27.03.09

In response to the results of the EU-Ukraine energy conference, Russian-Ukrainian intergovernmental consultations are being postponed. In other words, while Kiev has received the EU's promise of a $2.5 billion loan, it may lose a $5 billion loan from Russia.

Moscow has decided to respond to Kiev's overt contempt with decisive action. President Dmitri Medvedev announced that in response to the results of the EU-Ukraine energy conference, Russian-Ukrainian intergovernmental consultations are being postponed. In other words, while Kiev has received the EU's promise of a $2.5 billion loan, it may lose a $5 billion loan from Russia; this loan was supposed to be discussed by the Russian and Ukrainian prime ministers at consultations in early April.

Russian Prime Minister Vladimir Putin and Ukrainian Prime Minister Yulia Tymoshenko were scheduled to meet for consultations next week. Medvedev announced that this meeting will be postponed, since Russia needs to consider the consequences of a declaration signed by Kiev and the EU on modernizing Ukraine's gas transport system. "The contents of this declaration raise a number of questions, to say the least," said Medvedev. As Putin noted, the key point is a plan to increase the volume of gas pumped through Ukraine's gas transport system. "This gas obviously can't come from anywhere other than Russia. But no one has discussed this matter with us," said Putin.

On March 23, Ukraine and the European Union signed a declaration on modernizing Ukraine's gas transport system. The document was signed by representatives of the European Commission, Ukraine, and three international banks. European experts estimate that $2.5 billion will be invested in this project.

Prime Minister Tymoshenko said that Ukraine is considering Japan as the key investor for gas transport system reconstruction. According to Tymoshenko, she intends to discuss this issue during a March 25-26 visit to Tokyo. Tymoshenko noted that Russia can participate in the modernization project if it wishes to do so.

ENI (Italy) has criticized the EU-Ukraine agreement: CEO Paolo Scaroni said he couldn't understand why the question of increasing gas delivery volumes was discussed in the absence of those who supply and buy the gas. He also noted that the EU has spoken repeatedly of the need to diversify supply routes for Russian gas, approving two pipeline routes: South Stream and North Stream. Scaroni said: "In light of this, expanding throughput for Ukraine's gas transit system is not only a waste of time, but a waste of money as well."

Valery Yazev, head of the Russian Gas Association, says that making decisions to modernize the Ukrainian gas transport system in Russia's absence is contrary to common sense. The one-sided decision made in Brussels largely reflects Kiev's standpoint: seeking to retain as much control as possible over gas transit. But given the instability of Ukraine's political regime, this could lead to further complications.

Alexei Belogoriev, head of the gas sector studies department at the Natural Monopolies Institute, says that the $2.5 billion promised by the EU is a drop in the bucket compared to what is really needed to modernize Ukraine's gas transport system. Belogoriev's rough estimate of the real cost is $20-30 billion. Thus, the memorandum signed in Brussels has more political significance than economic significance.

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Source: RBC Daily