German Stimulus

The idea of an international natural gas transit consortium has been given a new German impetus. Presidents Leonid Kuchma of Ukraine, Vladimir Putin of Russia, and Federal Chancellor Gerhard Schroeder of Germany have announced their intent to cooperate in utilizing Ukrainian gas mainlines and ensuring an uninterrupted supply of gas to European countries. The three leaders noted in a declaration signed last Monday in Saint Petersburg that they had discussed in a trilateral format Mr. Schroeder’s suggestion that German gas companies participate in the Ukrainian-Russian consortium and come to a common conclusion that this would be given priority treatment when the presidents of Ukraine and Russia make a decision.

The three sides confirmed “a common aspiration for expanding trade and economic cooperation in all spheres, including the energy sector, which will promote economic growth and speed up the integration of Russia and Ukraine into the worldwide economic space.”

Mr. Schroeder believes the establishment of an international consortium (with participation of European companies) for managing Ukrainian gas pipelines is a “brilliant idea.” The chancellor said “it is very important” for the European economy to have a consortium which will at first deal with modernization of the Ukrainian gas transport system. Mr. Schroeder thinks this decision will “impart a new quality to European energy-related policy” because it will “enhance energy safety.” In addition, according to the chancellor, this will allow the gas to be delivered to Europe at “reasonable prices.” Commenting on the trilateral statement, Russian Vice Premier Viktor Khristenko noted interestingly that “the number of participants may be increased by way of our long tested partners.”

Immediately after signing the trilateral agreement, Russian President Putin generously showered the Ukrainian gas transport system with dollars, promising that the establishment of the international consortium will make it possible to attract $2.5 billion in the immediate future and up to $15 billion in the next ten years for the reconstruction of this system. “This will have a positive effect on the economy of European states, as well as Russia and Ukraine, and will allow the population of our countries to raise their incomes. This is, in my opinion, the most important thing,” the Russian president noted.

Ukrainian President Leonid Kuchma thinks that the declaration signed in Saint Petersburg between Ukraine, Russia, and Germany will contribute to “the solution of one of Europe’s crucial problems.” In his view, the decision “will put an end to the problems that have occurred in the past few years,” including the idea of building a gas pipeline bypassing Ukraine “in the nearest years.” “Small investments” in the Ukrainian gas transport system could increase its capacity by 1.5 times, Mr. Kuchma pointed out.

Simultaneously, Mr. Kuchma pointed out that the decision, “which Ukraine, Russia, and Europe will benefit from... was conceived long ago, not on the spur of the moment... We have approached this decision sometimes down a thorny road,” the president said. This, he believes, concerns not only the tomorrow of Ukraine, Russia, and Germany. “This document also touches on the future of all Europe as a whole, for energy security is today in the foreground,” Mr. Kuchma said.

However, Ukrainians immediately began to speak about the problems that might arise during the parliamentary debate on the international consortium agreements. Yet, the comments of representatives of the leading parliamentary factions rather show the opposite. SPDU(O) faction leader Viktor Medvedchuk regards the intention of the presidents of Ukraine and Russia to sign a gas agreement as “a major milestone in Ukraine’s economic life” and is sure that the related agreement, to be signed shortly, will be ratified by Verkhovna Rada. In his opinion, this document will receive the favorable vote of, among others, the United Ukraine, SDPU(O) and KPU factions. Heorhy Kriuchkov, chairman of the parliamentary committee on national security and defense as well as member of the KPU faction, also positively appraised the two presidents’ declaration. “Everything that speeds up the solution of the problem is positive,” the Communist emphasized.

The future agreement has also found support among chairpersons of the leading parliamentary committees. Andriy Kliuyev, chairman of the Verkhovna Rada committee on the fuel-and-energy complex, nuclear policies, and nuclear safety, thinks that globalization is a normal process in such sectors. In his opinion, Verkhovna Rada can ratify the agreement. The main thing is to draw up a good clearly-worded document which could work for the benefit of Ukraine.

Now Kyiv must try to talk German companies into choosing suitable forms of participation in the consortium. The key problem is whether the European consumers of gas will pay for its transit across the territory of Ukraine. If so, this could make Ukraine a serious operator on the European market. In fact, Russia does not want this. Moreover, it is still unclear what stand Berlin will take over the details of the consortium. Taking into account the German elite’s positive attitude toward the so-called Kremlin German, Ukraine will have to come up with offers interesting to Western companies.