Odesa-Brody pipeline is ready but dry

Glasses clinked on May 17 at the Ukrtransnafta Company headquarters: Ukraine was celebrating in the presence of foreign ambassadors the commissioning of the Odesa-Brody oil main pipeline. The acceptance report was signed by state commission chairman Volodymyr Vasyliuk and endorsed by Oleksandr Todiychuk, Ukraine’s special representative in charge of the Eurasian oil transport corridor and Ukrtransnafta chairman. The project was conceived to symbolize this country’s independence in terms of not only energy but also politics.

Opening a roundtable called New Vision of Oil Transportation from Asia to Europe, dedicated to signing the commissioning report, National Security and Defense Council (NSDC) Secretary Yevhen Marchuk noted that Ukraine had come a long and hard way to this event due to internal conflicts. Passions had run high and political speculations rife over building the Odesa oil terminal and the Odesa-Brody oil pipeline, Mr. Marchuk said. Yet, this country’s leadership understood that diversification of fuel supplies is an element of its national security, while transit capacity, especially that of energy resources, is an extremely important element of energy independence and security, which according to the NSDC secretary is of paramount importance for Ukraine. Mr. Marchuk said the initiative to build the Eurasian oil transport line belonged to the president who signed a decree in 1998 on the construction of the oil pipeline and establishment of an international consortium. Since then this major national project has been, as Secretary Marchuk put it, under the head of state’s personal control and supervision. Under his instructions, the NSDC thrice put this project on its agenda sessions and made extremely important decisions later enacted by presidential decrees. In particular, in March 2000, when political passions ran high over the pipeline, the NSDC decided to speed up construction of the oil pipeline and the Pivdenny (Southern) terminal by establishing the Ukrtransnafta Company.

Mr. Marchuk said it was not so simple to make those decisions because of many diverse views. It was clear even then that the construction itself, as well as its engineering and financial support, would not solve all the problems, for this is only a small part of this project’s implementation. “It demanded that the state make massive efforts, including one on the foreign political arena,” Mr. Marchuk emphasized, “and this is why we introduced the institution of special representative.” Unfortunately, Mr. Marchuk noted, some romanticists harbored an illusion that, as soon as the construction was over, Ukraine would be showered with oil transport offers. Naturally, that was a major blunder. (It will be recalled that the Yushchenko government, under the cover of its supporters’ patriotic rhetoric, was in fact hindering the establishment of an international consortium. As a result, our pipe is dry but still workable.) As Mr. Marchuk pointed out, “we will have to face a situation of very intense competition in the Black Sea basin because not only Ukraine but other countries too have been trying to diversify fuel supplies both for themselves and other countries of Europe. The situation remains difficult. We must have our pipeline filled for a long time. But the main thing is to have the Polish segment finished, which will guarantee the commissioning of the overall facility from the Black to the Baltic Sea.” The NSDC secretary announced that his council had completed its own portion of work on construction of the Eurasian Oil Transport Corridor (EAOTC), specifically, presidentially sanctioned control over the construction, the solution of all international contract problems, and keeping the president and the government informed about the market situation in the regions where the Odesa-Brody-(future) Gdansk pipeline will function. In this connection, Mr. Marchuk wished First Vice Premier Oleh Dubyna, who was present at the ceremony and roundtable, the government, and all those involved in the still difficult work to establish the EAOTC that this project be utilized to capacity and that the over 600 million hryvnias already spent work for the energy security and independence of Ukraine. The NSDC secretary also opined that the discussion of this issue could spotlight some mutually exclusive viewpoints, which will nevertheless contribute to a deeper understanding of the existing problems.

In his turn, Mr. Dubyna stressed, explaining the government’s basic concept of crude oil supply to and transit across Ukraine, that the adoption of this concept made it possible to change current law to create favorable conditions in the form of tax and investment climate for attracting strategic investors in this project. The first vice premier noted Secretary Marchuk’s great personal contribution to solving the EAOTC problems and his assistance to the government in these matters. He said Ukraine has all the prerequisites to play a fitting role in establishing a single pan- European energy space.

Simultaneously, the roundtable, like earlier discussions, showed that it will be far from easy to fulfill this task. The Day was told in the roundtable backstage that the long-promised first tanker with anticorrosion oil to fill the pipeline would not arrive very soon. In addition, it is not yet quite clear to what extent the Baku- Ceyhan project supported by the US as the main route for Caspian oil to Europe will rival the Ukrainian project. In one opinion, these projects are taking oil to different markets and thus cannot compete between themselves. At the same time, this theoretical assumption leaves out the interests of Russian oil exporters who are said to be ready to support the Baku-Ceyhan route only to keep the Odesa-Brody pipeline dry (some experts believe that, if Caspian oil makes way to European markets, Russian oil will be delivered there at a discount of $4, not $1.20). In other words, the question of responsibility for failure to fulfill the leadership’s decision to set up an international consortium and of the 600 million hryvnias that went down the drain is still high on the agenda.

Yet, Strategy-1 Foundation expert Mykhailo Honchar is not inclined to dramatize the rivalry between the Odesa-Brody and the Baku-Ceyhan routes. He thinks, for example, that the EAOTC will function successfully primarily because the NSDC’s and Kinakh government’s efforts have opened the EAOTC project to international participation.