Europe edging closer

Ukraine is continuing to implement its European integration policy. Even if it is not admitted to the European Union in the nearest future, experts say Ukraine can count on a close association with Europe’s Union for the Co-ordination of Transmission of Electricity (UCTE).

Faouzi Bensarsa, Policy Advisor to the European Commission’s Director-General for Transport and Energy, told journalists that the commission is deliberating a number of projects relating to Ukraine’s energy sector, with an eye to Ukraine’s eventual membership in the UCTE. Apparently, this membership is a realistic opportunity.

Bensarsa said that Ukraine’s first step on the road to joining the UCTE would be supplying electricity to Moldova. Ukraine also has another significant advantage compared to other post-Soviet countries: it does not have a single rapid energy-generating reactor — the kind used at Chornobyl. This is an important factor because EU electricity exports to Ukraine will require solutions to a number of problems, including priority issues, such as power engineering and use of reactors to generate electrical energy rapidly.

As long as a single such reactor is in operation, our country will not be able to join the UCTE. Bensarsa pointed out that Russia is operating 11 such reactors and that there is one in Armenia. “Ukraine stands a fair chance of joining the UCTE and selling its electricity to EU countries. There is an active kind of cooperation underway to determine possible projects in the energy sphere. These projects can be considered in terms of Ukraine’s cooperation with the European Union, EBRD, and European Investment Bank.”

He added that the European Commission is collaborating with the State Energy Preservation Agency on energy conservation and the use of biomass energy. There are a number of other joint projects in both the regulatory and investment realms, aimed at helping Ukraine reduce its energy consumption by at least 30 percent.

At the same time, the European Commission recommends that Ukraine create a 90-day oil reserve, also known as strategic, or minimum reserve. Owing to their reserves, several European countries are controlling and adjusting their domestic market prices. This would not be a bad alternative for Ukraine. “We are discussing a program to create a 90-day oil daily oil supply reserve, in keeping with EU requirements,” said Benarsa, adding that the issue was discussed during a meeting with officials representing all relevant Ukrainian agencies.

The EU policy adviser says that a special independent state agency should be created to supervise the oil reserve. Such an agency will be set up under the auspices of the Ministry of Energy and Fuel of Ukraine. Since Ukraine does not have any experience in creating and managing this kind of reserve, the European Commission has helped Ukraine adopt the best management model. According to Bensarsa, the European Union has several models, and the European Commission spent six months studying them and singling out the best one for Ukraine:

“As a result, the best model for Ukraine is a state agency tasked with managing this reserve.” Bensarsa told The Day that the decision to create this “light state structure that will deal with all issues relating to the management of this oil reserve” would be made by the end of the year. This agency could be formed in the next couple of years, and implementing the appropriated EU directive during the next decade would not harm the central Ukrainian budget. Moreover, all this can be accomplished without involving excessive foreign investments or levying additional taxes on consumers.

As for oil and gas price setting, Bensarsa says these are commercial issues and the purview of commercial companies. The European Commission is not a company, so it does not deal with such matters. He explained that international gas prices have everything to do with international oil prices, and this issue pertains not only to politics but also the market. He noted that market prices did not dominate post-Soviet markets over the past 10 years. “This was an internal Soviet agreement, at times, barter deals. This obsolete system was not in any way connected to the general world trend,” he explained. These systems have been able to “evolve” toward the international financial system only in the last two years. In other words, gas-for-gas deals are becoming a thing of the past. It is being replaced by euro-for-euro patterns, with money paid both for transit and for oil — and this practice is becoming increasingly popular. One of Ukraine’s current energy problems is excessive focus on gas supplies and prices. This overstated official focus is leading to certain consequences in other sectors of the economy, says Bensarsa, “when gas prices reach such a [high — Auth.] level that coal extraction becomes competitive. Then miners try to extract as much coal as they can, and this can lead to tragic results at mines.

“Together with Ukraine, we want to have a full-scale policy in the energy sphere. This policy must be flexible enough to have various energy products like nuclear energy, coal, and so on, and in case of necessity, to convert to either of these products while securing energy supplies to Ukraine.”

Perhaps this will happen in the near future. Today, Ukraine differs from energy-rich Europe in several ways. We still have horrific accidents at coal mines, periodic gas crises, and gas price jumps. Last but not least, what distinguishes Ukraine from Europe is that in Europe they pay some 250 dollars per cubic meter of gas in Europe.