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ZERKALO NEDELI: STRATEGIC PATRNERSHIP IN GAS TRANSIT: COMMERCE PURE AND SIMPLE?
Who profits from increasing gas transit via Ukraine?
Ukrainian Minister of Fuel and Energy is a man of his word, after all. He promised to arrange for increasing the transit of Russian oil and gas via Ukraine’s territory, and so he did. After Yuriy Boiko’s visit to Moscow on 23 November 2006, the Ministry’s Press Service quoted him as saying: “We have come to an understanding. Ukraine and Russia agreed that Russian gas supplies via our country should grow next year.” By the end of 2006, these agreements will be translated into contracts between concerned business entities.
This is an official account of negotiations between Boiko and the GASPROM CEO A. Miller. Interestingly, it was the Minister, rather than Volodymyr Sheludchenko, President of the NJSC NAFTOGAS UKRAINY, who commented on the agreements with GASPROM (the business entity with which, according to Minister Boiko, Ukraine is supposed to sign an additional contract on increasing transit). It seems strange, since Sheludchenko will be signing the new contract for NAFTOGAS UKRAINY, the company that provides (through its subsidiary UKRTRANSGAS) gas transportation services within and via Ukraine.
It seems even stranger, given that no one has revoked the Ukrainian-Russian Intergovernmental Agreement whereby annual transit of Russian gas and transit dues should be established in a separate intergovernmental protocol. In order to legalize the above contract, Boiko & Co will have to either get the 2007 intergovernmental protocol (with explicit transit volumes and dues) signed or (as they are trying to do) get the Supreme Rada to pass a resolution repealing the Ukrainian-Russian Intergovernmental Agreement currently in effect. In the latter case, all Ukrainian-Russian relations in the gas sector will be downgraded from the intergovernmental level to that of business entities.
What did “Ukraine and Russia agree” upon? According to the ZN sources, Boiko and Miller (rather than Ukraine and Russia) discussed the possible increase of Russian gas transit via Ukraine by 20-25 billion cubic meters in 2007. However, neither party ever brought up an issue of raising the transit dues by NAFTOGAS. Moreover, the NJSC NAFTOGAS UKRAINY is unlikely to profit by the deal; instead, it could lose on it. In order to pump additional 20-25 billion cubic meters of gas the company’s gas-transportation unit will have to use about 2 billion cubic meters of the so-called “technological” gas but the Russian party has not yet undertaken to pay for it. As matters stand, NAFTOGAS is expected to pay for the technological gas indispensable in the transportation process (bought at USD 130 per 1000 cubic meters, it will cost the NJSC an extra USD 260 million).
ZN sources also report that Boiko asked GASPROM to supply another 7 billion cubic meters of exported gas in excess of the cited volume, earmarked for further re-export. The question is what company will be authorized to buy and re-export this gas. Will it be the NSJC NAFTOGAS UKRAINY or the LLC UKRGAS-ENERGO, incorporated as a joint venture with RosUkrEnergo (RUE)? Who will buy the re-exported gas? If GASPROM sells it at USD 130 per 1000 cubic meters on the Russian-Ukrainian border, its price on Ukraine’s Western border (inclusive of transportation cost and taxes) will go up to USD 180 per 1000 cubic meters. Western European buyers will have to pay USD 350 or even more per 1000 cubic meters. Who will get the margin: the one who sells the re-exported gas on the Western border of Ukraine or beyond it? According to the ZN sources, it could be the ZANGAS Company that has already mediated a number of deals involving the abovementioned parties. At least, talks about selling re-exported gas to it are underway.
Direct use – tomorrow, Reverse use – today
Hardly had ZN discussed the oil transporting prospects of the Ukrainian-Polish Odessa-Brody-Plotsk project in its previous issue, when Minister Boiko rushed to Moscow to negotiate even bigger volumes of Russian gas… and Russian oil transit. Meeting with the official Polish delegation in Kyiv, Boiko spoke of the future joint transit of Caspian oil, but in Moscow he preferred to be more detailed and practical. So he met with Semion Weinstock, President of the Russian JSC TRANSNEFT, to strike a bargain on increasing the Russian oil transit by 5 million tons in 2007, with the reverse use of the Odessa-Brody pipeline.
The news was broken by Ihor Kiriushyn, President of the Public JSC UKRTRANSNAFTA (another subsidiary of the NJSC NAFTOGAS UKRAINY), who took part in the Moscow talks and made a statement afterwards: “Two months of negotiations with the JSC TRANSNEFT resulted in a decision to enlarge substantially Russian oil transit via the Brody-Odessa and Druzhba oil pipelines”.
Two things can be inferred from the above statement. First, the government had been negotiating with the Russian counterparts much more actively and specifically than with the Polish ones. Second, additional oil will be transported in the reverse direction of the Odessa-Brody pipeline, i.e. from Brody to Odessa. Thus, the prolongation of agreement with Russians on transiting their export oil via the oil-transfer terminal Pivdenny will, in theory, fill in this pipeline and render it impossible to utilize it as designed, i.e. to pump oil from Odessa to Brody. And as long as the pipeline is blocked for direct use, Poles and prospective suppliers of Caspian oil are unlikely to take any steps towards completing the Polish leg of the pipeline from Brody to Plotsk.
The situation is exacerbated as the Russians set about building an alternative pipeline Burgas-Alexandrupolis. It cannot be ruled out that they have agreed to fill in the Ukrainian pipeline and insisted on its reverse use just to gain the time lead for finishing the construction.
Summing up the Moscow talks, Kiriushyn drew an amazing conclusion: “The two parties have moved from the confrontation of the last eighteen months to normal, mutually beneficial cooperation. Thanks to the agreements reached [in Moscow] Ukraine will additionally earn at least UAH 100 million”.
Suppose in 2007 Russians will, indeed, transport 7-8 million tons of oil via Ukraine. How long will it last? Until they build their alternative pipeline? Of course, UAH 100 million is big money, and we do not want to let it slip through our fingers. Yet what prices and transit dues does the UKRTRANSNAFTA President have in mind citing his estimates? Does it mean these prices and transit dues have already been set but unrevealed for the time being? We would not be surprised, given that the Ukrainian party consented to keep the transit dues for Russian gas unchanged in the next five years. Why cannot they have the same arrangement for Russian oil transit? Some Russian and Ukrainian decision-makers seem to think along these lines. It has nothing to do with politics. It is commerce, pure and simple…
Alla YEREMENKO
“Zerkalo Nedeli”, Ukraine’s International Social Political Weekly, 25 November – 1 December 2006
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