NOMOS: Energy-political contests

Express-analysis of current situation in Ukraine and around it

No 1, December 3, 2013

Political crisis in Ukraine has moved to the background energy issues and energy security. Economic and financial risks are growing fast against the backdrop of negative trends in the economy and political uncertainty. Russia's influence on Ukraine and its relations with the EU became supercritical. Our express-analysis aims to promote the awareness of society about threats and dangers that Ukraine faces.

As we stated in the publication "How to buy a President" in the weekly «Dzerkalo Tyzhnia»[1]: «…authorities did not notice or pretend not to see large-scale plan of capturing the gas market and energy infrastructure in Ukraine».

One of the biggest risk factors for Ukraine in the current situation is the Russian interference in its internal affairs. It is carried out not only in the form of external political and psychological pressure on the leadership. Powerful impact is being realized from inside by some politicians, which soon, according to the Kremlin, have to take key positions in Ukraine. Russian sources indicate that in Moscow Y. Boiko and A. Klyuev are considered as potential candidates for Prime Minister position. V. Medvedchuk is considered as NSDC Secretary.

It is expected that staff changes will help to achive a number of strategic objectives, particularly in the energy sector. As expected, the Russian side afrer November 29 dispelled illusions of Kyiv, changing the "carrot" on the "whip". An indicator of this behaivour was in the speech of the First Deputy Prime Minister Igor Shuvalov of December 2  on "cheap gas in exchange to the Customs Union". At the same time it was mentionad that "...(we) will not  just help without any obligations on their part. We can not just save Ukraine: they should come to ua with a specific and reasonable agenda".

 In the gas sector requirements of the Russian side are presented in the package, which provides:

• Ukraine's withdrawal from the Energy Community Treaty (ECT);
• Passing of the gas transmission system to Gazprom (Belarusian variant or consortium);
• Incorporation of Ukraine's needs into the gas balance of Gazprom with a commitment to increase annual volumes of "cheap gas" purchase;
• Refusal by the Government of Ukraine of reverse gas supplies from the EU to Ukraine;
• Growing presence of Gazprom (through subsidiary) on the domestic gas market in Ukraine;
• Shutdown of projects on development of natural gas from unconventional sources.

Particular attention should be paid to the requirement on Ukraine’s withdrawal from the Energy Community Treaty. Practically, this step would destroy the draft Association Agreement between the EU and Ukraine, so far as ECT is a structural element of the AA.  

Implementation of these and other conditions, to which some of present Cabinet of Ministers members are inclined, would lead to irreversible consequences for Ukraine, including loss of:

• Course on reducing gas intensity of the national economy, which has been started since 2012;
• Opportunities to diversify gas supplies, including reverse from the EU;
• Extension of own gas production;
• Industrial assets to the benefit of Russian companies.

In practice, this can lead to a creeping transfer of economic and afterwards political sovereignty in favour of Russia. It is known that necessity for reviewing the Interstate Agreement of 1997, announced by Viktor Yanukovych and a number of Russian politicians, is a Russian idea. It aims to reproduce relations between Moscow and Kyiv after the model of the Soviet period. It is possible that some personalities from Russian and Ukrainian side will try to prepare a draft agreement in forced mode, with the aim to sign it by January 8, 2014, the day of the 360th anniversary of the so-called Pereyaslavska Rada Agreement.

The readiness of V. Yanukovych to accept a desovereign model of relations between Ukraine and Russia is noted by the initiative of the three–side negotiations format in the triangle Ukraine – EU – Russia, synchronized by him in Vilnius, but under the authorship of V. Putin. According to the Kremlin’s plan, this idea has to demonstrate to Brussels, that the relations with the states of the post–Soviet space of the EU should not to be constructed without Russia participation. This fact underlines once again a systematic inclination of Moscow to torpedo the EU eastern policy. In Ukrainian case it was reached by the not transparent mechanism of gas relations, reconsideration of which is being prepared now in Russia in the one package with the political agreement.