Everyone a Loser in Ukraine-Russia Dispute – Except EU Energy Policy
The gas is flowing again. The deal signed between Ukraine’s prime minister Yulia Tymoshenko and Russia’s Vladimir Putin in Moscow on January 21 should at last provide some respite for all those who have suffered severe hardship from the suspension of gas supplier in recent weeks.
In the short term everyone has been a loser from this dispute. Neither Ukraine nor Russia emerge with any credit. The economic strength of many countries in south east Europe has taken a battering in already difficult times. On the other hand the long-term case for a proactive EU energy policy has received a major boost.
It seems that the Moscow agreement is for 10 years and includes a formula under which Ukraine will pay a European benchmark price, linked to the oil price, calculated quarterly and discounted by 20 per cent for 2009, while Ukraine agrees not to increase the transit charges for exporting Russian gas to European customers. There are tough terms for outstanding payments.
The crisis is over then, at least for now. Or is it? We are all familiar with the cold war rhetoric between Russia and Ukraine, and the archaic, heavy-handed style of Russia’s leadership, but the fierce rivalry between Ukraine’s prime minister and its president has also been a key factor in delaying resolution of the dispute. We learn that officials from President Viktor Yushchenko’s office are now suggesting that the deal must be reopened later this year, leading to irascible phone calls between Brussels and Kiev.
“A plague o’ both your houses!” That must be the reaction of Bulgarians, Slovaks and others in south-east Europe as they contemplate the hardship inflicted on their populations and the damage which has been done to their economies.
Shakespeare’s curse also sums up the reaction of European Commission President Barroso to the crisis. He held nearly 30 phone conversations with leaders in Moscow and Kiev to seek a solution, but found that agreements were announced, then repudiated the next day. “This is the first time in my life that I saw agreements that were systematically not implemented. That has never happened with any other partner in the world. There was a complete contradiction between discourse and reality” he said.
The public dispute between governments is more or less in the open, with each player performing in character. We know what to expect. The shadowy role of the corporate sector and the relations between business and politics is much more difficult to penetrate.
Take RosUkrEnergo for instance, the Swiss-registered Ukrainian joint venture owned by Gazprom and two Ukrainian businessmen, which has long been the major distributor of Russian gas within and across Ukraine. There is clearly no love lost between RosUkrEnergo and Naftogaz, the main Ukrainian domestic supplier. Some argue that this was really at the heart of the dispute. It was certainly an element in the Moscow agreement.
There is little doubt that the crisis will have caused serious economic damage to both Russia and the Ukraine. It has lost them millions and undermined confidence in their reliability for production and for transit. It has stimulated the search for more diversified energy supplies and more efficient energy use across Europe.
The cutting off of supplies could not have come at a worse time. This winter is proving uncommonly hard. They were using icebreakers in Berlin’s Oder-Spree waterway to clear the way for coal barges. Hungary and its neighbours report many deaths caused by the cold. Bulgaria has threatened to reopen its Chernobyl-type nuclear power station which has been closed for two years under an EU-funded arrangement, while Slovakia is planning to bring back the nuclear plant which as part of its accession treaty was closed at the end of 2008.
Serbia said that its power grid was close to collapse as consumers were forced to switch to electricity during the crisis. The EU mobilised the civil protection mechanism for Moldova where 50,000 people were left with no fuel supplies. All those directly affected were the biggest losers of all. But at least this crisis has identified some of the pinch points for the evolution of European energy policy.