Poland promotes Ukraine's interests regarding construction of gas pipeline (10/29/00)

Poland promotes Ukraine's interests regarding construction of gas pipeline

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Poland responded to news from Moscow last week that a five-party consortium was ready to begin building a natural gas pipeline through Poland and Slovakia to circumvent Ukraine by stating that the project should not proceed if it is to hinder other countries and suggesting that Ukraine must become a partner.

On October 18, Gazprom of Russia, SNAM of Italy, French Gaz de France and Germany's Wintershall and Ruhrgas agreed to organize a consortium. In Moscow the group announced plans to build a 600-kilometer pipeline that would supply energy from Russia to Western Europe through Belarus, Poland and Slovakia, while bypassing Ukraine.

Polish President Alexander Kwasniewski, in an unexpected criticism of the project, said on October 24 that he is uncomfortable with the fact that the consortium had announced its plans before receiving formal approval from the Polish government. However, he said he would be inclined to endorse the project if Ukraine was involved.

Mr. Kwasniewski explained that Poland is ready to give the go ahead if Ukraine "also receives the opportunity to obtain economic benefits from the project."

The Polish president emphasized that he was not demanding that the proposed natural gas pipeline that would cut through Poland should also dissect Ukraine, but merely that Ukraine should be given the opportunity to take part, at a minimum, as an investor through a joint stock deal.

The natural gas consortium is the result of dissatisfaction by Russia and Gazprom, the gas monopoly it controls, over problems with Ukraine on the transit of Russian gas through its natural gas pipeline, currently the single supply route to Western Europe. The Russian government has increasingly voiced a strong desire to rid itself of problems of theft and failure to repay natural gas debts. Gazprom - 37 percent of which is owned by the Russian government - has accused Ukraine of siphoning about 10 billion cubic meters of the 170 billion cubic meters it sends west annually. Approximately 90 percent of all Gazprom exports run through the Ukrainian pipeline.

The announcement of the consortium's plans came on the heels of an agreement by the presidents of Ukraine and Russia to invest in the modernization of the Ukrainian pipeline after Kyiv pledged it would no longer allow natural gas to be diverted either by private companies or the quasi-public Naftohaz Ukrainy.

President Kuchma, who recently signed a second edict forbidding unapproved tapping of the Gazprom natural gas, said on October 19 that he would not order any countermeasures in the face of what looked like a Russian turnabout after his agreement with President Vladimir Putin in Sochi, Russia, just days before. There the Russian leader agreed to help finance modernization of the gas transit line to increase its capacity by 30 percent, while Mr. Kuchma agreed to allow Russia to bid on its partial ownership.

However Mr. Kuchma's external ambivalence may mask an artful strategic move on his part to keep Ukraine at the center of the gas transit business. Political analysts have suggested that the demand put forth by Mr. Kwasniewski for the inclusion of Ukraine into the project is the result of his close friendship with Mr. Kuchma.

Representatives of the consortium have explained that, even if the Ukrainian pipeline is modernized, there is a need for a second pipeline because of a recent agreement between Russia and the European Union to double future supplies of energy to Western Europe. Experts also explain that the proposed Slovak-Polish gas transit system, called the Yamal-West Europe pipeline, would merely be the completion of a project that was agreed to between Poland and Gazprom in 1993.

Ukrainian Prime Minister Viktor Yuschenko, who has irritated Gazprom officials further because of discussions he has had with Polish officials on a second source of natural gas for Ukraine via a pipeline from Norway, said on October 24 that constructing the Poland-Slovakia line does not make financial sense. It is more cost efficient to utilize the existing Ukraine transit system, he argued.

"I am convinced that from a financial point of view, we have a strong argument. But then I also understand that finances are not always decisive in reaching a final decision," remarked Mr. Yuschenko.

The Ukrainian prime minister said the Ukrainian gas transit system is only 60 percent to 70 percent utilized and that after modernization its capacity could increase by 120 billion cubic meters annually. Russia's supplies to Western Europe are expected to increase by about 60 billion cubic meters in the coming years.

However, the prime minister underscored that first Ukraine needs to work with Russia and Western Europe to find a political solution to the problem of Ukraine's gas debt problem to Moscow, which is currently estimated at around $1.5 billion (U.S.).

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