INOGATE established to coordinate energy transfers from Urals to Atlantic (08/01/99)

INOGATE established to coordinate energy transfers from Urals to Atlantic

by Stefan Korshak
Special to The Ukrainian Weekly

KYIV - Diplomats from 43 capitals descended on Kyiv on July 27, first to sign another international energy transport agreement, and then to ballyhoo it. No one anted up any cash, but the rhetoric was as rich as those who finally wind up shipping Caspian Sea crude to Europe will be.

Ukraine wants badly to be part of that equation, long promoting itself as the best way to connect the oil-rich Caspian basin with cash-rich Western Europe. Ukraine is already a major transit route for Russian natural gas exports.

At the Ukraina Palace of Culture concert hall on July 22, Kyiv's leaders argued that the creation of a new multinational bureaucracy marked a critical step towards that goal.

"INOGATE is a significant international event and a milestone in the development of the integration process on the European continent," Prime Minister Valerii Pustovoitenko said.

The Interstate Oil and Gas Transport to Europe Program (INOGATE) was founded in Brussels in November 1995 in the wake of European Union discussions on interstate organization of oil and gas pipelines. It includes 11 former Soviet republics along with Romania and Bulgaria, in addition to a host of Western European nations. Progress has been snail-like, but four years later Brussels bureaucrats have what they believe to be a major achievement: another bureaucracy.

At the Kyiv conference, attendees signed off on an agreement to start an INOGATE Secretariat. The office will be in Kyiv, but size, staffing, location, funding and date of opening will be discussed later.

The man in charge of reaching even those modest goals did not go out on any limbs. "We cannot be sure of course," said Kimmo Sasi, Finland's minister of external trade and European affairs, "but it is our aim to have a plan ready by the middle of December ... There are some months to go, and I can't give any guarantees."

INOGATE proposes to coordinate, on a government level, energy transfers between the Urals and the Atlantic. But it has little legal power, and even less cash. Officials from Brussels argue INOGATE will convince private industry to invest.

"We [INOGATE] are not to be the main source of cash," said European Union member Hans van den Broek. "Its implementation will make it possible to create a single standard legal base in the field of organizing energy supplies to the countries, across which transport corridors will run. We believe that the creation of an EU-sponsored organization will ... make the commercial sector more comfortable [with participation in such an energy transportation corridor]."

However, a company with the skills to turn INOGATE plans into reality, British Petroleum, recently decided moving Caspian crude to Europe via Ukraine simply wasn't worth it.

On March 1, the wealthy multinational officially informed the Ukrainian government that corporate headquarters had better things to do with shareholder cash than finance Ukrainian pipelines and oil terminals. Private industry remains uninterested in the idea. The U.S. government is conducting a study. The World Bank and the EBRD have repeatedly stated they would invest, just as soon as they see a viable business plan.

The potential benefit to Ukraine as an oil transit point is tremendous. Azerbaijan's readily recoverable fossil fuel reserves alone are estimated at between $100 billion and $200 billion, Kazakstan and Turkmenistan together offer perhaps another $150 billion worth, most energy industry analysts believe.

Countries like Poland, Slovakia and Ukraine have another big incentive to tap that crude: all currently are almost completely dependent on Moscow for regular energy deliveries. "For us the creation of ... a corridor is most important from the point of view of our national independence," Prime Minister Pustovoitenko said. He hinted Ukraine would partner up with the oil-rich Central Asian countries to finance the corridor.

"Central Asian representatives have expressed their support in the completion of the project," he said. "It is in their interest." So far, however, the only actual cash for INOGATE has come from the European Union, which gave some $5 million from 1996 to 1998.

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