Eynulla MADATLI: “Azerbaijan will ensure gas supply the moment Ukraine is ready to receive it”

Kyiv and Baku have postponed the signing of two documents related to energy cooperation. In particular, it had been expected that in Davos the presidents of Ukraine and Azerbaijan would sign an agree­ment on a joint venture to supp­ly liquefied gas to the LNG terminal. However, the announced event never took place. The reported reasons for its failure list the rise of new cooperation formats for enhancing Ukrai­ne’s energy inde­pen­dence (joint­ly with Turkey and Europe), as well as the aggravation of the Iranian conflict. On their part, Russian me­dia suggested their own version: Azer­baijan is allegedly dissatisfied with its cooperation with Ukraine, thus it is changing priorities. At the moment, Ukraine and Russia are engaged in gas negotiations, and the latter shows absolutely no enthu­siasm about Uk­raine’s finding alter­native routes of gas supplies. Thus, such attacks on Russia’s part are predictable, albeit groundless – since over the two decades of Azer­baijani-Ukrainian collaboration there have been no grave misunderstandings or conflicts. How then should one interpret the failure to sign the two documents on energy? When can the situation be mended? What other joint Azerbaijan-Ukraine projects can be expected in the near future? Eynulla MADATLI, Azerbaijan’s Ambas­sador to Ukraine, answered these questions in his special inter­view to The Day:

On the eve of the Davos forum, Ukraine’s president Viktor Yanu­kovych announced the signing of two agreements with Azerbaijan. However, they were never signed. What are the reasons for this, in your opinion?

“You have to look deeper into the reasons. As you know, in Davos in January, 2011 Azerbaijan and Ukrai­ne signed a memorandum on liquefied gas supplies. The document provided for the construction of an LNG terminal in Ukraine. This intention is beneficial to both countries, thus technical negotiations between relevant ministries began. Azerbaijan’s Minister of Industry and Energy Natik Aliev and Ukrai­ne’s Mi­­nis­ter of Energy and Coal Industry Yurii Boiko have discussed these matters more than once. As a result, a working implementation plan was signed. On the eve of the Davos forum, the Ukrainian party announced that the draft agreement was almost agreed. However, the parties failed to sign the documents. How come?

“At a high-level meeting both parties decide to postpone the signing of the treaties in order to consi­der additional factors and thus finalize the documents in full detail.

“Ukraine had been raising questions concerning the use of a ‘floating’ terminal. After Davos the Uk­rai­nian president stated that other variants of gas supplies had been discussed, except the construction of the terminal. He meant trilateral gas projects (Azerbaijan – Turkey – Ukraine): the construction of a land-based gas pipeline from Azerbaijan to Ukraine via Turkey, Bulgaria, and Romania around the Black Sea. In this case, the approach to the construction of such a terminal should be different.

“However, at the same time Ukrainian and Russian mass media reported that Turkey was also inte­rested in the construction of the LNG terminal in Ukraine, and would even wish to become a contractor in the construction. At present, Ukraine is looking for an investor for the construction of an off-loading liquefied gas terminal. So far, the investor has not been found, the exact site of the future terminal is unknown, and the feasibility study has not yet been completed. Only after the feasibility study is done, a tender will be held, and then the construction of the terminal will begin (which, as you know, takes at least two or three years).

“Thus, Ukraine will need seve­ral more years to build the terminal. That is why there is no need to hastily sign any document stipulating the volumes of gas supply – the more so that there is already a memorandum (i.e., the parties’ political will) on gas supplies to Ukraine. Yet before the actual supplies begin, the necessary infrastructure needs to be in place. Besides, the gas promised by Azerbaijan to Ukraine will only be mined in 2017, after the launching of production at Shakh Deniz-2 gas field. So there still are several years to go before the date of the conventional start of supply, given the construction time.

“Besides, Ukraine and Russia are intensively negotiating the decreasing of gas prices and, according to minister Boiko, there is a hope that an agreement will be reached. Notably, Ukraine is also planning to increase the production of its own gas.”

Do you think that, due to this, we are not going to need the gas from Azerbaijan?

“Azerbaijan is interested in the cooperation in this sphere, and will ensure gas supply the moment Ukraine is ready to receive it. Today Ukraine has no infrastructure which would allow to receive this gas. As to our guarantees, they stand now, and will do so in the future. Over the recent 18 years, Azerbaijan has signed more than 30 agreements and treaties on ener­gy resources supplies with various countries and the world’s biggest corporations. Up to date, all of them have been honored. The signing had been preceded by detailed description of all the conditions, with all possible risks taken into consideration.

“Consider for example Turkey, our neighbor, natural ally, and strategic partner. We have a formula: ‘One nation, two countries.’ But even all this considered, the agreements concerning oil and gas prices, as well as transportation rates for Turkey, were negotiated for quite a long time, thoroughly and carefully. Many were surprised and asked why. The answer is, that trade and economic relations should be based on pragmatism and the parties’ mutually profitable national interests, rather than on sentiment.

“As far as resources go, we have enough to fulfill all our contracts: Azerbaijan is planning to export circa 50 billion cubic meters of natural gas by 2025.”

You said that you are waiting for the construction of the terminal to begin. But Ukraine is not beginning to build the LNG terminal until it has at least a binding memorandum on energy resources supplies. This is what Poland did before it started to build its own terminal. Please correct me if I am mistaken.

“There is no mistake, but we still have time on our hands. If we spend another couple of months on finalizing the agreement, it will only do good. Azerbaijan does not refuse to sign the agreement on gas supplies to Ukraine. There is no political motive to this. I emphasize, because some foreign mass media are trying to find political implications in the whole matter, as if Azerbaijan is not satisfied with Ukraine. Nothing of the kind. Nothing can hamper Uk­raine-Azerbaijan cooperation. We want Ukraine to have enough energy resources, and we will use the earliest real opportunity to ensure gas supplies to Ukraine. It should be taken into consideration that the signing of the agreement is not canceled. It is postponed, with the parties’ mutual consent, in order to finalize the details. How long it will take, is a technical question.

“I can also say that Ukrainian leaders’ statements in Davos imply that this finalizing will be followed by the signing of two agreements: go­vernment-to-government and corporation-to-corporation. A government-to-government agreement is a sure gua­rantee that the treaty will be ho­no­red regardless of the composition of management and current policy.”

Is Azerbaijan going to bid for the construction of a terminal on the coast near Odesa? Why do you think the construction of a liquefaction terminal in the Georgian port of Kulevi has not yet started?

“Azerbaijan is a resource-supplying country, and it is ready to supply gas to a consumer, but it is very interested in the diversification of its export routes and destinations. In the case of Ukraine, we speak of supplies via Georgia. Thus Georgia, as a transit country, also must take part in the process, since it is paid for the transit. The consumer, too, has to join in. Normally the implementation of such large-scale regional projects involves the creation of a consortium of investors, and then the construction begins. I have already said that Turkey also displays interest in these projects. And as soon as the construction of the Kulevi terminal begins, Azerbaijan is ready to build the pipeline there, in order to pump gas.”

At the beginning of our interview you mentioned a gas pipeline which can connect our countries around the Black Sea. How does Azerbaijan see its role in such a project?

“This is a new idea. Of course, the economic effectiveness of such supplies has to be calculated. But I think it is a promising project. As for our participation, of course first of all it is the role of resource supplier. Secondly, if Azerbaijani companies become interested in direct participation in the construction or investing into such a pipeline, and find it profitable – why not, then?”

The Ukrainian government has approved the draft law on the ratification of an oil-transit agreement with the Azerbaijani government. What volumes of oil for Odesa-Brody pipeline can Ukraine count on in 2012, as well as in the mid-term perspective?

“I cannot give any specific data, the question is still under consideration. But oil supplies are growing, which is boosted by the increase of domestic production. In 2011, we produced more than 50 million tons of oil. And every year, this amount grows almost by a million.”

What oil and gas investment projects will the Azerbaijani go­­vernment company SOCAR implement in Ukraine?

“It has already made conside­rable investments in Ukraine. In par­ticular, I mean the launching of 30 gas-filling stations. The company is planning to expand this network two- or threefold in the next few years. Also, they are planning to begin supplies of jet fuel to Ukrainian airports this year.”

It is rumored that SOCAR are also interested in purchasing the Odesa oil refinery. Is that true?

“Maybe, they are interested, or going to be. The company is in good financial shape and has been expan­ding its foreign investment pro­jects. Such a purchase could boost the re­­gu­lar work of its filling station network.”

February 6 is the 20th anniversary of the establishing of diplomatic relations between Azerbaijan and Ukraine. What are the results? Could you share with us the plans of the future cooperation?

“In 2010, our bilateral trade amounted to 1.6 billion dollars. There still has not been the final figure for 2011, but the first eight months showed that there was a tendency towards growth, at 1.2 billion dollars. At the end of the day, these are good fi­gures, but we are not satisfied with the structure of the commodity turnover. There is still room for perfection.

“Today Ukrainian metallurgy and machine building have a good market in our country. Ukrainian confectionery, liquors, soft drinks, meat and dairy, and electrical appliances are in great demand in Azerbaijan. We also supply to Ukraine foods and petrochemicals, invest into the construction of real estate, bridges, and roads. There is a huge potential waiting in energy and aerospace industries, as well as in tourism. Our countries must also expand their humanitarian, academic, and cultural relations. By the way, in 2012 the Days of Azerbaijani culture will be held in Ukraine, and in 2013, likewise, the Days of Ukrainian culture will be held in Azerbaijan. I would like to remark that these 20 years reveal a huge potential of unrealized opportunities, and we must work together to implement them.”

Don’t Azerbaijani investors complain about the difficulty of doing business in Ukraine?

“There have been no such complaints. If it had been bad, they would have long left. Instead, they open up new businesses, they are working, consequently, there are no obstacles.”

Don’t they even complain about corruption?

“Well, no one has ever approached me because of that.”

How does Azerbaijan fight corruption?

“Two years ago, an anti-corruption department was created within Pro­secutor General’s Office, and it has worked successfully since then. At the recent government meeting Azerbaijani President Ilham Aliyev obliged the ministers to intensify war on corruption. The steps that have been taken are bringing forth good results. Creating artificial obstacles to doing business is made virtually impossible. For instance, re­gistration and obtaining the license for opening a business is done through a ‘single window.’ All welfare payments, salaries, and wages are transferred to charge cards. Soon electronic signature will be introduced, too. At chain stores ATMs for non-cash transactions have already been installed. This also helps keep transactions out of the shadows and fight tax dodging.”