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October 06, 2007 (the date of publication in Russian)

Sergey Pravosudov

WHEN EMOTIONS OVERWHELM CALCULATIONS

Kiev's complaints of "energy aggression" are groundless

During the whole period since USSR's disintegration, Ukraine has proven to be the least reliable partner in transit of oil and gas from the East to the West. During the tenure of President Leonid Kuchma, Kiev was repeatedly exposed of illegitimate appropriation of gas from strategic pipelines. Kuchma's opponents, glorified across the planet as "orange revolutionaries", agreed for more transparent relations with Russia in transit of gas, based solely on monetary payments. However, the new leaders, getting involved in a brawl among themselves and extensively wasting the state budget for one political campaign after another, failed to prevent new large-scale embezzlement of gas, destined for export to Western Europe. When the "revolutionaries" eventually agreed to entrust the government to their arch-enemy Victor Yanukovich, Russian observers expected Ukraine to behave more transparently in affairs involving relations between the two states and the European community.

However, Naftogaz-Ukraine Concern, the state-owned company responsible both for transit of gas and for maintenance of the pipeline system, has lately accumulated a debt of around $1.3bln to Rosukrenergo, a trading company serving as a key intermediate in purchase of gas in Central Asia and guarantees of its transit. Rosukrenergo is a 50:50 joint ownership of Russia's Gazprombank and two individuals from Ukraine – namely, Dmitry Firtash and Ivan Fursin.

The discussion of the new debt was interpreted by many Ukrainian media as an attempt from Gazprom, representing the Russian Government in agreements with Naftogaz and Rosukrenergo, to impose political influence in order to force Kiev to form a "pro-Russian" government after the recent snap elections of the Supreme Rada (Parliament), which left more questions than answers on Ukraine's future.

In his comments, Gazprom-Export's spokesman Ilya Kochevrin indicated that on the contrary to this conspiracy theory, the discussion of the debt issue had actually been postponed for several months Ц as the Russian corporation's leadership foresaw that the subject of transit and tariffs might be most unscrupulously played in the election game.

Despite Gazprom's attempts to downplay the problem and thus contribute in Ukraine's political stability, speculations over the gas issue were still in the center of the election debate. In particular, Yulia Tymoshenko, chair of BYUT Party, declared that in case she is repeatedly nominated for Prime Minister, she would solve all the problems of gas with Russia. That was the same Yulia Tymoshenko who declared in 2005 that Ukraine should better import gas from Iran than from Russia.

During the last two years, Ukraine failed to find tangible alternatives to Russian gas for its needs, despite a lot of plans and negotiations over "energy independence". At the face of a self-inflicted crisis, one more "color revolution" country, Georgia, addressed Iran for assistance of gas supplies. This request was fulfilled, but the price reached $180 per barrel, despite the small distance of transportation.

Today, Ukraine receives gas for domestic needs from Russia for $130 per barrel. Gazprom's tariffs for other countries, including post-Soviet republics, are higher. More favorable exceptions were made only for Belarus and Armenia (resp. $100 and $110). However, these two countries achieved this privilege in exchange for selling the major stakes of their gas transport companies to Gazprom.

In Ukraine, the gas transport system is declared the basis of national sovereignty. Kiev authorities refuse to discuss joint management of the transport assets, though the system of pipelines requires modernization, and the management of transit is far from perfect. In a sequence of conflicts between Ukraine and Russia, Kiev sometimes refused to pay the gas debt, sometimes "lost" a huge amount of gas in its storages, and more often just appropriated extra amounts of gas, destined for Central Europe. This unreliability aroused understandable concerns in major European nations, especially in Germany. In spring 2003, Vladimir Putin and then-Germany's General Chancellor Gerhard Schroeder managed to convince Leonid Kuchma of the advantages of a trilateral consortium for management, maintenance and modernization of Ukraine's pipeline system. As the later political changes prevented implementation of this idea, Russia intensified its negotiations with Germany over the North Stream, an underwater link across the Baltic Sea enabling direct transportation from Russia's Vyborg to Germany's Greifswald. Thus, the official Kiev's obstinacy deprived Ukraine from a more significant and more profitable role in gas transit.

During today's discussion of the debt issue, Ukrainian politicians repeatedly criticized Gazprom for trading gas through an intermediate company. However, this company was co-established by the two sides. In case Kiev was dissatisfied with the owners representing its side in the joint-stock Rosukrenergo, this intermediate could be excluded from trade operations.

In fact, the interests of Dmitry Firtash and Ivan Fursin have been conveniently protected by all of the three governments of Ukraine replacing one another in the aftermath of the 2004 "orange revolution". The passionate Yulia Tymoshenko did not try to alienate them from gas business, even though both Firtash and Fursin started their career in gas trade under protection from Leonid Kuchma.

As a matter of fact, the notorious gas problem, for which Kiev regularly blames Moscow, is primarily an issue of Ukrainian domestic policy. In a more general view, this problem should be rather seen not as an element of bilateral relations but more as an element of corruption in Ukraine Ц of the phenomenon that safely survived in all the recent political changes and only gained new advantages from the present vacuum of state management.

The same vacuum of management, along with the exhaustion of Ukraine's budget for the political campaigns, determines Ukraine's reputation of a chronically unreliable country. This vacuum and this scathing unreliability have emerged from aftermath of the "orange revolution", staged essentially for the purpose of undermining Russia. In case the side-effects of the "orange revolution" are today creating problems for the Western community, relevant questions should be addressed to the international organizers of this 2004 scenario. Let them bear responsibility for the development which inflicted much more damage to Ukraine Ц both in political, economic or social dimensions Ц than to Russia. That would be a fair start of a non-biased calculation of who owes what to whom.

Sergey Pravosudov is the Director of National Energy Institute, Moscow


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