Day onboard the jet en route from Warsaw to Kyiv further testifies to the progress of young cabinet members in mastering the ABCs of diplomacy.

Was it easy for the Ukrainian government to approve the Odesa-Brody-Plock-Gdansk agreement with Poland?

Kliuyev: The matter was considered by a cabinet sitting and the decision was unanimous.

You mean making that decision was easy?

Kliuyev: The decision was made unanimously and that’s the main point.

Were you aware of any pressure?

Kliuyev: There was no pressure.

Why was the decision made now and not in December, as previously scheduled?

Kliuyev: We were physically unable to make it in December; we had no time. Poland was also running behind schedule, so we couldn’t have synchronized our efforts. As a result, the Polish side approved the agreement January 13 and we did January 14, meaning we did it practically at the same time.

How do you feel about Energy Solution’s finding reading that putting the oil pipeline in a temporary (three-year) reverse mode would be economically expedient?

Kliuyev: As a matter of fact, there have been no proposals to date. Several pipeline performance options are being considered, as instructed by the Fuel and Energy Ministry. But there have been no specific proposals and findings from the company you’ve just mentioned. At the moment, the Ministry’s and ES experts are holding consultations.

In other words, what one of the news agencies published was misinformation?

Kliuyev: Your question is not for me, but for whoever published it.

How do you think Poland would react if the Ukrainian government approved the reverse mode?

Kliuyev: I can’t speak for any foreign governments. You should’ve posed this question to my Polish colleague, Vice Premier Marek Pol. I’ll share some important news with you to remove all doubts. In the next to last working week of the parliamentary session, the Economic Policy and Entrepreneurship Committee considered, approved, and recommended that Verkhovna Rada pass a bill allowing Odesa-Brody concessions, using simplified procedures — meaning in the first reading. If Verkhovna Rada remained in the operating mode and passed the bill, all doubts concerning the Ukrainian stand in the matter would have been dispersed, as prospective concessionaires would have instantly materialized. This would mean investment in further developing the project in Poland and making oil deliveries to Europe. I’m sure the bill will be passed in February and this will give EOTC a powerful impetus.

One question not directly addressing our topic of discussion. Your predecessor as Vice Premier, Vasyl Haiduk, publicly put an end to the process of setting up an international gas consortium. Are you going to resume that process?

Kliuyev: The gas transport consortium is active. Quite intensive talks are underway. We will shortly pass into the investment stage of the project. Do you know that it has been decided to build another pipeline? And I’ll tell you the latest. This new pipeline will be built from the western to the eastern Ukrainian frontier. The first section will stretch from Uzhhorod to Bohorodchany. If I remember right, the pipeline will be 326 km long. This will substantially and quickly increase the operating flow of the existing gas transportation system. Last night [Jan. 15], Naftohaz Ukrayiny signed an appropriate protocol with [Russia’s] Gazprom. It’s a very promising project and we are very interested. It does exist and is entering the investment phase.

Perhaps we should reduce our participation in the consortium to the construction of that new pipeline?

Kliuyev: The existing gas transport system badly needs investment, expansion, and renovation. These issues should be considered as a complex, while the consortium was meant basically to attract investments...