Partners in short supply

The EU-Ukraine 2011 summit on financing and investing in energy industry has ended in the Austrian capital. Quite a few bank heads, representatives of the European Commission and, most importantly, international companies that were interested in Ukraine’s energy industry came to discuss the main problems of energy industry development and investment projects to Vienna. The event was attended, in particular, by top managers of the White Stream and Nabucco pipelines, that is, the projects that the successful future of Ukraine’s energy industry depends on effective cooperation with. However, the business community’s important questions to Ukraine’s officials were left unanswered, for the latter had ignored the invitation from the event’s organizers and had not come to the summit.

It was left to our country’s former special envoy on energy security issues Viacheslav Kniazhnyts-ky to persuade foreign businesspeople that Ukrainian energy industry and the country as a whole was not some great swindle, but a European country that could and should be invested in. “Ukraine has a lot of interesting energy projects,” the envoy stated at the end. The experienced diplomat included modernization of the gas transit pipeline system, construction of an LNG regasification plant and power transmission lines, energy conservation projects in utilities sector and alternative energy in his short list of attractive investment objects of Ukraine’s energy industry.

The summit’s participants listened to representatives of companies that had successfully mastered the Ukrainian market and working conditions on it and so were able to act as a sort of living advertisement and reassuring examples of successfully doing business in Ukraine. In particular, the international relations director of TNK-BP, the world’s second largest oil refiner, Nicholas Tymoshchuk, when answering The Day’s question on investment plans, announced his company’s intention to invest a billion dollars in Ukraine over the next decade. Should unconventional gas mining (shale gas, coal bed methane, etc.) in Ukraine prove profitable, the energy investment would amount to dozens or even hundreds of billions of dollars, he added. Ukraine has a very diversified energy industry that includes oil and gas extraction, coal mining, main pipelines, and all this provides many opportunities for the country, according to Tymoshchuk, but it must be correctly exploited. The TNK-BP director said that investors were observing positive changes in that direction, with the parliament, for example, having passed the law on the restructuring of the National JSC Naftohaz of Ukraine, which would make energy markets even more transparent.

The Day asked ExxonMobil Gas & Power’s regulatory adviser Axel Scheuer, whose employer had invested in Ukraine’s shale gas industry, about the company’s operational environment in Ukraine and whether the company planned to increase the amount of investments in the energy industry. Let us recall that the governments of Ukraine and the US signed a memorandum on extracting shale gas in our country in February 2011. Scheuer told our reporter that the company was just starting to work on the Ukrainian market, so he had no specific information on the investment amounts. “Everything depends on the results of the study that will assess geological reserves of this kind of gas in Ukraine,” he said. Scheuer added that the real work would begin only after this assessment was finished and the license for the extraction of shale gas was issued. He said it might take a long time. Scheuer explained it with Po-lish example, as his company had drilled the first wells to extract gas in that country this year only, with four years having passed between obtaining the license and start of extraction. “Poland has created a really favorable investment environment. We hope Ukraine will follow the suit,” he said on the government’s role in helping attract businesses to the country.

The director for trade and transit of Energy Charter Secretariat Steivan Defilla stated that Ukraine had large reserves of conventional and alternative fuels. Therefore, he thought the government should encourage investment in this industry as much as possible, to make Ukraine into an “energy Mecca,” and, in particular, to establish closer investment contacts with European businesses which should be helped by the fact that Ukraine had joined the Energy Community in December 2010.

The EBRD director in Ukraine Andre Kuusvek also stated his organization’s intention to actively invest in our energy facilities in 2012 when answering The Day’s questions. Let us recall that the bank has invested in the country as a whole 1.3 billion euros from 2006-11. The energy industry share in the bank’s total investment is 40 percent this year, and Kuusvek expected it to grow further.

“The summit has demonstrated that many investors were interested in entering the Ukrainian energy market now, but it is a great pity that no government representatives came there to tell them about our prospects and working conditions... Unfortunately, such (in)action on the part of our government has become a tradition... That is, Ukrainian partners have not attended, yet again. That is why some speeches were like monologues, while questions about the investment climate and illegal hostile takeovers were left unanswered,” the director of energy programs at the Nomos Center Mykhailo Honchar told The Day. In his opinion, such stance of the government is a striking testimony to hidden division of the energy industry between the oligarchs. “The industry is being fragmented, as each group is given some segment of it to exploit, and so coal mining and electricity generation goes to one group, gas extraction and gas-based chemicals industry goes to another group, while oil extraction and refining goes to yet another group,” he said. “Consequently, all the ostensibly positive reforms (e.g. restructuring of Naftohaz of Ukraine or privatization of the electricity generation) look very precarious because these groups have no use for competition and equal partnerships.”

However, experts, both Ukrai-nian and foreign, are still hoping. Kniazhnytsky thinks that signing of the free trade agreement (FTA) with the EU will help Ukraine to expand cooperation with European business. He believes that the agreement is a roadmap of economic reform for the country that will give new economic freedom to Ukrainians and will be a key factor for the formation of new economic opportunities abroad. “The FTA with the EU is a decisive step for the progress of the entire country. Energy clauses of the agreement are particularly important in terms of integration into the EU space, and we must do everything so that the work on it continued,” he said.

The summit was attended by the president of the Permanent WTO and International Trade Study Group of the European Economic and Social Committee Jonathan Peel. He stressed that the EU-Ukraine relations were strained because of the Tymoshenko case, but, nonetheless, he believed that the FTA between the EU and Ukraine would be signed.