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The “reserve route”: what will Russia gain from gas transit agreements with Ukraine

2019-12-28T07:52:44.751Z

Starting January 1, 2020, Russia and Ukraine agreed to nullify mutual claims on gas transit, said Alexander Novak, head of the Russian Ministry of Energy. The agreement reached is beneficial to both parties and paves the way for further cooperation between Moscow and Kiev, experts say. At the same time, analysts believe that the problem of unreliable deliveries through Ukrainian gas pipelines will continue in the future due to the unstable political situation in Ukraine and the obsolescence of the Ukrainian gas transportation system.



Gazprom and Naftogaz reached an agreement in principle regarding the transit of Russian gas through Ukraine. This was announced in an interview with Russia 24 channel by the head of the Ministry of Energy Alexander Novak.

“We agreed that mutual claims will be nullified from January 1, and property seizures will be lifted due to decisions made in lawsuits,” the Russian minister said.

He also noted that the Ukrainian gas transportation system (GTS) in the future will not be used in the same volumes as before, although it will remain in demand due to increased gas demand in Europe. According to him, at the moment the pipeline is in a rather "worn-out state" and needs to be modernized.

“We never generally refused to use this gas transmission system, but, of course, it is unlikely to be used in such volume as before, when 90-100 billion cubic meters were pumped through this hydraulic system. m of gas, ”said Novak.

Prime Minister of Ukraine Aleksey Goncharuk, in turn, said that the agreement on gas transit between Russia and Ukraine has not yet been concluded: one to two days are needed to complete the negotiations.

Achieving mutual understanding between Moscow and Kiev on the issue of gas transit will reduce the legal risks for Gazprom, experts at Moody's say.

“The recall of mutual claims, court decisions on which have not yet taken, excludes the possibility of seizing Gazprom's assets outside of Russia. The company will also be able to enter the Eurobond market without the threat of potential sanctions from the securities offering sites, ”TASS quoted Moody's as saying.

Mutual claims

The claims in question were considered in 2017-2018 by the Stockholm Arbitration Court, which recognized that Gazprom and Naftogaz have debts to each other.

In accordance with the decision of this instance, the Ukrainian gas operator should pay $ 2 billion to the account of gas delivered from Russia, but not paid by Kiev. But Gazprom, as the court decided, has a debt to Naftogaz in the amount of $ 4.6 billion.

At the end of November this year, the Svea County Court of Appeal found that the Russian company must pay the Ukrainian side a difference of $ 2.6 billion by December 29th. Including interest, this amount amounted to $ 2.9 billion.

However, Ukraine considered this figure insufficient. The Antimonopoly Committee fined Gazprom for its allegedly monopolistic position in the transit market by $ 6 billion.

“In a decent society, outside of Ukraine, they would turn a finger at the temple for such accusations. It is not clear on the basis of what this amount is generally set. But there is such a claim. We have to reckon with her in the negotiations, ”said Alexander Frolov, deputy director general of the National Energy Institute, in an interview with RT.

During the current transit negotiations, Russia and Ukraine agreed that this claim would be removed. According to experts, the negotiations were held in “extreme” conditions: the contract for the transit of natural gas from Russia to Europe through Ukraine expired at the end of December. If an agreement on its extension had not been reached before January 1, deliveries along this route would cease.

Gas interdependence

In the fall of 2019, with the participation of the European Commission, the parties intensified negotiations and, in December, finally achieved the final result. The executive director of Naftogaz of Ukraine Yuriy Vitrenko claimed that the Ukrainian side insisted on a ten-year contract, and the Russian side insisted on an annual one.

As a result, an agreement was reached on a five-year contract with a possible extension on the same conditions for another 10 years, said Ukrainian Minister of Energy and Environmental Protection Aleksey Orzhel.

  • Vladimir Zelensky
  • © Valentyn Ogirenko / Reuters

An expert at the Presidential Council on Interethnic Relations under the President of the Russian Federation, Bogdan Bezpalko, in an interview with RT, noted that a compromise on mutual judicial claims of gas companies of the two countries was achieved precisely because Russia and Ukraine, despite complex relations, have a common task. They are participants in the energy transit system to the European Union.

“Moscow and Kiev are interdependent in gas supplies to the EU countries. Russia is a supplier, and Ukraine is a transit country. If gas supplies cease due to an inability to come to an agreement and find a compromise, both sides will suffer. Ukraine will lose earnings from transit, and Russia will have difficulties due to the inability to supply the necessary volume of gas, ”Bezpalko said.

According to him, the agreement reached opens up opportunities for further cooperation between the two countries.

At the same time, experts admit that Kiev may refuse at the last moment from the agreements: the parties have so far signed the protocol, and not the contract. However, the probability of a breakdown is small, they say.

At the same time, the Russian-Ukrainian negotiations once again showed that Kiev is not the best trading partner in the current conditions, political scientists say.

“Ukraine is a risky transit country. Vladimir Zelensky is a weak president. He is influenced. Therefore, he can make decisions directed against Russia, not even because of a political line, but simply because some Ukrainian business groups or foreign policy players will put pressure on him, ”Bezpalko believes.

It is significant that in the midst of negotiations on gas transit Zelensky signed amendments to the law "On the Electricity Market", which imply a ban on the import of electricity from Russia. The initiator of this measure is the head of the Verkhovna Rada Committee on Energy, Andrei Gerus, a member of the pro-presidential faction "Servant of the People."

The ban is not unconditional. The Cabinet of Ministers of Ukraine receives the right to cancel it for any term in order to avoid an emergency in the country's energy system. Nevertheless, the very fact of the adoption of such a law indicates that Zelensky became a participant in the struggle of Ukrainian business groups for the energy market, Bezpalko believes.

“Russian electricity is cheap. But if only Ukraine will buy it in Ukraine, then other producers will lose the sales market for their electricity, who lobbied for this law, ”the expert said.

The problem is not completely resolved

The results of the negotiations between Gazprom and Naftogaz are not the final solution to the problem of ensuring uninterrupted supplies of Russian gas to Europe, experts say. So, Bezpalko believes that in five years there will be no simple extension of the contract. Ukraine will again raise the question of the actual increase in the price of transit of Russian gas, initiating a mass of lawsuits against Russia in order to use them for bargaining, the analyst said.

  • Alexander Novak
  • © Yves Herman / Reuters

“The fact is that in five years Russia can significantly reduce gas supplies through the Ukrainian gas transportation system due to increased supplies through the Turkish Stream, Blue Stream, Nord Stream and Nord Stream 2 bypass pipelines. Transit in five years may persist, but at a very insignificant level, ”predicts Bezpalko.

However, the expert is not sure that Russia can completely do without Ukrainian transit.

“The gas transportation system of Ukraine remains as an alternate route through which gas flows can be redirected if, for example, a scheduled repair is carried out on the main gas pipelines. Such repairs happen, this is normal practice. Coal mining is declining in the EU. This means that the demand for gas imports will increase. Here, the Ukrainian gas transportation system can play a role, ”Frolov said.

True, for this, the Ukrainian GTS must be modernized, the expert pointed out.

“Overhaul of the Ukrainian“ pipe ”has not been carried out for thirty years. And this means that no matter how delightful the Soviet engineers who designed this hydraulic structure may be, without proper financing and investment of material resources, it will become worthless. So, in the next five years, you need to look for money and acceptable financing mechanisms. Otherwise, the Ukrainian route, and, accordingly, the disputes between Russia and Ukraine around it, will disappear by themselves, ”concluded Frolov.

Source: russiart

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