Gas from Russia can cost Poland a lot

Gas from Russia can cost Poland a lot

With the new power in Ukraine gas market is rapidly changing. What has happened to RosUkrEnergo (RUE)? At some stage it seemed that it will never recover? How its resurrection became possible?

We shall be aware of the main thing: it was never buried. Putting RUE out of business in gas supplies to Ukraine by Tymoshenko Government did not change the fact that RUE contract existed since 2004. Under this contract RUE had a right to transit gas through Ukraine on very cheep price as well as storing this gas in the Ukrainian storages. Storages is an important part of the Ukrainian gas transit system. Contracts with RUE are valid till 2030. It is these contracts that are so attractive to Gasprom, which is highly interested in minimizing costs of transit and storing gas. It is likely that some stagnation in RUE activities will change into its active play on market by the end of this year. Tymoshenko failed to do the main thing.

After fulfilling a controversial scheme on taking gas away from RUE, she did not finalize legally immaculate operation regarding formalizing Government newly obtained rights to claim the gas. On the initial stage Tymoshenko Government obtained a right to claim money, not material claim. The caveat in the contract that it can receive gas was not based on court ruling. If Tymoshenko would be aware of the need to do this and if she would not rely on a word of the Russian Prime Minister Putin, we would not face the situation in Stockholm Arbitration court, when Ukraine lost. It would be possible to bloc decision of the body like Stokholm Arbitration Tribunal by the court ruling.

UkrGazEnergo (UGE), a joint venture of RUE and the Ukrainian state monopolist on local gas market Naftohaz, is in charge of gas distribution in Ukraine. Tymoshenko stated that it is expelled from the Ukrainian market, but it looks as UGE was not out of business either…

UkrGazEnergo was deprived only of its assets that were kept in gas storages. Due to UkrGazEnergo failure to pay dividends, Naftohaz decided that it is possible to use these assets as its own. Details are crucial: there was another controversial decision. As UkrGazEnergo was created by state owned Naftohaz on Ukrainian side, while trying to nullify UGE Cabinet of Ministers simply cancelled its own resolution on forming UGE. In legal terms it was of no consequences – the company remains in official registry. As a result, the Government merely put week grounds under Ukrainian side participation in UGE business.

Private stake holders, including ones in RosUkrEnergo, can benefit from this. Now if Naftohaz wishes to return to managing UGE, the cancelled decision shall be recovered and its representatives in supervisory board shall be restored. Neither RUE nor UGE are not skeletons in the wardrobe. They are pretty lively, adoptable structures. This is a bad news for a potentially competitive market, if we want to make it. As far as Ukraine is concerned, Ukraine does not need active company of RUE type.

After change of President and Government in Ukraine RUE was recovered out of ashes. How it became possible?

The key element of the structures like RUE is their creation and registration in zone with privileged conditions for businesses which make less obstacles for non-transparent management and finances. Zug canton in Switzerland was properly picked up by the founders. Complicated structure of the business was set with Centrogaz Holding AG is working via Reiffeisen International, Reiffeisen Investments. A multy-layer pie was created. This along with some resources on bank accounts of RUE and its stake holders, help to find quick and comfortable for these stake holders decisions. It became commonplace that both Ukrainian and Russian power representatives have their interests in it. It was indicative how much Russian authorities were interested in RUE victory in Stockholm. We shall not overlook political component.

Moreover,  people in Russia, who have their own strategic plan on absorbing Ukrainian gas market, are actually interested in a weak RUE, which appeared as a result of Tymoshenko activities. The deal around RUE was designed in a way so that people who changed Tymoshenko in power would be anyway trapped. They are now trapped and are not able to get out of it.

In order to get free they shall in some way break relations with the Russian side. When RUE was created it became clear that this is just a poultry fed just to be at some point consumed.  Today it is not necessary to the Russian beneficiaries. At some stage it is good for them that RUE gets capitalization. At some stage the Ukrainian beneficiaries will find that it will become profitable for the them to sell most of their shares and become minoritarian holders. Or to control supplies not on the entry but on the exit from the Ukrainian market, for instance. It is in general difficult for them to compete with the Russian side in analysis and information. Given the developed Russian intelligence and counter-intelligence, the Ukrainian side is much more transparent than the Ukrainian beneficiaries themselves believe. They would like to play a big game. But even among themselves there are people who tend to play on Russian side.

How realistic were chances of the former Government of Ukraine to move RUE away from the Ukrainian market and not to get trapped?
In January, 2009, Tymoshenko had all chances to become a real winner. But she needed more information, more active dialogue not only with the Russian side, but first and foremost – with the European one. She was delayed with this dialogue. Everything was comfortable for Tymoshenko. Protocols were signed, she promoted idea on 3-year transition period with slow introduction of higher gas prices for Ukraine. Putin, basically, stated the same.

But in the mean time Russian managed to arouse her vigilance and to play their own game. Within all three years of RUE active operation its current debt was never lower than two billion dollars. And this indebtedness was permanently supported. Gazprom was interested in this as it at any point of time was claim the debt. Tymoshenko people shall have study more properly information available and better promote their press-releases in Europe. Current Ukrainian Government makes the same mistake – it has hardly any active media strategy. Political influence of Russia on the highest level is working. Gasprom as RUE stake holder gives him a possibility to block any decision. RUE can not manage any finances and other businesses related to contract without two signatures. Given the fact that it is Gasprom who is a source for transit gas, it has a final say. To be fair we shall admit that position of the Ukrainian Government in Stockholm Arbitration changed still under Tymoshenko.

The schem was arranged before Yuriy Boiko, Dmytro Firtash came to power on the wave of Yanukovych victory in 2010 presidential elections. This became possible due to political adventurism of Tymoshenko as well as understanding that legal side of the relations of that kind shall be perfect. It is not relevant to behave in politics as in private business, relying on your partner. In most cases in private business your partners are mostly equals. But when you are dealing with the state in which intelligence services have high profile – just look who represents Gasprom in Ukraine. Tymoshenko underestimated this.

Putin won over Tymoshenko. He supported her as the most comfortable candidate for the Ukrainian presidency bearing in mind prospects of sustaining these schemes of relations.
So, Tymoshenko would be trapped just in the same way as Yanukovych now?

Absolutely! Further events, including Kharkiv agreement with Russia on prolongation Russian Black See Fleet stay in Sevastopol till 2042 were predetermined. Moreover, my sources assume that Kharkiv agreements where prepared not even in Russian Foreign office but in the other institutions. This agreement came as a surprise for both Russian and Ukrainian foreign offices people. Changes in the program of the Russian President Medvedev in Kharkiv indirectly indicate this.

What is Europe’s role in the context of the Ukrainian pipeline system and related transit capacities?

Basically, Europe in general covers its need in gas not relying on the Ukrainian gas transportation system. This issue is more actual for Central and Eastern Europe. Here our pipeline, particularly – the biggest in Europe gas storages, could play solid role in diversification of gas supply sources and strengthening energy independence. Currently Ukrainian transit capacity are underused as Russia supplies less gas. Ukraine is capable to sell free transit capacities.

If Poland or another country from the region would be ready to talk to Gazprom on a perfectly transparent basis, in parallel it could strike a framework agreement with Ukraine on gas transit, buying it at any point it enters Ukraine.  Keeping it in the Ukrainian gas storage facilities it could use it in the hottest for gas consumption seasons. Unfortunately, most funds spent on our transit system go for it repairs rather than modernization. Potential of Nabucco would not be lower if it would rely not on Caspian natural resources. If Europeans would be more active on Iranian, Iraqi, Egyptian directions they could better protect their energy security.
Poland and Russia are about to strike energy supply deals that will link Polish market to Gazprom till 2037. There are a lot of discussions around it in Poland. What do you think about such prospective agreement?
Whatever cheap Russian gas is on the entrance to the market, it might prove to be most expensive for Poland in terms of political process and economic stability. If Poland does not diversify gas supplies as more advanced countries in Western Europe do Poland becomes unilaterally dependant on reliability of Russian gas supplies. Russians are interested in new buyers now perfectly understanding that once number ofbuyers might be so big that they push the gas price up.

At that stage Russia will be able to manipulate with its partners talking about redistribution of carrots. Internal situation with gas production in Russia also leads in this direction.  Gazprom suffers of demand drop and respectively, lower revenues. Most of the analysts predict shrinking of Gazprom gas production within 5-7 years – before new gas deposits on the North of Russia will become operational. In my view, Poland shall avoid the mistake of signing this sort of long contract making Poland rather dependant. When such sorts of contracts are signed eligible issues are raised regarding what is real interest for the Polish negotiators. I think that the Polish Prime Minister will have hard time looking for answers for the society.

I don’t exclude that Gazprom as many handed monster works on looking ways to hearts of some politicians in Poland. I assume that this game with Tusk is one of the serious special operations of Putin. It became into active phase after airplane crash with the Polish President Kaczynski and other representatives of political elite this spring.
By Volodymyr Kukhar


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