August 25, 2014

Bohdan Sokolovskyi: Ukraine Will Not Be Allowed to Use “Gas” Sanctions against Russia

With the approach of autumn and winter get exacerbated not only the events in the east of Ukraine, the conflict that is often referred to as war between Ukraine and Russia, but also the “gas war” between the two countries. Recently, in the State Duma of Russia was initiated a complaint to the WTO about Ukraine for its intention to reincorporate as a joint-stock company the gas transportation system of Ukraine, which intention, according to the Russians, infringes on “Gazprom”'s rights. The matter is, Ukraine intends to announce a contest where there will be chosen a company-operator of the GTS, which will receive 49% of shares of the pipeline. But “Gazprom”, most likely, will not be able to participate in the contest, as Ukrainian lawmakers intend to admit to it only companies from the EU and the United States, activity of which is transparent, in contrast to the Russian gas monopolist.

“WTO will hardly do Russia a favor, if the latter does dare to lodge its complaint to this organization”, — former representative of the President of Ukraine on international energy security Bohdan Sokolovskyi said in his interview to “Glavkom”. He explained why Ukraine would not be able to take the “gas” sanctions against Russia, told whether European consumers would use “South Stream”, as well as how much time would take the procedure of inventory taking initiated by Ukraine.

Ukraine has adopted a law allowing sanctions against the aggressor country, particularly against Russia, on gas transit through Ukrainian territory. How likely is the introduction of such sanctions by Ukraine?

There is a little possibility of such sanctions. Be that as it may, it is not gainful for us to contradict Europe, because such sanctions would act not only against Russia but also (automatically) against Europe. Because Europe might not get gas in the winter. All that Ukraine is doing now should have been started much earlier, say, in March this year. Because it's already too late to impose such sanctions, and in the nearest future, perhaps, will also be unrealistic. That's why I do not believe in sanctions against “Gazprom” concerning the transit of gas to Europe.

You state that it should have been done earlier. If, say, the relevant law had been adopted in March, what consequences would it have had?

During the actually 2 months before the beginning of the heating season, no one has started negotiations on gas supply (in the autumn and winter — “Glavkom”), no one has signed the relevant papers. And it cannot be done quickly; the world's experience suggests that effective negotiations take time. Today, the only technically possible way to get the required amount of gas is what ​​the company “Naftogaz of Ukraine” has done. At the moment “Ukrtransgas” together with the Slovak Eustream began testing reversing gas supplies from Slovakia through the pipeline “Voyany — Uzhgorod”. It's an old gas pipeline which had not been used for a long time. It is relatively small. It is quite possible now, while preserving the volume of transit, to pump from Slovakia up to 30 billion cubic meters of gas per year. But this is not being done. Firstly, because in Europe there is no such amount of spare gas, no one delivers so much, as no one knows where further through the pipeline it will go. And, secondly, because Russia has already reserved the transit capacities (of the Slovak gas pipeline — “Glavkom”), knowing that they are never used. The only way to solve this problem is to negotiate and make agreements. In case if this is not possible, one should go to court. With political support in Brussels, in March we could have gone there and negotiate on the reverse, but our delegation for some reason went to Moscow.

15 European countries get through Ukraine from 30% to 100% of the required amount of gas. Could they block Ukraine's initiatives concerning the imposition of sanctions against Russia, and how?

That's why I say I do not believe in sanctions. They definitely would not allow us to introduce these sanctions against the Russian Federation, because they care about the problems of military operations in eastern Ukraine as much as I do about the weather on the Mars, and nothing more. I am speaking from personal experience. Actually, we also have to react, speaking aloud about problems of Ukraine, and not about someone else's.

“Gazprom” does not want to lose its influence on the Ukrainian gas transportation system, and, obviously, does not mind participation in the competition for acquisition of 49% of the shares of the future company-operator. But by the proposed by Ukraine “rules of the game” it can't do it. Taking this into consideration, what European or American companies will be interested in acquiring shares of the GTS without guarantee for filling the “pipe” from the party concerned, “Gazprom”?

Let's separate the “Gazprom” from of the EU or the United States' “gas” companies. As for “Gazprom”, this company wants to come to Ukraine not to invest. It wants to lead first thing. “Gazprom” is skillful in leading. As for the EU and the United States companies, even if I knew, I would not spread, what companies are willing to come. In my opinion, to become a company-operator of the GTS, it needs to win the international authority, and then to hope that some investors will come to us and invest funds. This takes time, this takes years. But if there is some kind of political decision in the States or in Europe... I am not aware of such a decision.

What kind of political decision are you talking about?

Some company can be deliberately created and forced to come to Ukraine. I'm afraid to imagine what the consequences will be if this happens.

What will be the subject of the agreement of this company with “Gazprom”, because without agreements the GTS is just a heap of iron?

I will say this. No matter who, no matter what company becomes an operator, it will need Russia's agreement. This country, for example, sells gas to the German company RWE (concern RWE — “Glavkom”), having a long-term contract with Russia. It is quite logical to rewrite the existing contracts in favor of Ukraine. It is real, but it will only be possible if there appears a new company-operator of the Ukrainian GTS, and gas metering stations are built in the East of Ukraine. Not to mention the fact that in Europe the same RWE should be made a more attractive offer than the one available from “Gazprom”, to make it possible for Germans and Ukrainians to sign a direct contract. Whether Ukraine is able during the war to make such offers, I can't state.

If companies (the operator and investors — “Glavkom”) came to Ukraine and said that they would upgrade the GTS, would be getting gas exclusively from the Ukrainian gas transportation system, — it would be a way out to a certain extent, the solution to our “gas” problems. You know, I'll tell you from my own experience. Russia is very difficult to be talked into decisions it is offered. It is like a ram that has put his horn into something, and is eager to do everything in his own way.

The Russian State Duma's Deputy, member of the Committee on Energy Andrey Krutov sent a deputy request to the Chairman of the Russian Energy Ministry Alexandr Novak and Economic Development Minister Alexei Ulyukayev, offering to make a complaint to the WTO because of the oppression of human rights, first of all, of “Gazprom”, as a result of reincorporation of Ukraine's GTS. What is the probability that such a complaint will be filed and will WTO meet it?

Russia can do this because, as I said, there, in Russia, no logic can be found. But I am almost certain that such a complaint will not be accepted by the WTO. This is my personal opinion. Russia has not experienced and is not experiencing any harassment. Even in 2009, when we were signing the famous Brussels Declaration (Ukraine and the European Commission signed in Brussels on 23 March 2009 Declaration on the modernization of the Ukrainian gas transportation system, according to which the state ownership of the GTS is the sovereign right of Ukraine — “Glavkom”), Russia was invited to the meeting on an equal footing with everyone, but it refused. This country wanted to be “special”, to have more rights than others, but it does not happen. It is either the country is independent or it is under Russia's command. This does not suit us.

But the very idea of the WTO is equality of access to the market, in particular, to the Ukrainian GTS. If this access is limited by Ukrainian laws, would it not be discrimination and violation of the rights of “Gazprom”?

No, I should not think there is some kind of discrimination here. Frankly speaking, we need to first get a response from Russia itself about how much honest they are there, if they do not let us even control our borders. I think that the restrictions imposed by the law in relation to the Russian “Gazprom” are absolutely justified. If there were no war, there would be no restrictions.

Ukrainian laws are supposed to let to the competition a company- operator of the Ukrainian GTS only transparent companies of the EU and the United States. Is “Gazprom” a transparent company?

The matter is it is not. But this Russian company does not hide this fact. “Gazprom” is a very vague structure. If the company deems it necessary to complain about the actions of Ukraine, then it is still necessary for someone to listen to the arguments of “Gazprom” that we somehow in this case violate its rights as of an opaque organization.

As an alternative to Ukraine's GTS, in Russia they are considering the construction of the “South Stream”. Russian experts predict that this pipeline can be constructed literally within a few years. Will Europe really agree to it?

Firstly, the “South Stream” — is absurd from the economic point of view. Secondly, I can't see how its construction can be prevented, if Russia really wants to build it. I have already said that there is no logic in the Kremlin's actions. But I doubt that Europe will use the gas from that pipeline. If Russia reduces the price of that gas, then Europe, of course, will agree. But in this case Russia will go to pot, as the cost of the going through the “South Stream” gas will be higher than of the gas which is transported through Ukraine now.

How much higher will it be?

At least twice. And in Europe, believe me they know how to count every penny.

What will happen to the property of “Chornomornaftohaz” and “Boyko's towers” in the Crimea — in particular?

I enthusiastically welcomed the initiative of the Ukrainian government to fully carry out the inventory of Ukrainian-Russian relations. I think that the question of property in the Crimea will also be taken into account. Honestly, I do not see prospects for Russia there. Wherever you look, they will be in the red there. It will look so unusual when their planes and ships start being arrested when entering western ports.

How fast will the inventory be taken and Russia's property arrested, of which you speak?

I think within the next few years, but it won't take decades.

Will Russia develop the Black Sea shelf? What fate awaits it soon?

I believe that there will be no development of the shelf. No Western company will agree to cooperate in such an uncertain situation. At the same time, Russia itself has no technical possibilities for this development to begin with. And in this state, all will be until the Russian Federation returns the Crimea to Ukraine.

Will sanctions stop Russian aggression against Ukraine?

If related to the oil and gas industry, they are too few. But if you mean all sanctions that have been imposed, then with the course of time they will have a significant impact, on the aggression included.

Because of the sanctions the Russian oil industry may get by 1 trillion US dollars of investments less within the next 30 years. Such is the Bank of America Merrill Lynch (BofA)'s forecast. What does Ukraine win from the sanctions imposed on Russia?

First Ukraine will have problems. But in the long run it will win. If we compare with the problems that Russia creates in this sphere, then, no doubt, Ukraine will win. Especially if we remember this year, when our citizens are being killed. Without a doubt, sanctions are a positive thing. And we want such sanctions against them to be or a collapse of Russia or something like that.