Tear Gas
The information from the Chisinau talks about establishing an international gas consortium, which hit all headlines in the printed media and on TV last Tuesday, might have been presented in a visually more restrained manner. It would have been enough to draw a question- mark-shaped gas pipe and superimpose it on a map of Europe: all that we know today about this subject raises more questions than answers. What is more, even the government has not yet fully understood what kind of agreement it has entered into, perhaps hoping that parliament and then the President will ‘filter out’ the likely ‘impurities.’
In any case, the October 9 governmental explanations to parliament (read out by Minister for Fuel and Energy Vitaly Haiduk and tacitly approved by First Vice-Premier Oleh Dubyna) sounded unconvincing. Mr. Haiduk assured the people’s deputies that the gas transportation system (GTS) would be managed the way it is until experts have drawn up a feasibility report on the consortium to run this system in future. “Before that, nothing will happen to the GTS, there will be no changes in the relations between Naftohaz Ukrayiny and Russian Gazprom or in budgetary revenues,” Mr. Haiduk lulled his opponents, worried over the disturbing Ministry of Finance conclusions about enormous budgetary losses (this secret information still leaked into the press). Interfax- Ukraine reports that direct state budget revenues (profit tax, VAT and gas transit royalties) will drop by about UAH 6 billion after the consortium is set up. Besides, this will require an additional UAH 2 billion to make up for the price of ‘transitory’ household gas (now being supplied at the fixed price of UAH 170 per 1,000 cu. m., with the market price being about UAH 350 per 1,000 cu. m.). And what will happen to Ukraine, its budget and the GTS after the feasibility report has been made? In all probability, even the minister himself is unaware of this...
Can Mr. Haiduk’s proposal to abolish hydrocarbons-extraction royalties and turn them into a consolidated tax be considered a way out of the situation? It could if it was proved that the newly-formed consortium will help this tax to essentially exceed all the previously planned and not fulfilled budgetary payments of the gas sector. Still, no calculations to this effect seem to have been made. It is not accidental that Andriy Kliuyev, chair of the Verkhovna Rada committee for the fuel-and-energy complex, nuclear policies and nuclear safety, who was optimistic about this innovation before the consortium debate broke out, has somewhat changed his mind and could only promise that parliament would consider this question after the document (intergovernmental agreement and corporate contract) has been properly drafted. “We won’t be able to talk in concrete terms before the consortium’s feasibility report is worked out,” he said much to the government’s chagrin.
Interestingly enough, the Russian side does not seem to face any problems with public appraisal of the latest Ukrainian-Russian gas accords. Russia’s ambassador in Ukraine, Viktor Chernomyrdin, even predicts there will be no ‘irregularities’ in this matter. Yet he is sure there will be plenty of speculations over the future consortium. “There are many loudmouths, but this is a question of serious work,” says Mr. Chernomyrdin justly considered as one of the most prominent gas experts in the former USSR and Russia. Remember his forecast: the establishment of the consortium “is also to the benefit of Ukraine” and especially the conjunction “also” which imparts particular flavor to this authoritative opinion.
Meanwhile, Russian comments on the agreements seem to be more uninhibited than those of the Ukrainian side. This is hardly accidental. The reason is not necessarily slack governmental discipline or excessive chattiness. For instance, a high-placed knowledgeable source in the Russian government has divulged to the Moscow-based Interfax some secret (for the Ukrainian media) information about the essential principle of consortium parity. The truth is that if any European gas companies wish to join the consortium, Moscow and Kyiv will cede them the same percentage of their share. “As to the European gas companies aspiring to enter the international consortium, the number one candidate is the German Ruhrgas,” the source said, forgetting to add that this company at the same time owns shares in Gazprom, whose safes are also full of the German gas companies’ shares. With this in view, a shrewd reader will easily see the principle of parity vanishing into thin air. To tell the truth, ‘our source’ did not hide this. He stressed that the Ukrainian official assurances that Ukraine will hold the controlling shares in the projected consortium is nothing but rhetoric. “The sooner this rhetoric, caused by the domestic political situation in Ukraine, abates, the more technical work will be done to implement the reached agreements,” the press agency’s interviewee said optimistically. At the same time, the source took an ‘anti-rhetoric stick’ from behind his back with the following cynical phrase inscribed on it and quoted by the same agency, “The signing of the Russian-Ukrainian agreements on the establishment of an international gas-transportation consortium does not mean that Russia no longer opts for alternative gas-supply routes to Europe.” “Nobody is going to put all their eggs into one basket,” the high-ranking Russian official explained. In his opinion, the solution of this problem will depend to a large extent on the implementation of Russian-Ukrainian accords, in particular, on “whether the economics of this project will be transparent and positive, as well as to what extent the standard-setting documents will protect us from the risks of our own participation in the consortium,” the source said, noting that “nobody is going go drop” the ongoing projects to diversify gas supply routes to Europe.
Meanwhile, the German Ruhrgas company, a likely participant in the international gas-transportation consortium, welcomes the signing of foundation documents and looks forward to the project’s technical aspects being coordinated. Ruhrgas spokesman Heiner Garbe believes that politicians should solve all the legal and technical problems of the project before his company concretizes its role in the consortium, Radio Liberty reported. When German Chancellor Gerhard Schroeder joined the statement of the presidents of Russia and Ukraine on the establishment of a consortium in Petersburg in mid-July, chairman of the Ruhrgas board of directors Burckhard Bergmann said, like a well-disciplined soldier, that his company (which owns a 5-% stake in the Russian Gazprom) “is prepared to take part in this extremely important project.” “Of course, we are interested in participating in this consortium, but we so far know nothing,” company spokesman Heiner Garbe told The Day last Tuesday, callings the agreement “a purely political affair,” Varvara Zhluktenko, The Day, and Niels Kreimeyer report. On their request, Alexander Rahr (German Society of Foreign Policies) thus commented on the still-delayed German participation in the consortium:
“Ruhrgas depends on Gazprom more than Gazprom on Ruhrgas. Gazprom can find partners on the whole European market, while Ruhrgas deals in Russian gas. So this company will do its best not to damage its constructive relationship with Gazprom. Ruhrgas’s wait-and-see attitude proceeds from the fact that the company will in principle follow Gazprom’s policies.”
This is another touch to the question of parity. It turns out that this must also be established with due account of all factors. What matters for Ukraine after all is that it should not shed tears, as it sometimes does...
P.S. Ukraine rejects those versions of the international gas transportation consortium which run counter to this country’s economic, financial, social, and political interests, Prime Minister of Ukraine Anatoly Kinakh told a press conference last Thursday. He also noted that, following the calculations of a number of Ukrainian ministries and agencies, Ukraine declined Russian proposals to reduce the two sides’ share in the consortium to 34% and consider Naftohaz Ukrayiny’s corporate liability to Russia as part of the future consortium’s authorized capital.
The premier also said he was somewhat worried about the fuss raised over the consortium because this can “become an instrument to aggravate the political confrontation” in this country. “We have already had a precedent, when the Eurasian gas transportation corridor project was used for several years as an instrument of political struggle. We lost time, and now we have to redouble our efforts to make up for those losses,” the premier pointed out. He said in this connection that the government would add transparency to what concerns the gas transportation consortium and called upon journalists “to make fair coverage of the developments.”
According to Mr. Kinakh, the Ukrainian-Russian intergovernmental frame framework agreement sets out clearly that the consortium will be established in compliance with the Ukrainian law and have its managing bodies located in Ukraine. The prime minister said he was sure parliament would ratify the consortium establishment agreement, Interfax-Ukraine reports.
The prime minister confirmed Ukraine’s interest in deeper cooperation with Russia “only on the grounds of equality, mutual benefit, and transparent market-based competition.” “Russia is and will be our long-term strategic partner,” he added. Mr. Kinakh also stressed that trade negotiations between the two states pivoted on the principle of the protection of national economic and political interests and the preservation of bilateral and multilateral cooperation.
Asked about the parliamentary majority, the prime minister said he had received no official proposals from the majority about the names and the number of candidates for the future coalition government posts. Mr. Kinakh noted that “the negotiating process is underway” now. He emphasized that the coalition government should be formed through an effective mechanism of cooperation between the government and parliament.
