FT Interview with
Hryhoriy Nemyria
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Energy is Politics as Russia Pressures EU
02 June 2009
Published in
Inform
issue #113
See the full issue here.
The adage that “energy is politics” is the inescapable conclusion one comes to when deciphering the recent barrage of accusations from Russia – statements that besmirch Ukraine’s reputation as a stable energy conduit to Europe.
Prime amongst these is that another gas crisis between Russia and Ukraine is looming. But is this really the case? Or are we witnessing something far more sinister?
Everyone knows that Ukraine’s economy is in the grip of a severe recession. But on 23 May Russian Prime Minister Vladimir Putin appeared to add fuel to the fire when he said, "If things are that bad in the financial sphere... We could conclude that we could be on the brink of a new gas crisis.”
Adopting a similar tone, Russian President Dmitry Medvedev, speaking ahead of last month’s European Union-Russia summit, expressed concern that Ukraine was not able to afford the $4 billion needed to buy 19.5 billion cubic metres of gas to fill storage reservoirs ahead of the winter season. Russia’s head of state then applied pressure on the EU by suggesting it provide financial assistance to Ukraine.
"We have doubts about the solvency of Ukraine," said President Medvedev. "We are ready to help Ukraine, but we would like to see much of this work taken up by the European Union, that is, by those who are interested in the reliability and security of energy cooperation."
See the full issue here.
The adage that “energy is politics” is the inescapable conclusion one comes to when deciphering the recent barrage of accusations from Russia – statements that besmirch Ukraine’s reputation as a stable energy conduit to Europe.
Prime amongst these is that another gas crisis between Russia and Ukraine is looming. But is this really the case? Or are we witnessing something far more sinister?
Everyone knows that Ukraine’s economy is in the grip of a severe recession. But on 23 May Russian Prime Minister Vladimir Putin appeared to add fuel to the fire when he said, "If things are that bad in the financial sphere... We could conclude that we could be on the brink of a new gas crisis.”
Adopting a similar tone, Russian President Dmitry Medvedev, speaking ahead of last month’s European Union-Russia summit, expressed concern that Ukraine was not able to afford the $4 billion needed to buy 19.5 billion cubic metres of gas to fill storage reservoirs ahead of the winter season. Russia’s head of state then applied pressure on the EU by suggesting it provide financial assistance to Ukraine.
"We have doubts about the solvency of Ukraine," said President Medvedev. "We are ready to help Ukraine, but we would like to see much of this work taken up by the European Union, that is, by those who are interested in the reliability and security of energy cooperation."
A few days later, the conversation shifted. This
time Gazprom claimed that Naftohaz Ukrainy –
Ukraine’s state-run gas company – might have to
start paying for its gas deliveries in advance
because it was in financial difficulty. "Naftohaz
is finding it enormously difficult to pay its bill
for May," said Gazprom spokesman Sergei Kupriyanov.
This extraordinary statement was pumped out to the world’s media. It was particularly surprising given that Gazprom is not privy to Naftohaz’s finances and that the bill for May is not due until 7 June. Furthermore, Naftohaz settled its bill for April on time, in full and without difficulty.
The Ukrainian response was swift. Fuel and Energy Minister Yuriy Prodan, who was part of a Ukrainian delegation visiting Libya, responded, “We will make all efforts to ensure that Naftohaz, as it has before, pays for gas deliveries in full and on time."
Last Friday, The Associated Press, reported Mr Putin’s concerns: “Ukraine's record of late payment raises the prospect of "new breakdowns" in the transit of Russian gas to European consumers.”
But Naftohaz officials have steadfastly denied that the state gas company is unable to meet its commitments. So what is going on?
Pressuring the EU
Most commentators suggest that Russia is seeking to influence the EU. The 23 March EU-Ukraine gas transportation modernisation conference, at which the EU pledged €2 billion to help modernise Ukraine’s creaking network of gas pipelines and pumping stations, upset the Russians. Feeling excluded from the decision making process, Russia saw its long-hoped dream of controlling Ukraine’s gas pipeline network drift even further out of reach. Furthermore, the EU’s pledge of financial support indicated that the 27-member bloc was committed to Ukraine being a major artery for gas deliveries to Europe – raising doubt over the Nord and South Stream projects backed by Russia which bypass Ukrainian territory.
Tim Ash, Head of Research for CEEMA at the Royal Bank of Scotland said, “Clearly the March energy summit with the EU really irritated them a lot.”
By bringing into question Ukraine’s ability to pay its gas bill, a picture is being painted of a nation that is a step away from being a failed state. This is designed to cause angst in the EU and some to think twice about Kyiv as a reliable energy partner.
Dr Tammy Lynch, a Senior Research Fellow at Boston University’s Institute for the Study of Conflict, Ideology & Policy, told Inform, “These statements appear designed to manufacture a crisis to undermine EU confidence in Ukraine. Russia clearly wants to use fear of another gas crisis to undermine the recent deal signed by the EU and Ukraine to modernise Ukraine's gas pipeline system – which is a direct competitor to new pipelines Gazprom wants to build.”
Dr Lynch continued, “I see Gazprom statements asking for "joint investment" in Ukraine's gas transit system as attempts to create a backdoor deal to gain control over Ukraine's gas pipelines. In essence, by deeply undermining Ukraine, they want EU leaders to feel they have no option but to take control – with Russia,” she said.
Prime Minister Tymoshenko's energy adviser, Oleksandr Hudyma, was quoted by The Associated Press as saying, "They are putting pressure ... not on Ukraine, but on the EU.”
Mr Hudyma dismissed suggestions that Ukraine would not meet its May gas bill. “We are going to pay for May," he said, "of course we'll pay and everything will be fine." Also, he noted that the scaremongering statements support Gazprom’s business goals.
Drumming Up Business
It is certainly true that Gazprom needs to continue beating its business drum. In the first quarter Russia’s gas exports were down an eye-watering 56 percent over the prior year. And Gazprom profits have shrunk along with its share price. In a year its market capitalisation plummeted from $350 billion to $120 billion.
The company is also heavily indebted which would make financing costly pipeline schemes such as Nord Stream (costing about $15 billion) and South Stream (costing about $20 billion) difficult to justify.
“Nobody will find $19-24 billion to achieve the South Stream," said Vladimir Socor, an analyst with the Jamestown Foundation in Washington, speaking at the Fifth Europe-Russia Economic Forum in Bucharest. "This project is completely unfeasible," he added.
Anders Åslund, a senior fellow at the Peterson Institute for International Economics, wrote in The Moscow Times, “The existing transit pipelines through Ukraine and Belarus have ample excess capacity and are much cheaper.”
History and Geo-Politics?
Another explanation for Russia’s actions could rest in its difficulty in coming to terms with having relinquished control of Ukraine, which, for so long, was part of the Russian Empire. Indeed, on 24 May, Mr Putin raised eyebrows amongst Russian journalists when discussing the diaries of the White Army General, Anton Denikin, who fought against the Bolsheviks after the 1917 Revolution.
He told reporters gathered at Moscow's Donskoi Cemetery, that General Denikin had written in his diaries about "Big Russia and Little Russia – Ukraine.” Incredibly he then said, "He says that nobody should be permitted to interfere in relations between us, they have always been the business of Russia itself."
The Times remarked, “This is a pretty sensational way for a prime minister to describe the citizens of another country.” The newspaper went on to observe, “Mr Putin never does anything by accident but with relentless focus and determination. His graveyard visit is a gauntlet thrown down to the West over the freedom of Ukraine to choose its future.”
Mr Putin’s Ukrainian counterpart, Ms Tymoshenko, who for so long was seen as the scourge of the Kremlin, has been accused of cozying up to Russia’s leadership. But as Deputy Prime Minister Hryhoriy Nemyria explains, “This really is not the case. All we want is a good working relationship with Russia based upon bi-lateral trade, cultural ties and mutual respect.
“Of course the prime minister wants to improve our relationship, but not to the detriment of our European integration efforts and certainly not at the expense of control over our gas pipeline network. We have merely injected a healthy dose of realism into our relationship with Russia… that is all.”
EU and American Support
Just as EU support is important, it is vital that the new US administration does not take its eye off the Ukrainian ball as this will only embolden Russia. One London-based analyst told Inform that he suspected that the Obama administration places more value on its relationship with Russia and that Ukraine, with its ongoing political turmoil, does not warrant such a high priority.
Indeed, Ukraine’s volatile political scene is often confusing to outsiders. But this does not justify giving up on it. It might look untidy but what we are seeing is a nascent democracy at work.
David J. Kramer and Damon Wilson writing in a blog for Foreign Policy opined, “Obama should visit ailing Ukraine and prove that good relations with Russia doesn’t mean forgetting the rest of the region.”
As for Russia, it will no doubt continue to exert its influence and exploit the media to try to shift opinion. Yet at times, the finesse of its PR operation leaves a lot to be desired.
Perhaps the time has come for it to see Ukraine not as the errant child that has dared to stray from the bosom of the family but as a genuine partner. There are huge benefits for both if it does, not least for Russia’s reputation.
This extraordinary statement was pumped out to the world’s media. It was particularly surprising given that Gazprom is not privy to Naftohaz’s finances and that the bill for May is not due until 7 June. Furthermore, Naftohaz settled its bill for April on time, in full and without difficulty.
The Ukrainian response was swift. Fuel and Energy Minister Yuriy Prodan, who was part of a Ukrainian delegation visiting Libya, responded, “We will make all efforts to ensure that Naftohaz, as it has before, pays for gas deliveries in full and on time."
Last Friday, The Associated Press, reported Mr Putin’s concerns: “Ukraine's record of late payment raises the prospect of "new breakdowns" in the transit of Russian gas to European consumers.”
But Naftohaz officials have steadfastly denied that the state gas company is unable to meet its commitments. So what is going on?
Pressuring the EU
Most commentators suggest that Russia is seeking to influence the EU. The 23 March EU-Ukraine gas transportation modernisation conference, at which the EU pledged €2 billion to help modernise Ukraine’s creaking network of gas pipelines and pumping stations, upset the Russians. Feeling excluded from the decision making process, Russia saw its long-hoped dream of controlling Ukraine’s gas pipeline network drift even further out of reach. Furthermore, the EU’s pledge of financial support indicated that the 27-member bloc was committed to Ukraine being a major artery for gas deliveries to Europe – raising doubt over the Nord and South Stream projects backed by Russia which bypass Ukrainian territory.
Tim Ash, Head of Research for CEEMA at the Royal Bank of Scotland said, “Clearly the March energy summit with the EU really irritated them a lot.”
By bringing into question Ukraine’s ability to pay its gas bill, a picture is being painted of a nation that is a step away from being a failed state. This is designed to cause angst in the EU and some to think twice about Kyiv as a reliable energy partner.
Dr Tammy Lynch, a Senior Research Fellow at Boston University’s Institute for the Study of Conflict, Ideology & Policy, told Inform, “These statements appear designed to manufacture a crisis to undermine EU confidence in Ukraine. Russia clearly wants to use fear of another gas crisis to undermine the recent deal signed by the EU and Ukraine to modernise Ukraine's gas pipeline system – which is a direct competitor to new pipelines Gazprom wants to build.”
Dr Lynch continued, “I see Gazprom statements asking for "joint investment" in Ukraine's gas transit system as attempts to create a backdoor deal to gain control over Ukraine's gas pipelines. In essence, by deeply undermining Ukraine, they want EU leaders to feel they have no option but to take control – with Russia,” she said.
Prime Minister Tymoshenko's energy adviser, Oleksandr Hudyma, was quoted by The Associated Press as saying, "They are putting pressure ... not on Ukraine, but on the EU.”
Mr Hudyma dismissed suggestions that Ukraine would not meet its May gas bill. “We are going to pay for May," he said, "of course we'll pay and everything will be fine." Also, he noted that the scaremongering statements support Gazprom’s business goals.
Drumming Up Business
It is certainly true that Gazprom needs to continue beating its business drum. In the first quarter Russia’s gas exports were down an eye-watering 56 percent over the prior year. And Gazprom profits have shrunk along with its share price. In a year its market capitalisation plummeted from $350 billion to $120 billion.
The company is also heavily indebted which would make financing costly pipeline schemes such as Nord Stream (costing about $15 billion) and South Stream (costing about $20 billion) difficult to justify.
“Nobody will find $19-24 billion to achieve the South Stream," said Vladimir Socor, an analyst with the Jamestown Foundation in Washington, speaking at the Fifth Europe-Russia Economic Forum in Bucharest. "This project is completely unfeasible," he added.
Anders Åslund, a senior fellow at the Peterson Institute for International Economics, wrote in The Moscow Times, “The existing transit pipelines through Ukraine and Belarus have ample excess capacity and are much cheaper.”
History and Geo-Politics?
Another explanation for Russia’s actions could rest in its difficulty in coming to terms with having relinquished control of Ukraine, which, for so long, was part of the Russian Empire. Indeed, on 24 May, Mr Putin raised eyebrows amongst Russian journalists when discussing the diaries of the White Army General, Anton Denikin, who fought against the Bolsheviks after the 1917 Revolution.
He told reporters gathered at Moscow's Donskoi Cemetery, that General Denikin had written in his diaries about "Big Russia and Little Russia – Ukraine.” Incredibly he then said, "He says that nobody should be permitted to interfere in relations between us, they have always been the business of Russia itself."
The Times remarked, “This is a pretty sensational way for a prime minister to describe the citizens of another country.” The newspaper went on to observe, “Mr Putin never does anything by accident but with relentless focus and determination. His graveyard visit is a gauntlet thrown down to the West over the freedom of Ukraine to choose its future.”
Mr Putin’s Ukrainian counterpart, Ms Tymoshenko, who for so long was seen as the scourge of the Kremlin, has been accused of cozying up to Russia’s leadership. But as Deputy Prime Minister Hryhoriy Nemyria explains, “This really is not the case. All we want is a good working relationship with Russia based upon bi-lateral trade, cultural ties and mutual respect.
“Of course the prime minister wants to improve our relationship, but not to the detriment of our European integration efforts and certainly not at the expense of control over our gas pipeline network. We have merely injected a healthy dose of realism into our relationship with Russia… that is all.”
EU and American Support
Just as EU support is important, it is vital that the new US administration does not take its eye off the Ukrainian ball as this will only embolden Russia. One London-based analyst told Inform that he suspected that the Obama administration places more value on its relationship with Russia and that Ukraine, with its ongoing political turmoil, does not warrant such a high priority.
Indeed, Ukraine’s volatile political scene is often confusing to outsiders. But this does not justify giving up on it. It might look untidy but what we are seeing is a nascent democracy at work.
David J. Kramer and Damon Wilson writing in a blog for Foreign Policy opined, “Obama should visit ailing Ukraine and prove that good relations with Russia doesn’t mean forgetting the rest of the region.”
As for Russia, it will no doubt continue to exert its influence and exploit the media to try to shift opinion. Yet at times, the finesse of its PR operation leaves a lot to be desired.
Perhaps the time has come for it to see Ukraine not as the errant child that has dared to stray from the bosom of the family but as a genuine partner. There are huge benefits for both if it does, not least for Russia’s reputation.