“Too many obscure points”: on what conditions can Ukraine preserve the transit of Russian gas

A new round of trilateral consultations on the transit of Russian gas through Ukraine will take place on September 19. This was announced on Twitter by the Deputy Chairman of the European Commission Marosh Shefchovich.

“I am pleased to announce that on September 19 I will conduct the next round of trilateral gas talks. I am convinced that progress in this regard will give the market and consumers a powerful positive signal before the start of the winter season, ”he wrote.

Pleased to announce that I will host the next round of #TrateralGasTalks on September 19. I am convinced that progress would send a strong positive signal to market as well as consumers ahead of the winter season. pic.twitter.com/UIo83zGbT3

Representatives of Russia, Ukraine and the European Union will take part in the negotiations. Recall that the current agreement on the transit of natural gas through the Ukrainian gas transmission network to the European market is valid until the end of the year. For deliveries to continue in 2020, Kiev and Moscow must either extend the existing contract or enter into a new contract.

• Vice President of the European Commission Marosh Shefchovich
• Reuters
• © Benoit Tessier

The first round of negotiations took place in the summer of 2018, the consultations were unsuccessful. As the head of the Russian Ministry of Energy Alexander Novak stated then, an important condition for concluding a new agreement is the settlement of disputes between Kiev and Moscow in the Stockholm International Arbitration Court. As the head of the legal department of Gazprom, Sergey Kuznets, told reporters earlier, the company suggested that Naftogaz cancel the lawsuit. However, the Ukrainian side does not intend to abandon its demands.

Recall that Kiev has long insisted on a review of tariffs for the transit of Russian gas. According to the Ukrainian side, prices should be about 40% higher than the rates laid down in the current agreement. In addition, the Ukrainian authorities accused Gazprom of failing to fulfill the conditions laid down in the transit agreement for the volumes of fuel pumped.

At the beginning of 2018, the Stockholm arbitration partially satisfied Naftogaz’s lawsuit against Gazprom, awarding the Ukrainian side $ 4.673 billion in a lawsuit for short supply of agreed volumes of gas for transit. At the same time, Kiev’s requirements to retroactively review transit tariffs were not satisfied. Based on the results of offsetting the satisfied counter requirements of Gazprom, the Russian side was obliged to pay Naftogaz $ 2.56 billion.

In addition, in January of this year, on the eve of the second round of consultations on the conditions for extending the transit of Russian gas through Ukraine, Naftogaz filed a new lawsuit against Gazprom with the demand to pay a “forfeit” in the amount of almost $ 12 billion for depreciating the Ukrainian gas transportation system from Stockholm. - for the construction of gas pipelines bypassing Ukraine - the Nord Stream 2 and the Turkish Stream.

In Kiev, they said they were ready to abandon these claims if Moscow agrees to conclude a new contract for the transit of fuel through Ukraine based on European standards. In fact, Kiev unsuccessfully tried to use another lawsuit in order to obtain favorable conditions for a new contract from Moscow, experts say. At the same time, Naftogaz is not going to abandon claims in the amount of $ 2.56 billion.

Place at the "feeding trough"

Now Kiev and the European Commission insist on the need to sign a new agreement for a ten-year term. This was announced in July by Marosh Shefchovich. According to the official, the conclusion of a long-term contract is a matter of “reliability and trust in Russia as a supplier, and in Ukraine as a transit country.” He also believes that the document should discuss “commercially viable” transit volumes, since it is planned to attract the resources of European investors to modernize the Ukrainian gas transportation system.

Naftogaz’s executive director, Yuri Vitrenko, announced in June about the parameters of a future agreement that would suit the Ukrainian side.

• RIA News

According to him, the contract should be signed in accordance with European rules, for this the Ukrainian side should transfer the country's gas transmission system from Naftogaz to the control of an independent operator, the creation of which is scheduled for early next year. In addition, it is proposed to conclude a contract not for transit, but for a gas swap, Vitrenko said. In this case, a swap means the transfer of raw materials to the Ukrainian side on the Ukrainian-Russian border. In this case, Gazprom will no longer pay Ukraine for pumping gas, and the profit of the Ukrainian side will consist of the margin with which Kiev will transfer fuel to European consumers.

Naftogaz also proposes to fix in the new Russian-Ukrainian agreement the minimum volumes of pumped Russian gas at the level of 60 billion cubic meters per year.

According to experts, the desire of Naftogaz’s management to build such a multi-stage transit scheme may be related to its own interests - the financial “appetites” of the top of the company have not been a big secret for a long time.

“This is partly an attempt by Naftogaz management and those who oversee them to keep their place at the feeding trough,” said Alexey Grivach, deputy general director for gas issues at the National Energy Security Fund, in an interview with RT. - Transferring the gas transfer point to the eastern border is a long-standing fetish of the Ukrainian side, in Kiev they hope to become resellers of Russian gas. But there is no reason for this, since Russian gas is already sold under long-term contracts to European customers. The role of Ukraine in this scheme can be compared with the role of a courier, but not a seller. ”

As stated in the Ukrainian Cabinet in 2017, it was precisely the transfer of the gas transfer point for European consumers to the eastern border that could become a condition for the resumption of direct purchases of Russian gas by Kiev, which ceased in 2015. In addition, the ex-president of Ukraine Petro Poroshenko insisted earlier that Moscow should not pay for gas transit from Russia, but the European Union. However, in Moscow this proposal was rejected, calling it inappropriate.

According to experts, this idea has no support in Europe. As Director of the National Energy Institute, Sergei Pravosudov, explained in a RT commentary, the European Union does not accept these proposals of Kiev, since the current scheme is quite convenient for Europeans.

“In this case, European buyers would be dependent on the Ukrainian side. But Europeans do not agree to these conditions, and so far all contracts have been concluded so that the fuel will be transferred to Europe after passing through the Ukrainian territory, the Ukrainian side is simply not trusted, ”the expert said.

“The easiest solution”

In turn, Moscow suggests prolonging the current contract for a year. This was announced in July this year by the head of the Ministry of Energy of Russia Alexander Novak.

According to experts, this would be the easiest and most logical solution to date. According to Aleksey Grivach, Kiev plans to transfer all gas transit functions to an independent operator, but for this it is necessary to carry out very complicated bureaucratic work, for which there is simply no time left.

“Therefore, the Russian side also proposed to temporarily roll over the current agreement,” the expert said.

A similar point of view is shared by Sergei Pravosudov.

• Installation of a reception chamber for a preschool educational institution at the construction site of the Nord Stream-2 gas pipeline in Lubmin
• © Nord Stream 2 / Paul Langrock

“The proposal of the Russian side to extend the contract for a year is quite understandable, here we should recall the lawsuit between Naftogaz and Gazprom, and Kiev’s plans to separate the GTS from Naftogaz. In this situation, there are too many obscure points, and the simplest solution would be to simply prolong the contract for a year until everything becomes clear, ”the expert emphasized.

Commenting on the gas talks between Moscow and Kiev in June, Ukrainian President Vladimir Zelensky suggested that the dialogue would succeed.

“And I think that in the near future our groups will sit down, and I am sure that we will agree. And no one will twist their hands to Ukraine, ”Zelensky said.

Failure to negotiate will not only hit East European consumers of Russian gas, but will also cause significant damage to Ukraine. As previously calculated by NAK Naftogaz, gas transit annually brings the Ukrainian budget $ 3 billion, which is 3% of national GDP.

True, the possible termination of transit in Kiev was then connected not with the termination of the Russian-Ukrainian agreement, but with the launch of the Nord Stream-2 trans-Baltic gas pipeline, scheduled for the end of this year.

According to Sergei Pravosudov, criticism of Nord Stream 2 will continue if Moscow and Kiev sign a new transit contract.

“The discontent of the Ukrainian side will continue, just like the discontent of the United States, which believes that direct gas supplies from Russia to Germany, bypassing Ukraine, can reduce the possibility of pressure on both Berlin and Moscow,” the expert noted.

Nevertheless, the parties have a chance to agree on a new contract for gas transit through Ukraine to Europe before the end of this year. The position of the new Ukrainian cabinet formed last month remains an unknown variable, it may differ from the point of view of Naftogaz, experts say.

“It is still difficult to judge the parameters of a future contract, especially considering that the composition of the new Ukrainian cabinet has only recently been formed, and it is not yet clear which position it will take. The issue of the new agreement is very complex, it is not limited only by the timing and volume of transit, these parameters are also tied to many factors that must be taken into account, ”said Alexey Grivach.

According to Sergei Pravosudov, the most likely option would be the signing by the parties of a contract for a period of five years.

“If we talk about the volumes of possible transit through Ukraine, then next year the previous transit volume may still be preserved, but in the future it will inevitably decrease. Obviously, for example, a five-year contract with a gradual decrease in volumes could become a compromise. And, most likely, some compromise will still be found, ”the expert summed up.