Gas transit talks: Ukraine seizing initiative or taking Russian bait?

Ihor Orel
12:20, 24 September 2019
Economy
1036 0
Opinion

Late last week, another round of trilateral negotiations was held in Brussels between Ukraine, Russia and the European Union on the conditions of gas transit via Ukraine after 2019. Despite the lack of serious expectations from the meeting, this round of negotiations was, if not a breakthrough, then at least the beginning of a dialogue that wasn't observed in previous years.

Thus, Russian monopoly Gazprom in the course of negotiations changed tactics and for the first time allowed the possibility of concluding a contract for gas transit in line with EU rules.

Both Ukraine and the European Union previously insisted on this. Representatives of the Russian government and the Kremlin's gas weapon, Gazprom, in the course of previous talks, simply dragged on time. For example, they suggested prolonging the current contract for a year, obviously ignoring the Stockholm arbitration award. With this, Ukraine could not agree.

First, Ukraine, just like the EU, came to the negotiating table with record high gas reserves in storage, which knocked a blackmail card from Russia's hands

Now the situation has changed. There are both clear explanations for this, as well as circumstances whose threat for Ukraine can only be assumed, given the aggressive nature of the country's counterpart.

First, Ukraine, just like the EU, came to the negotiating table with record high gas reserves in storage, which knocked a blackmail card from Russia's hands as Moscow has no longer any sense to delay negotiations until the conditional D day, when Ukraine would simply be forced to sign whatever contract imposed by the Kremlin.

Secondly, Ukraine has finally unblocked the process of Naftogaz unbundling, while consolidation of power in the hands of President Volodymyr Zelensky can ensure that this process is completed on time and that the necessary legislative changes are adopted without delay and without bureaucratic dragging.

Earlier, Russia argued that Ukraine would not manage to implement European legislation on time and separate the gas transmission system from Naftogaz by the end of the year, and therefore they said it does not make sense to conclude a transit agreement based on European rules, since Ukraine itself does not adhere to them. Now, such statements by Russia don't sound convincing anymore.

In turn, Russia came to the talks weakened. In mid-September, the European Court of Luxembourg, within a Polish lawsuit, ruled that Gazprom's access to OPAL German gas pipeline’s capacity be limited to 50%. It is due to the fact that Gazprom previously had the opportunity to use the capacity of this gas pipeline almost in full, the Russian company was able to fully load Nord Stream 1 and, accordingly, significantly reduce supplies via the Ukrainian pipe.

Now, without the Ukrainian gas transportation system, it will be much more difficult for Russians to supply gas to the EU market.

Moreover, not everything is going smoothly with the Kremlin's projects for the construction of bypass pipes, which according to the Russian plan were to completely replace from January 1, 2020, the volumes of gas that used to be flowing through the Ukrainian gas transmission system.

It's not only that the Damocles sword of American sanctions is hanging over them – it is also very unlikely that the TurkStream and Nord Stream 2 will be able to operate at full capacity before the end of this year.

In such a situation, any negotiator pursuing commercial interests would really translate the dialogue into a constructive plane. However, we are very well aware that Gazprom, first of all, is the Kremlin's geopolitical weapon, and certainly the energy company, which doesn't work in line with civilized rules.

The Russian side is constantly and very tentatively voicing two of its proposals, which, in their opinion, are related to a possible future contract for the continued gas transit via Ukraine.

The first of them, which Ukraine can't accept under any circumstances, is the refusal from our win in the Stockholm arbitration. Russia realizes this, so they are unlikely to push too hard. This is more about bluffing and raising bets in order to get the best conditions possible during the final bidding.

Attempts to agree with Russia on gas supplies to Ukraine resemble a circus trick, where a performer puts his head in the lion's mouth

The second "proposal" of the Russians is more serious – to restart direct gas supplies to Ukraine, which were suspended back in 2015.

On the one hand, there is nothing terrible in such a proposal, and for Ukraine it could make sense – if an agreement is concluded based on European rules, which would also allow preserving gas transit, this would mean billions of dollars in foreign currency earnings.

However, we shouldn't forget that Putin's Russia, which has occupied part of our territory and has been waging war against our country for the past five years, is not interested in gas supplies to Ukraine based on European rules. We could recall the two "gas wars" of 2006 and 2009, as well as March 2018, when, defying the Stockholm arbitration award, Gazprom refused to pump gas via Ukraine several hours before the start of supply, which provoked an energy crisis in our country which lasted several days .

Even more indicative is the agreement on gas supplies of 2009, which the then government of Yulia Tymoshenko even called market-based, but in fact the contract turned out to be enslaving for Ukraine and was recognized by international arbitration as non-market-based.

Therefore, attempts to agree with Russia on gas supplies to Ukraine resemble a circus trick, where a performer puts his head in the lion's mouth. We will soon see whether the country's leadership succeeds in not losing its head in this game.

The next round of negotiations is scheduled for late October. So far, Energy Minister Oleksiy Orzhel has stated that Ukraine doesn't rule out the possibility of direct gas supplies from Russia on market bases and at market prices.

Ihor Orel

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