Introduced by Vladimir Frolov
Relations between Moscow and Kiev are getting sourer by the day over the prices for Russian gas deliveries to Ukraine. President Viktor Yanukovich’s government believes that Ukraine is forced to purchase the Russian gas at unfair and even exorbitant prices, set by the price formula in the 2009 gas contract between Gazprom and Naftogaz, negotiated with the direct participation of Russian Prime Minister Vladimir Putin and Ukraine’s former Prime Minster Yulia Tymoshenko. Are we on the brink of a new gas war between Russia and Ukraine, albeit now with a technically pro-Russian government in Kiev? Who would the European public blame more for another gas cut-off – Ukraine, or Russia’s Gazprom?
By Tai Adelaja
Ukrainian President Viktor Yanukovich ramped up pressure on the Kremlin on Saturday by demanding that Russia revise a long-term natural gas contract signed in 2009. As leaders of the Commonwealth of Independent States (CIS) gathered for talks in the Tajik capital of Dushanbe, on the occasion of the group's 20th anniversary, Yanukovich unleashed some of his sharpest criticism of the controversial gas deals with Russia to date.
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The European Commission’s raid on Gazprom and its key European customers on Tuesday sparked concerns about an increase in tension between the EU and Russia. Officials said the anti-trust action was meant to rein in practices that hampered fair competition on the European market, further cementing Gazprom’s image as an opaque energy monopoly. While experts caution that nothing is definite until the legal outcomes are clear, they are nonetheless split on the potential consequences.
Some say the two players are simply too dependant on one another to engage in serious tensions, while others argue that the move is a turning point in Russia-EU relations – and a sign that Europe will no longer be bullied.
The surprise raid, conducted on about 20 sites throughout ten countries in Central and Eastern Europe, was in fact only one in a series of such events staged by the EU to keep tabs on free-market practices in the energy industry. Earlier raids had been launched between 2007 and 2010, according to the EC, targeting Western European energy companies suspected of skirting rules for fair competition. Tuesday’s raid, however, sent reverberations throughout the international community – most likely because the prime suspect is world-renown energy bully Gazprom, and because the EU imports the majority of its 60 percent of foreign energy from Russia.
In a September 27 statement, the EC seemed careful to balance diplomacy with ambiguity: “The investigation focuses on the upstream supply level, where, unilaterally or through agreements, competition may be hampered or delayed,” it said. “The commission suspects exclusionary behavior, such as market partitioning, obstacles to network access, barriers to supply diversification, as well as possible exploitative behavior, such as excessive pricing.”
Tightly worded though the EC’s statement may have been, the “upstream supply level” leaves little room for imagination as to the investigation’s primary focus. Though several other companies had been targeted, Gazprom curiously remained the common denominator among several of them: Germany’s E.ON Rughrgas, which holds a six percent stake in Gazprom, and Lithuania’s Lieutuvos Dujos, of which Gazprom owns a 37 percent share, were among those targeted.
Analysts cite the move as an attempt by the EU to force some flexibility into Gazprom’s negotiations with potential customers and to open up its notoriously opaque transactions. “Gazprom is inclined to speak to some companies and not inclined to speak with others,” said Valery Nesterov, an oil and gas analyst at investment firm Troika Dialog. “Its position looks selective and the price mechanism is opaque and probably not flexible enough. That’s why the issue is to exert pressure on Gazprom to make its price mechanism uniform and generally more flexible and bring those prices closer to spot prices in Europe.”
Gazprom did its best to shake off the raids, saying in its own statement that “such inspections are standard practice within the framework of EU competition rules and have been applied regularly to other leading European energy companies.” It added that it would fully comply with the EC’s investigation and that an inspection itself “does not imply recognition of a breech of anti-monopoly regulations.”
To Gazprom, the move may seem like business as usual – a burst of hot air from a neighbor unwilling to truly take Gazprom to task given its levels of energy consumption. “[In the future] Europe will be forced to import at least as much gas as it does now, but probably much more,” Nesterov said, adding that in the next ten to 20 years Russia will be among the few reliable major suppliers of natural gas to the EU (others, such as Iran and Turkmenistan, are less stable options). Yet Russia, too, counts on major export earnings from Europe, where it expects to boost its supply this year from 139 billion cubic meters last year to more than 155 billion cubic meters – a move that will likely rake in record earnings. Nesterov pointed out the two are mutually dependent and simply can’t afford to spiral into a fresh political row.
Others, however, claim the raid marked the beginning of a major policy shift in EU energy relations with Russia. The move, said Arkady Moshes, a foreign policy expert at the Finnish Institute for International Affairs, signaled that the EC is not afraid of “offending” Russia and that diversifying energy supply – demonstrated in large part by the planned Nabucco pipeline – is a policy priority. “It shows that the climate has changed and that the EC has started looking into issues more seriously,” he said.
What’s more, it seems the various inter-EU politics toward Russia may be losing their muster. Whereas Germany, a key Russia ally, has long been known for negotiating bilaterally (and outside the EU framework) with Russia, it is particularly telling that it sports a representative at a key position in this affair: EU Energy Commissioner Gunther Oettinger. Oettinger recently proposed to force national governments into fully disclosing to the commission their intents to negotiate international energy deals, a move that seems targeted at keeping a closer eye on the European energy scene. Moreover, Oettinger has also put forth an ambitious plan, to be agreed upon by all 27 EU governments, to negotiate a Caspian pipeline between Azerbaijan and Turkmenistan, which would ship Turkmen gas to Europe while bypassing Russia altogether.
Overall, according to Moshes, the clear message is that the EU is beginning to demand greater control over a largely one-sided energy game, in which energy is too often considered more than just a commodity. “They are not willing to get rid of Russia as a supplier, [but] they want Russia to play by the rules which they establish in Europe,” he said. “There is a will not to accept any talk of energy being used as a political instrument.”
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