Ukraine, Germany and Russia agree to cooperate on gas supply (06/16/02)

Ukraine, Germany and Russia agree to cooperate on gas supply

by Roman Woronowycz
Kyiv Press Bureau

KYIV - The presidents of Ukraine, Germany and Russia, meeting in St. Petersburg on June 10, signed a statement of understanding and cooperation on the continued use of Ukraine's natural gas pipeline for transporting Russian natural gas to Germany, which should guarantee an unimpeded flow of energy through Ukraine to Western Europe for the next decade.

The document also envisages European participation in a multinational consortium that will guarantee the gas supply. Eighty percent of European gas suppues that come from Russia currently pass through the Ukrainian pipeline - a dependency that is expected to grow still greater in the coming years.

The signing came a day after President Leonid Kuchma of Ukraine and Vladimir Putin of Russia signed a separate declaration of strategic cooperation in the natural gas sector, which should give Russia joint management and development influence over the Ukrainian natural gas pipeline in return for its agreement to abandon a gas transport project that would have circumvented Ukraine in favor of a route through Belarus.

To calm fears by some elements in Ukraine's political spectrum that Moscow would assume ownership of a key strategic element of Ukraine's economy, First Vice Prime Minister Oleh Dubyna said on June 10 that Ukraine's natural gas transport system had not and would not be privatized, but would merely be supervised by an international consortium.

"This will be control, not ownership," explained Mr. Dubyna, according to Interfax-Ukraine.

He said that other entities, whether governmental or private, were invited to enter into the partnership and obtain equal share values. In addition he underscored that plans for construction of a Belarus pipeline was an issue that "no longer exists."

The statement by the Russian and Ukrainian presidents calls for the drawing up of a detailed 10-year agreement on cooperation in gas storage and transportation to be signed by the end of this month.

It was part of a larger declaration signed by Presidents. Kuchma and Putin in St. Petersburg on the need for continued strategic cooperation between the two countries in trade and economic matters, and a call for a quicker pace for European and world integration by the two neighbors.

President Kuchma said after the signing that the natural gas agreement would promote "settlement of one of Europe's global problems," according to Interfax-Ukraine.

German President Gerhard Schroeder expressed full support for the idea of a bilateral natural gas partnership between Russia and Ukraine, calling it "a brilliant idea."

All three signatories will gain from the agreement. Europe, with Germany in the lead, has increasingly come to depend on Russian gas and oil as an alternative to the energy resources supplied by countries in the politically unstable Middle East. Meanwhile, Ukraine, in the person of its president, had been searching for reliable partners in a consortium that would guarantee that Russian energy resources continue to move to Europe through the country and provide needed revenue.

Ukraine is almost wholly dependent on Russian natural gas, but has a difficult time paying for what it imports. Kyiv and Moscow have often bickered over what Ukraine owes and how it is to repay the debt.

Russia, for its part, wanted a reliable Ukrainian partner that could be trusted and was ready to guarantee that natural gas would flow to Europe as ordered. Russia had often accused Kyiv of siphoning off gas that moved through the Ukrainian pipeline.

"Russia and our Central Asia partners can now be sure that the gas markets will be secured, and those who own the natural gas distribution system can be sure that natural gas will be available at favorable prices and on time," explained President Putin. "All this can only lead to positive results."

Russia had signed a declaration of cooperation with Kazakstan, located in Central Asia, on natural gas distribution two days before the announcements were made in St. Petersburg.

Mr. Putin said he expected that $2.5 billion would be sunk into reconstruction and modernization of the Ukrainian gas pipeline in the near term and that the entire effort would draw a total of $15 billion into the project in the next decade, which Mr. Kuchma explained would eventually allow Ukraine to handle 1.5 times its current pipeline capacity.

Almost immediately after the signing, Germany's energy giant, Ruhrgas AG, announced its readiness to take part in the gas transportation project. A day later the British corporations Wintershall AG and Shell, the Italian ENI and France's Gaz de France also expressed an interest in participating in a future consortium.

The same day, Greece's Development Minister Apostolos-Athanasios Tsokhatz-opoulos, while in Kyiv for trade talks, proposed Ukraine's participation in the construction of a connecting gas pipeline between Turkey and Greece for transportation of natural gas to southern Europe. The project, estimated to eventually cost $300 million, is the result of an agreement on a connecting pipeline between Turkey and Greece signed in March.

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