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21 August 2017
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Ukraine may respond to the hysteria of Gazprom by refusing to buy Russian gas

The Kremlin once again is using gas to blackmail Ukraine - Gazprom has announced $29 billion in claims to Ukraine’s Naftogaz and threatened to submit this claim to Stockholm arbitration. Mykhaylo Honchar, president of the Strategy XXI Center tells UNIAN why Russia is so hysterical, and how Ukraine should deal with it. 

Gazprom has announced new claims against Naftogaz / eer.ru
Gazprom has announced new claims against Naftogaz / eer.ru

Just two months after the signing of an additional agreement with Naftogaz on the extension of the “winter package” deal on the supply of gas to Ukraine, reached on April 1 in the trilateral EU-Ukraine-Russia format, Gazprom has resorted to gas blackmail once again.

The head of the Russian energy giant, Aleksei Miller, voiced new claims on May, 28 at the conference of the European Business Congress in Belgrade, “Today, the total amount of Ukraine’s debt of Ukraine in regard to the ‘take or pay’ fines is $29.477 billion, of which $2.604 billion is Ukraine's debt for gas deliveries in 2013-2014, interest included. $200 million is for the supply of gas by Gazprom to south-eastern Ukraine, supplies that are not being paid for by Naftogaz Ukraine.”

In addition, according to Miller, Gazprom will fine Naftogaz for arrears of gas in 2014 in the “take or pay” framework in the amount of $8.197 billion, with the issue to be decided upon by the Stockholm arbitration after Gazprom sues.

Meanwhile, the tripartite agreements did not provide for any claims before the decision of the Stockholm arbitration upon the claims of both Naftogaz (filed in May 2015, totaling over $16 billion) and Gazprom (the amount not stated). Meanwhile, the illegal supplies of gas to the Donbas by Gazprom were excluded from the framework of the tripartite discussions, which Russia agreed to. The issue was planned to be settled during the drafting of the next package of gas agreements.

Naftogaz Ukraine has responded quite calmly to the Gazprom’s claims – it officially stated that the solution of commercial disputes with the Russian Gazprom in the Stockholm arbitration court is believed to be a civilized way [of resolving the issues].

“This is not the first time when the Russian gas monopoly bills Naftogaz, referring to a paragraph in the contract of 2009, which, according to Gazprom, contains a clause on ‘take or pay’. These bills have never been accepted for payment, as they do not correspond with the contract, according to Naftogaz. In addition, among the claims of Naftogaz there is one with the demand for recognition of this paragraph of the contract null and void,” reads the statement by Naftogaz.

The European Union has also reacted - trilateral gas talks will be held in Brussels as early as next week.

“We achieved results from strengthening our unity with the European partners, we have a partial, still positive solution of a so-called gas issue,” said Kostyantyn Yeliseyev, Ukraine’s representative to the EU.

Mykhaylo Honchar, president of the Strategy XXI Center has told in an interview with UNIAN why Gazprom is hysterical again, what the roots of these gas claims are, and how Ukraine should deal with this issue.

Honchar: Ukraine can respond to Gazprom by totally refusing all its services / Photo UNIAN
Honchar: Ukraine can respond to Gazprom by totally refusing all its services / Photo UNIAN

Mykhaylo, why has Gazprom suddenly put its claims forward, despite the existing tripartite agreement on gas supplies and their full implementation by Ukraine?

There is no need to search for the cause of such behavior in the Gazprom-Naftogaz relationship… The answer to your question is related to other events. The roots lie in Europe, which has closed the vice around Gazprom in Macedonia. This country plays a key role in the development of Gazprom's Turkish Stream project through the Balkans to the European Union. It’s the same as when Bulgaria played the main role in regard to the South Stream project. Official Sofia killed the project by announcing that it would exclusively agree with the EU on its policy regarding the pipeline. Now, there is a similar situation with Macedonia. Russia believes that destabilizing Macedonia in regard to this [project] is an attempt to put an end to the Turkish Stream through the EU territory. According to the Kremlin, the perpetrators definitely are Brussels, in conspiracy with Washington. Hence Russia’s hysterical reaction: you have closed the vice around us in Macedonia, so we will do the same with your Western-oriented Ukraine.

But such policy is ineffective. Gazprom announced that it would submit new claims to the arbitration. So, we will just be waiting for the decision...

The Kremlin and Gazprom have another vision of the world. Now they're applying information-psychological pressure. Moscow believes it can force Brussels to agree to a kind of a ‘compromise’. That is, Moscow decided to pursue blackmailing Europe in two ways. On the one hand - putting pressure on Ukraine, on the other – hinting on Italy and Greece, where Putin’s friends will be able to lobby for decisions favorable to Gazprom regarding the Turkish Stream, taking into account the weight of these countries in the European Commission. So, if they block [Gazprom] in Macedonia, then it will go to Italy through Greece and the Adriatic. And, of course, the Kremlin is counting on lobbying services by Greece and Italy, which are the EU member states, contrary to Macedonia and Serbia. Hungary, is also an EU member, yet it is too weak, so Russia does not count on it.

The hysterical response also indicates that there are other issues with the Turkish Stream project. Turkey has repeatedly hinted that Russia shouldn’t hurry with declarations regarding it, as no basic agreement has been signed and no technical design work has been done. Meanwhile, Gazprom has already announced that the construction had started (the start of construction of the offshore part of the Turkish Stream was announced by Aleksei Miller on May, 8 – UNIAN). Indeed, it may have started with the fake pipe laying on Russian territory. They have started to build the South Stream the similar way, but they eventually got zilch. Gazprom has very complex relations with its contractors. The company itself cannot build anything in the Black Sea, it doesn't have the technology. The work can only be done by several companies worldwide. Co-operation with them can be sanctioned. Therefore, Gazprom is panicking, as the situation keeps unfolding in ways not in its favor. And that's another reason for these hysterical statements regarding Ukraine.

In your opinion, how should Ukraine respond to this Gazprom attack?

It should remain calm. There may be no response, at all, let them blow off their steam. The Ukrainian party – Naftogaz has already said everything in its appeals to the Stockholm arbitration court, while Gazprom, or rather the Kremlin, has repeatedly stated the claims, constantly with new amounts. There is also a possibility that Medvedev [Russian Prime Minister Dmitry Medvedev - UNIAN] will traditionally come out and talk about some [Ukrainian] debts dating back to the early 90s, voicing some transcendental amount in billions and calling it all the subsidizing of Ukraine. It is important that that such nonsense be responded to without any fuss.

As we know, Gazprom is suffering significant losses in the EU market. This is evidenced by its own financial reports. But Miller said that the company's market share in Europe rose to 30%, and will be increasing in the future. Why should Russia need this bluff amid the fall in gas consumption according to data released by Eurostat?

They play down their problems with happy talk. The best response to their claims is that the supply of gas from Norway has for the first time exceeded the supply of gas from Russia to the major EU countries. Moscow has always been manipulative with this statistics: speaking of gas supplies to the EU, it includes the supplies to Turkey, Switzerland, and the non-EU Balkan countries. This is how Russian statistics works. But for now, we can safely say that every third molecule of gas in the EU is Norwegian. Today, Russia is losing the energy influence on the EU. Its energy weapon does not work in conditions of low oil prices, plus warm winters.

According to the updated 2016-2018 macroeconomic forecast of the Ministry of Economic Development, the price of Russian gas will drop to $185-190 per thousand cubic meters in 2016 from the 2015 level of $235-240. That is, can Ukraine revise its plans considering gas is cheaper?

Yes. And Gazprom can do nothing about it. The forecasts of the Ministry of Economic Development are trustworthy. These are the trends of the oil market. As Gazprom does not change its strategy, still binding gas prices to oil prices, it turns out that the cost of natural gas will drop below $200. Actually, the price of gas is now returning to the level of the early 2000s, which is fair. By the way, this is another reason for Gazprom to panic. Back in 2008, at the peak of oil prices Miller predicted the gas price to be at the level of $1,000, with the capitalization of Gazprom amounting to $1 trillion. He said that Gazprom will be among the world’s largest corporations, not just among those in the field of oil and gas production. But the plans went awry. Now, they came to recoup on whom they believe to be the weakest – Ukraine. But our position is not too weak, thanks to reverse flow and diversification of gas supplies. Now the share of Russian gas in our purchases is only 50%. Still, Ukraine can also get this share from Europe. Actually, in current situation we can completely give up buying Russian gas.

But Energy Minister Demchyshyn said that we are not able to get by without Russian gas...

That is Demchyshyn’s point of view.

And what is yours?

If such claims keep coming from Gazprom, we may refuse its services. Technical capabilities of reverse flow gas supplies can fully cover our needs for gas imports from Europe. We haven’t done it yet due to compromises reached in the EU-Ukraine-Russia format. But we remember what Russia is today – it is an aggressor state. And if once again it goes on a new round of intensified aggression, then we can show our ability to get by without Gazprom. In this sense, the past year was quite telling – for 180 days, we have almost not been using any of Russian gas, and nothing terrible happened.

But European gas is more expensive. And that was the main reason, according to Demchyshyn, to return to large purchases of Russian gas...

It is not critically more expensive. In the first quarter, 61% of gas was purchased in Europe, and another 39% - in Russia. Since May 1, we started buying more Russian gas. We proceeded from the fact that the economic mechanisms are now working in our relations with Russia, and it [the gas] is cheaper. But when winter comes, we will reduce our purchases, not to take risks, knowing the nature of our ‘partner’. And if Gazprom is now behaving this way, we can reconsider the proportion or even stop importing gas from Russia. As each purchase is to be prepaid, we may just not do it [make a forward payment].

The Antimonopoly Committee on behalf of the Prime Minister Arseniy Yatseniuk has launched an investigation against Gazprom’s abuse of our market. Is Ukraine really able to punish the Russian gas monopoly, as the EU is intending to under its Third Energy Package?

Unlike some European countries, where Gazprom" has its own traders - in the form of joint ventures or with its shares, and where it conspires with other operators – our situation is different. Gazprom actually does own an enterprise on our domestic market – Gazpromsbyt, but it’s almost non-operating and has never had a monopoly position on the market. Therefore, we can’t prosecute it, like they would in the EU. Another thing is that the Ukrainian regional gas companies are controlled by enterprises close to the group of companies owned by Dmytro Firtash. Ukraine’s adopting the Third Energy Package by passing a law on the gas market puts an end to [special] freedoms in our domestic market for Firtash and, accordingly, for Gazprom. Of course, this is if the government and the authorities in general show sufficient political will.

“Firtash” has become sort of a common noun. The term can be identified with system of Gazprom’s influence on Ukraine from the inside. Today, the main argument of the government in its dialogue with Gazprom is to bring the activity of the enterprises engaged in the supply of gas to end users and its distribution into line with the national interests. These are the regional gas companies, in 70% of which the company owned by Firtash has control shares. Therefore, the government's actions can neutralize the Gazprom’s influence on Ukraine through Firtash.

The Eastern Partnership Summit in Riga unanimously supported the creation of the Southern Gas Corridor (Trans-Caspian gas pipeline), which will connect the EU with the Caspian region, bypassing Russia. They're betting on Turkmen and Azerbaijani gas. The project implementation period is 2019-2020. Are the EU plans real, will it not be the same as with the Nabucco project, which has been halted?

Economy- and technology-wise, the implementation of the project is very simple. The Trans-Caspian gas pipeline is less than 200 kilometers long, [set to be laid] through the Caspian Sea. This is not a new project, the idea on its construction dates back to the 90’s, it was just never implemented. Most likely, nothing will happen now, either. The EU euphoria around the Trans-Caspian project, around its agreements with Turkmenistan, Azerbaijan (although Azerbaijanis far from happy as Turkmenistan is its major competitor), and Turkey carries no weight. The problem is that neither the EU nor NATO can ensure the security of the transportation corridor.

Why is that?

Neither Georgia nor Azerbaijan nor Turkmenistan are members of these organizations or have any contracts with them.

Is sabotage of a gas pipeline by Russia expected?

Why should there be sabotage? Russia’s response to this project is ‘defrosting’ the Karabakh conflict. There is a symbolic moment here - the presidents of Azerbaijan and Armenia attended the Moscow parade on May, 9. Both Azerbaijan and Armenia are puppets in the hands of Russia. Moscow has the key to the solution of the Karabakh conflict, as Europe and the United States have given it away. As Moscow doesn’t need the Trans-Caspian pipeline, its response is absolutely expected. As for the resolution of the summit, that is the traditional policy of the EU. A nice draft project has been presented; it will be followed by a business plan, all kinds of contracts. The Trans-Caspian pipeline project benefits everyone but Russia. Therefore, it’s implementation has been a matter of decades, and more decades will follow.

You said that Ukraine can completely give up usingGazprom’s gas in response to the Russian company’s hysteria. But might this not cause another surge of Russian military aggression?

Russia isready to do what it needs to do, anyway, but its actions are specifically scheduled. The Kremlin simply provokes certain scenarios, and the gas component doesn’t play a major role in its plans, although it is still there. The group of Firtash, Lyovochkin, and Boyko, which identifies with a system of influence on Ukraine from the inside, has not got it anywhere. And in this sense, Ukraine should not act according to the algorithm that has been imposed on us by Gazprom: making us feel scared and thus making us do everything in their favor. Instead, we should think and act out of the box. We can show that we don’t intend to buy from them, since they have such claims, especially since we have already made it for half a year without their gas.

And what if the Kremlin link of Firtash, Lyovochkin, and Boyko is eliminated – will Ukraine be able to put an end to Russian gas pressure?

Of course, it will. Especially that the world is large enough beyond Gazprom. Even Russia has independent gas producers. We just need to build our policy considering that Gazprom is just one of those who sell gas.

Nana Chornaya (UNIAN)

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