EU Energy Commissioner Backs Ukraine’s Gas Transit Aims
The EU energy commissioner, Andris Piebalgs, has said that Ukrainian Prime Minister Yuliya Tymoshenko in Brussels presented good arguments in favour of a scheme to bring Turkmen gas to Ukraine via Georgia, but the European Commission needs more time to study the White Stream project. Speaking in an exclusive interview with a Ukrainian news agency, he said that both the EU and Ukraine would gain if Ukraine joined the Energy Community. The EU should participate in modernizing Ukraine’s pipeline system, he said. Piebalgs failed to be drawn on the level of gas transit tariffs, but he said that they should cover the country’s expenses and provide a moderate amount of profit. The following is the text of the interview that Piebalgs gave to Serhiy Voropayev entitled “EU energy commissioner: Transit of Russian gas should provide profit to Ukraine” and published by the private Ukrainian news agency UNIAN on 1 February; subheadings been inserted editorially:
Questions of energy security are being discussed increasingly actively these days both in Ukraine and throughout the world. One of the most important components of that security is the reliability and predictability of gas supplies. The EU commissioner for energy questions, Andris Piebalgs, agreed to answer questions from UNIAN concerning the security of operation of the gas market. We met with the commissioner the day after he had talked with Ukrainian Prime Minister Yuliya Tymoshenko. For that reason our conversation started with a discussion of the Ukrainian prime minister’s proposals about a new transit corridor for Central Asian gas.
[Voropayev] A few hours before meeting you, Yuliya Tymoshenko, speaking at a European parliament committee, announced a proposal to build a new gas pipeline that would link Turkmen gas via Azerbaijan, Georgia and Ukraine with European consumers, White Stream. Did you discuss that proposal with the Ukrainian prime minister and how interesting is it for you?
[Piebalgs] Of course we talked about White Stream, and Ms Tymoshenko produced good arguments for the potential of the pipeline. However, on the part of the [European] Commission we have to study this question in detail, because once the commission gives the go-ahead and funds some part of the technical and economic feasibility, it has to be sure that it will back the project, that the project will be like NABUCCO [a pipeline taking gas from Turkey to Austria], which the commission whole-heartedly supports. In this way we need a certain amount of time to discuss the project, evaluate all its positive sides, see if there are any problems and only then take a definite decision.
Let us take, for example, the South Stream project. What can the commission have in common with it? It’s not a project initiated by the commission, it’s a project proposed by the Russian side jointly with the Italians. And in that case the commission says: Yes, it’s an interesting project, but we are not fighting for it. If we take White Stream, the commission will have to back the project fully, to enable it to be implemented, and we need a certain amount of time to take a decision.
[Voropayev] Do representatives of the European Commission have to take part in conducting the feasibility study, or will it be sufficient if the study is made by specialists from Ukraine and Georgia?
[Piebalgs] I think that the commission should take part in the project, including financially, because it will add confidence to the project – if the commission takes the decision to back it. Of course, this does not rule out the possibility that the Ukrainian and Georgian sides are able to do the feasibility study themselves. But since it’s a question of a big pipeline, which, it is proposed, will cross the territory of both Ukraine and Georgia – countries with which we have very good relations – I think that it would make sense for the commission to some extent to help the development of the project, if it has a positive attitude to the actual idea.
Decision on White Stream yet to be made
[Voropayev] How quickly can the European Commission make up its mind about whether to support White Stream or not?
[Piebalgs] We have to study all the details and discuss everything. That will take about six months because, you understand, we already have a lot of gas pipelines in the Black Sea and, if the decision is taken, we have to be sure. And that depends not only on Ukraine’s transit possibilities, I have no doubt about that, and, as your prime minister rightly says, there are possibilities here. But the main question is whether there is enough gas in the Caspian Sea region that we can transport today. You know that we have been working with Turkey for a fairly long time now on the NABUCCO project and we already have a link now between Greece and Turkey… [ellipsis as received] But whether there will be enough gas in the near future to build another pipeline is, in my view, the main question that we have to decide.
This week I will have a meeting with the deputy prime minister of Turkmenistan, Tacberdi Tagyyew, to discuss a memorandum on cooperation between the EU and Turkmenistan in the energy sector, and we will talk about that. We are also working on gas with Kazakhstan, but that is all still in the development stage. In theory, of course, it can be proposed that Iranian gas will travel in this direction, but here, as you understand, we want good relations with Turkey, since Turkey is an important country for us.
And when you develop any project, you need to develop it not only for the benefit of someone, but also not to the detriment of some country with which you are cooperating. This is also a fairly sensitive matter. It’s not a problem for Ukraine, but for the EU, of course, it is a problem. We want to work with all the countries in the region and not upset any of them.
[Voropayev] Did the Ukrainian prime minister acquaint you with her plans to change the system of gas supplies to Ukraine and to repudiate such middlemen as, in particular, [Swiss-registered] RosUkrEnergo?
[Piebalgs] No, we did not discuss that issue, because it’s an exclusively Ukrainian issue, and Ukraine itself decides how to pay for transit. I did not raise that issue, and the prime minister did not raise the issue either.
I cannot give advice or take any position. Ukraine itself decides what system is best for Ukraine, and to me it looks like this: what is best for Ukraine is also best for me.
Ukrainian accession to Energy Community
[Voropayev] Speaking about bilateral relations, we cannot fail to recall that back in March 2007 the European Council (a summit of heads of state and government of EU countries – Auth.) took the decision to invite Ukraine to join the Energy Community. What stage is that work at now?
[Piebalgs] You know, this was the first question that the prime minister and I discussed, because it was important for me to know whether Ukraine was confirming its interest, and I was given that confirmation.
The commission has developed a negotiation mandate, and it is now being discussed in the council, i.e. the countries of the EU are working out a position regarding the commission’s negotiation mandate. The prime minister in turn will give an instruction to the Ukrainian side to prepare its position for the negotiations as well and, as soon as both positions are confirmed, we will start negotiations on Ukraine’s accession to the Energy Community. I am convinced that Ukraine will gain from joining, since it is a question here of implementing part of European legislation, and also because sees its place in Europe. Cooperation in the framework of the Energy Community is a fairly good school for possible development in the future. I will note that both sides consider that these negotiations must be conducted as quickly as possible and that both the EU and Ukraine will gain from Ukraine joining the Energy Community.
[Voropayev] Can we already talk about some specific dates for the start of negotiations?
[Piebalgs] It’s difficult for me to talk about dates from the Ukrainian side, but as far as the EU is concerned, everything is at a stage of good development with us. The only thing is that we need to go through all the levels: the working group, then the Coreper (a sitting at the level of representatives EU member countries – Auth.) and then the Council of Ministers. This means that it will take some months yet, but for the EU this is a fairly short period of time. And it’s exclusively a technical matter.
[Voropayev] Ukraine and the EU are currently engaged in drawing up a new reinforced agreement. Could you tell us about your proposals for the agreement in the area of energy, which have already been agreed with Kiev?
[Piebalgs] It seems to me that it is somewhat premature at present to talk about this, since relations between Ukraine and the EU are developing fairly dynamically. Apart from that, the positions of the sides have become much closer on the background of Ukraine’s preparations to join the WTO, and in this way the possibility has appeared to develop free trade zones, which changes a great deal. And my colleague Peter Mandelson (the EU trade commissioner – Auth.) will be in Kiev to discuss these questions.
There are positions about investments in the Ukrainian energy sector but, as I understand it, the prime minister is demonstrating a very open attitude regarding European investments. And this is what interests me – stability and the possibility of investments in all areas and not only in the classic energy sector, but also in such new ones as, for example, alternative, renewable energy. The overall investment climate is the most important element for me, as is the possibility for Western companies to take part in projects in Ukraine. I want to say that we don’t have any special tricks, but since we have already concluded a memorandum of understanding on energy, all the basic topics are reflected in it. So, as far as energy is concerned, I don’t see any special problems, since basically the questions will concern tariffs, but that is more Peter Mandelson’s area than mine.
Modernization of gas transport system
[Voropayev] You mentioned investments. So far as is known, the European Commission has reached agreement with the Ukrainian Fuel and Energy Ministry to hold a donor conference to modernize the Ukrainian gas transport system. Why was it that precisely that way of seeking money was chosen, and who might the donors be – exclusively EU members?
[Piebalgs] Of course, there are the EU countries, and certain international organizations such as the World Bank might participate, because we have good experience of working with the World Bank.
Why that way? We know that Ukraine is the most important transit country for the European Union, because most gas from Russia travels through Ukraine. We know that the issue of even a partial privatization of the pipelines is not on the agenda in Ukraine, but at the same time there is a huge need for modernization. Therefore there remains only the possibility of attracting donors, since there are no grounds today for believing that Naftohaz [Ukrainian state- owned oil and gas company] will be able to invest: after all, its financial situation is not that good. Neither are there any other possibilities. This is the only correct possibility of finding the necessary funds to modernize the pipelines. And this is important both for Ukraine and for the EU.
[Voropayev] And do you hope to collect the whole sum needed – 2.5bn euros?
[Piebalgs] What else can we do? After all, nobody wants there to be any interruptions in supplies because of pipelines. We have already had two occasions, both fairly small, but both cause concern, all the more so because the Ukrainian side also says that the pipelines must be modernized, and this requires a lot of money.
[Voropayev] The question of transit charges for the transportation of gas is currently under active discussion in Kiev. Some specialists claim that it should be not 1.7 dollars for 1,000 cu.m. per 100 km, but 9.32 dollars. What do you feel – which of those two figures is closer to European prices, and do you not consider that if the transit charge covered all expenses, then there would be no need to look for donors to modernize the gas transport system?
[Piebalgs] I think that a comparison here would be somewhat incorrect, because there are two linked processes: in the European Union we pay a lot more for gas and over a lengthy period of time. In this way, the tariff structure is also not entirely comparable. Apart from that, we don’t have entirely classic transit, because we buy gas on the border. This means that it’s not an entirely classic comparison. If there had been gas supplies via Turkey, then we could have made a comparison, but there is a fairly unique situation here. Although, in my opinion, the tariff nevertheless should first of all cover expenses and provide, say, 7-10 per cent profit.
I don’t have the necessary data, so I can’t comment on which number is closer, but in any case an objective look must be taken at expenses and the profit level, since that is always regulated in all countries where there are transit pipelines, and then there must be a discussion with the Russian side whether to get to that figure immediately or gradually. In my view, this is also connected with the fact that the price of gas for Ukraine is still not that high – not 350 dollars per 1,000 cu.m. as it is in the EU. This is a very subtle question, but in my view expenses should always be covered, because the pipeline system has to function. And the tariff, I repeat, should be based on real expenses, plus 7-10 per cent. We can say that this is precisely how regulators in the EU determine the transit price. It is very complex to compare things in a different way.
Ukraine’s gas market needs strong independent regulator
[Voropayev] Ukraine and the EU have started discussing carrying out internal reforms on the gas market of Ukraine. What reforms in your opinion must be carried out first and foremost?
[Piebalgs] I won’t say anything new, because there is European legislation which is well written into EU directives. The basic problems remain the same.
First, in order for there to be a good gas system, a strong regulator is needed, independent of political forces, who can, in a period of five or some other number of years, depending on the mandate, deal with regulation of the gas market. Second, of course, it is essential clearly to separate the functions of transportation and delivery of energy sources.
[Voropayev] Do you mean that the European Commission is now proposing a reform of the EU internal market?
[Piebalgs] Yes, but we are already going further. Today we have juridical and functional separation, but we see that even this is not enough. And everyone agrees that there are only differing opinions on how far to go. After all, as soon as two functions are mixed, there is no possibility of taking an operational decision, because there is no clarity. This is the second question – it needs to be clear who is responsible for what and how it functions. So the main thing, I would say, is structural changes in the gas sector plus a strong regulator.
There is nothing new here, but even in EU countries it’s fairly complicated, because all the gas companies fight with all their might against such approaches. But there are some countries that, in questions of organizing the gas sector, are somewhat similar to Ukraine, in particular, the Netherlands, which acts very successfully in this area, although the state there, just as in Ukraine, has full control in the gas sector. Ukraine also extracts and transports gas and, of course, Ukraine is somewhat bigger in scale and the separation would be much simpler.
I think we must wait some time for the new government to get into it. Structural changes are always the best way of solving problems, and then, of course, investments will appear and sufficient supplies. And in most cases it remains for politicians only to cut the red ribbons at the new facilities.
[Voropayev] Is the commission now prepared to provide help in drawing up and evaluating new draft laws in this area?
[Piebalgs] We are working in the framework of the memorandum of understanding, and it’s all there. We are also helping, of course in small projects, like the metrology centre in Boyarka, and we are providing all other possible help in this area, but, of course, the speed with which reforms are conducted depends only on Ukraine.
With my colleagues in the European Commission I always quote the example of the Russian electricity sector. Nevertheless, Anatoliy Chubays made a good move and, in actual fact, he copied our approach without talking about it. That means that it is possible and it immediately produces a new flow of investments and know-how.
Of course, these are very complex reforms. They need a lot of time and they must be well prepared. They must not be launched quickly because, for one thing, people need to be convinced that this is the best way. You know, the idea always exists that if everything is put together, as they say, in the same pot, then the price will also be lower. But, on the other hand, whether it’s simply five or two plus two plus one – it will still be five. So, structural reforms are the most important thing that the new government can do, because they always create good possibilities for future growth and, if they are delayed, it is more difficult to conduct them later.
The new government is very ambitious in a positive sense, and, I think, they will do what is necessary.
Ukrainian pipelines still vital
[Voropayev] Coming back to the subject of building new gas pipelines, I’d like to ask you how you would comment on the opinion of some Ukrainian experts that the EU, by supporting the construction of new gas pipelines bypassing Ukraine, is trying to leave Kiev one to one with [Russian gas monopoly] Gazprom. And will a Ukrainian gas pipeline be needed at all, if the northern and southern streams and NABUCCO are built?
[Piebalgs] Of course the Ukrainian pipelines will be needed, because currently in the EU we extract 200bn cubic metres of gas, but we consume 500. But extraction is falling very rapidly, and already in seven years’ time the need for imports may increase to 400bn cubic metres a year. And even with a rapid development of liquid gas terminals and supplies from Norway and Algeria, we are still consuming more and more gas. We must understand here that a liberalized market is very keen on gas to produce electricity; fairly small investments quickly pay for themselves.
As for the Nord Stream, it will take what the Shtokman deposit will provide, and we will get an additional 27.5bn cubic metres to start with, and later – 55. This is exactly in the region where extraction is falling. As for the South Stream, here, of course, I’m not sure where the gas will come from, because I don’t know of any new big gas developments. But on the other hand, if a gas pipeline is built and the EU does not invest a single cent, it is a purely commercial project and hence it has commercial ideas about where the gas will come from. So I don’t think that by these actions to some extent we will place Ukraine in doubt, because our requirements for gas are growing.
Russia has always said: We are able to supply your requirements. In this way a new infrastructure is needed, and a Ukrainian gas infrastructure will be needed, both for the European Union and for Russia. It seems to me that development is basically connected with the fact that the EU can pay a good price, and additional gas resources on that market are very profitable for Gazprom; it receives good money and thereby the Russian state also earns good money. That is why I would not regard this policy as a policy against Ukraine.
Of course, we are also having debates in the EU regarding the northern pipeline, and why it is not going through the Baltic countries and Poland. This is a very good question. It could have been done more simply by expanding the already existing lines. At the same time, I think, we should respect the producer country. After all, if it’s a matter of building a new project, they too can express their opinion. We should not say: No, no – that’s wrong. After all, it is Russian gas at the end of the day. And Russia also has the right to say which way it would like to supply its gas. All the more so because Gazprom funds the construction: Gazprom will pay 51 per cent of the cost of the project.
In this way, I think that the less we try to exacerbate the issues, and the more we try to speak on pragmatic topics, the better it will be for everyone. And everyone will be satisfied. And it must not be thought that Ukraine with its more than 100bn cubic metres of gas delivery a year can somehow be replaced. If something happens to the Ukrainian gas system, we will find ourselves in the cold and without electricity. In this way Ukraine is a strategic country for us, and also for Russia, because if there are breaks in gas supplies, then that is disadvantageous for Russia as well. So, all the new projects are not against Ukraine.
Possibility of direct Turkmen gas supplies to EU
[Voropayev] Mr Commissioner, at the end of last year you visited Turkmenistan for the first time in many years, and after your visit you called on European companies to invest in gas extraction in that country. Apart from that, information appeared about EU intentions to obtain gas directly from Turkmenistan. Have companies already appeared that are following your appeal, and when can we expect the start of direct deliveries of gas to Europe, and by which route?
[Piebalgs] As far as I know, some big companies, both European and American, have made proposals to the Turkmen government, and the Turkmen government will make a decision. When it will do that depends entirely on the government. So, there is a certain development. As I already said, we will be having discussions with the deputy prime minister of Turkmenistan on the drawing up of a memorandum of understanding in the energy sector: this is also part of the development of our relations.
How should gas be delivered? There are various possibilities here. For me the best way would still be to build a trans-Caspian gas pipeline, because with the experience we now have with the Nord Stream via the Baltic Sea, even taking account of the fact that they are different projects, one can still find answers to all the technical questions and find a certain understanding with all the countries that are located on the Caspian. We simply have to work on it. How long is needed to solve these issues? There are big resources in Turkmenistan, of course, as well as in Kazakhstan and Uzbekistan, with whom we are also working.
I am convinced that we should not stop and should not ask questions about why it’s difficult. We have already lost a certain amount of time in the EU, and, I think, we will pay for it. After all, had we started earlier, we would have had more developed relations. But we don’t intend to stop and, I think, this is also of interest to gas suppliers – to supply gas to the market where the price is best.
As a matter of fact, we are not so much in competition with Russia as with China, frankly speaking. Because China can pay good prices, and so can we. Russia is basically transporting that gas. And of course, it also has a certain interest in making money out of it.
But I don’t see that it would be impossible to find a normal decision from the viewpoint of all three big players. And we will continue working with Turkmenistan. I can’t say anything more specific at present. There is a positive development, but it’s too early yet to speak of specific dates.
Originally published by UNIAN news agency, Kiev, in Russian 0000 1 Feb 08.
(c) 2008 BBC Monitoring Former Soviet Union. Provided by ProQuest Information and Learning. All rights Reserved.