Will Ukraine be able to afford to build Eurasian oil bridge?
Ukraine will attempt to show the rest of the world its trump in the great oil game this week, the Ukrainian sector of the Eurasian oil pipeline. Kyiv will host a presentation of the Odesa-Brody Pipeline and Pivdenny Sea Oil Terminal as part of its special oil and gas exhibit. While the players are in no hurry to show what cards they still have up their sleeves, the one being played by official Kyiv is meant to forestall both opponents in the real oil route game and long-awaited partners expected to splurge to revive this country’s number one construction project put on hold for lack of funds.
Vasyl Koshchynets, Naftohaz Ukrayiny First Deputy Chairman of the Board, stated on October 17 that the presentation was meant to “get both our partners, I mean Europe, and oil-producing countries on the Caspian Sea interested.” Very good, no doubt, considering that not one cent has been invested to do something about the great Odesa-Brody oil trail. It is also true that the Ukrainian state budget has remained indifferent to the subject the last couple of years. After a long intermission, when all such construction projects could be subsidized only by scattered Ukrainian oil transport enterprises, this year, according to Mr. Koshchynets, the Ukrainian Parliament finally deemed it necessary to allocate UAH 60 million, adding that the money was never received. Hence the lack of enthusiasm for the Verkhovna Rada Majority Coordinating Council’s resolution ordering next year’s budget program to envisage further subsidies for the oil corridor.
In a word, the card played in this oil game looks like yet another clumsy attempt to run up debts. From what Vasyl Koshchynets had to say it follows that the Cabinet does not intend to attract foreign investment to finish construction of Odesa-Brody pipeline’s Ukrainian sector, because it is 85% finished. Here what really matters is getting a loan to finish every such construction project in order to keep the oil pipeline at full capacity (it is 667 kilometers long and has a diameter of 1,022 millimeters). The said loan comes to $50 million, and the subject has long be debated with the EBRD. Should the latter finally refuse, it would be hard to expect any other potential creditor to say yes. This is why The Day’s experts believe that de facto rejection of foreign investment will neither facilitate timely completion of its construction nor help fill the pipeline with oil. Moreover, the official statistics saying the pipeline is all but ready for operation prove highly questionable upon closer expert examination. Suffice it to remember that the book value of the Pivdenny-West Ukraine connecting oil pipeline complex is $385,130,000. By mid-September the project had received a mere UAH 436.7 million, while the amount of capital investment actually used did not exceed UAH 365 million.
While coming out with such an “almost ready” construction project, the presentation’s architects are not likely to inform any potential partner that one of the reasons for such drawn-out maturation of the project is lack of coordination among the principal organizations (having this status now) responsible for subsidizing it. Proposals to unite them into a single business entity meets falls on deaf ear in the Cabinet and Naftohaz Ukrayiny. In fact, the latter fears that this kind of merger would enable such organizations to get out of hand, and that eventually NU would lose control of the pipeline. Actually, Mr. Koshchynets admitted as much when queried by The Day. And what is the Cabinet is afraid of?
The grand idea of getting somebody else to pay for filling the pipeline, the key objective of the presentation, looks rather innovative (considering the verbal attacks being aimed at the Cabinet). Moreover, even now one can trace further attempts in this direction. Recall First Vice Premier Yuri Yekhanurov’s recent trip to Iraq, accompanied by First Deputy Energy Minister Vadym Kopylov. We all know that Iraq has tremendous still untapped oil potential. In that country, the Ukrainian delegation met with President Saddam Hussein and negotiated prospects of cooperation in keeping with the UN oil-for-goods resolution. The only unpleasant question is how the West will respond to Ukraine’s initiative on the Iraqi front.
