Carlos PASCUAL, “I do not think the Odesa-Brody-Plock oil pipeline will ever be built”

Carlos Pascual, vice-president and director of the Foreign Policy Studies Program at the Brookings Institution and former US ambassador to Ukraine, is now dealing with energy issues and closely watching events in Ukraine. It will be interesting for The Day ’s readers to learn this expert’s opinion on Ukraine’s energy policy and the viability of Kyiv’s plans to extend the Odesa-Brody oil pipeline to the Polish city of Plock. In The Day ’s exclusive interview with Carlos Pascual, the American expert explains why US investors are reluctant to invest in the Ukrainian oil and gas sector, and offers advice on what Ukraine should do to attract American investments, and how the US can help Ukraine join the European Union.

Mr. Pascual, you must have heard German ex-chancellor Gerhard Schroeder saying that there will be a 249 billion cu. m. increase in demand for gas in Europe by 2015. He thinks the EU will benefit from all the gas pipeline projects in which Russia is involved. What do you think of Russia’s latest attempts to build as many gas pipelines as possible?

“If you look at the dynamics from the Russian point of view, it is obvious that Russia is interested in building a lot of pipelines to be able to supply gas to Europe. At the same time, the Russians do not want to fall hostage to 20 individual routes. Russia is also trying to exercise control over all these pipelines, which gives it powerful influence on the European market. Russia is thus trying to be a transiter of gas, not just a supplier. From this angle, it is all the more important for Ukraine to focus on its own infrastructure, especially the one related to gas, and to understand what it can do to improve the management of its gas infrastructure, attract investments to this sector, and become an effective competitor. This should be of great importance for Europe, which needs Russia as a gas transit rival. It is no good for consumers to have a market dominated by one monopolist. So, in this case Ukraine can put itself in a far stronger position vis-a-vis Europe if it manages to show reliability as an oil and gas transiter and an ability to attract investments in the gas and oil infrastructure. Ukraine will thus show that it is an effective transiter and a transparent manager.”

You have just suggested what Ukraine should do. What do you think of the efforts our country has already made in these questions?

“I would say Ukraine has been paying very little attention to these issues. An added difficulty is that Ukraine has reached transit agreements with Russia, including those via RosUkrEnergo, which has directly involved Moscow in the transit of gas from Central Asia across Russia to Ukraine. I think that if Ukraine wants to effectively overcome this problem, it should turn over a new leaf and tackle this problem in a new and creative way.

“Ukraine should also reach a consensus about its European ambitions, so that the focus of attention is on European integration and the introduction of indispensable reforms in the energy sector, which will allow it to further integrate into the European market. But if Ukraine stops addressing these problems, it will run the great risk of ending up in a situation where Russia, not Ukraine, exercises greater control over this infrastructure.”

What can the EU do, perhaps together with the US, to ensure the supply of Caspian and Turkmen gas to Europe through the trans-Caspian gas pipeline or maybe other routes that bypass Russia?

“I think there is great interest in the trans-Caspian gas pipeline project. But as far as I understand, the construction of this pipeline depends to a large extent on Turkmenistan and its desire to supply gas. At the moment, Turkmenistan has not shown this desire and continues to transport gas across Russia. This is very ironic and sad because this could be an alternative by which Turkmenistan would get the chance to help itself and build a stronger relationship as a direct supplier of gas to Europe. It looks as though Ashkhabad has forgotten this interesting option because of its short-term dependence on Russia as a transiter of Turkmen gas.”

What about the reserves of gas and oil in Azerbaijan?

“Clearly, Azerbaijan is interested in the transit of gas across Turkey to Europe. The Baku-Tbilisi-Ceyhan oil pipeline is already operational.

“As for gas, the question is whether Azerbaijan has enough gas to justify investments in the construction of a large pipeline and whether the gas reserves are big enough to influence the European market. Another limitation is that Azerbaijan is not that big a gas supplier to wield substantial influence on gas deliveries to Europe.”

How would you assess Ukraine’s efforts to attract investors, including Americans, in order to exploit gas and oil wells in Ukraine, modernize existing gas and oil pipelines, and take part in extending the Odesa-Brody oil pipeline to Plock?

“I do not think the Odesa-Brody-Plock pipeline will ever be built. The Odesa-Brody pipeline may well be merged with existing pipelines into routes that will cross Slovakia to Germany. This has real potential for a handsome economic profit, and it can be done without any additional construction. Unfortunately, this issue was considered without the necessary aggressiveness.

“The EU could play an effective role by encouraging a joint policy in all the transit countries. This would have been one of the greatest problems in 2003.

“As for attracting US and European investments to Ukraine, potential investors in the gas and oil sector still do not feel they are wanted here. They are aware of opportunities to invest funds that Ukraine needs. But they can’t unless there are juridical guarantees that their investments will be protected. I must admit that investments in the gas and oil sector are rather risky because you cannot expect your investments to begin to pay off in a year or two. It usually takes 20 to 30 years to make sure that your investments produce a result. And very few companies will opt for this in a volatile political situation without any guarantees that their juridical rights will be protected. Right now they do not feel certain on the Ukrainian market.”

You know that at the recent GUAM summit in Baku President Ilham Aliev of Azerbaijan promised to supply — in two to three years — a sufficient amount of oil to be transported through the Odesa-Brody-Plock pipeline. Is this not an argument in favor of extending the oil pipeline?

“The pipeline should be extended, and somebody should provide funds for this. But it can only be extended if there is a sufficient market of oil to be supplied through the pipeline. This is necessary to justify the investments made. But right now there is no such market for the Odesa-Brody- Plock project. On the other hand, there is a sufficient market in Slovakia and Germany for Caspian oil that can be transported through the Odesa-Brody pipeline. I think that the Ukrainian side should, first of all, do its best to make the existing pipelines work and perhaps in the future, once the market develops further, explore the possibility of, say, extending the Odesa-Brody-Plock oil pipeline. But it would be just a waste of time to focus too closely on this project now.”

In other words, you are sure there is no market for Caspian oil in Poland now?

“Right, there is no market that would justify making investments in the construction of this pipeline as far as Plock.”

What is your goal as a participant in the fourth annual Yalta Conference?

“My goal is to intensify the domestic dialogue in Ukraine about why it is important for the country to develop a vision of a European future and what should be done to achieve this aim. I have said many times that I see Ukraine as a European state with a European future. But this depends to a large extent on what Ukraine itself is doing about its policies, economy, and rule of law. I hope that cooperation between the international community and Ukraine will produce more clarity with regard to the opinion both in Ukraine and the EU as to how Ukraine can move more constructively toward occupying the place in Europe that it really deserves.”

Does this mean that the US has a voice in the EU to promote Ukraine’s entry into the European community?

“No, we do not have a voice in the EU. But we can be a useful partner of both Ukraine and the EU on such issues as rule of law, economic reforms, and investments aimed at integrating Ukraine with the EU.”

Can the US help Turkey join the EU?

“As I just said, we do not have a voice in the EU. We have friends in the EU and can discuss things with them. But the nature of our dialogue with the EU about Turkey or Ukraine will depend chiefly on what will be going on in these countries. As for Turkey, the way it is tackling the current political situation will be a critical factor in the viability of the agenda aimed at European integration. The same applies to Ukraine - how the political crisis will be settled and whether Europe will feel that Ukrainians are concerned about rule of law. These things will be instrumental in the Europeans’ attitude to Ukraine. The EU has incorporated a lot of new members. This was a complicated and challenging task. So there is no natural desire to further enlarge until there is a feeling that the EU will benefit from this. And in order to help Europe see the advantages of further enlargement, it is critically important to show that Ukraine has a strong desire to achieve political stability and rule of law.”

Some Ukrainian diplomats think that President Nicolas Sarkozy of France opposed Turkey’s EU membership during his election campaign, hoping to obtain some privileges or concessions from the US in exchange for further concessions in this matter. Is this assumption correct?

“I think that the US position, irrespective of whether the president is a Republican or a Democrat, is that Turkey is a critical country, a key bridge between the West and Islam. This is a European Islamic country that has the right to integrate into the EU if it meets the criteria of European membership. I believe the US will go on defending this position.”