Since the beginning of this year Russia’s Gazprom has strengthened its positions in Belarus and has completely failed in Transdnistria. The economies of these two vassal territories of the Kremlin critically depend on revenues from transit services earned from the supply of Russian gas to the EU provided by the largest companies in the region BelTransGaz (BTG) and TiraspolTransgaz (TT)
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The Ukrainian company UkrTransGaz (UTG) also has a strategically important, though slightly more modest place in overall scheme of things. Seeing as UTG has the lowest tariffs for gas transit in Europe, at the moment it cannot dominate in terms of hard currency revenues. The Kremlin is insisting on alienation of UTG assets to the benefit of Russian companies according to any of the scenarios widely publicized in the Ukrainian mass media be it leasing or applying different models for setting up a consortium or a joint venture.
However, UTG is not facing bankruptcy and is operating smoothly. Based on this, the logical response of Kyiv to such obtrusiveness could be an invitation of European, American and Middle East competitors of Gazprom to the Ukrainian market. Instead, the policy of Kyiv in 2010-2011 came down to the issue of how to push some offshore company into one of the Russian versions of development of Ukraine’s largest gas transport company. The appearance of and offshore company and all kinds of third parties in Ukrainian-Russian gas trade relations became unsuitable for Gazprom back in 2009 when the new long-term “Putin-Tymoshenko” gas contract was signed. Since that time, the leadership of Ukraine has changed, but the country’s gas policy remained the same and is literally catering to the interests of the aforementioned third parties.
The persistence of Kyiv to involve certain foxy gas traders like Dmytro Firtash in bilateral Ukrainian-Russian trade relations continues to irritate the Kremlin, which is making a gradual transition to the plane of decisions at the highest level. By the end of 2011 the Russian government expected to gain full control over gas transport companies operating on the perimeters of Ukraine, specifically Belarus’ BTG and Transdnistria’s TT. In conditions of the potential isolation of the regime under Viktor Yanukovych that the EU voiced in 2011, control over these companies would allow a tight circle of Gazprom’s daughter companies to take control of the Ukrainian market and simplify the process of alienating the assets of UTG.
However, in the last days of 2011 deep gaps in Russia’s strategic gas planning opened up. Having gained a seemingly crushing victory over Belarus in the gas sector, Russia failed to retain Transdnistria in its orbit. Such a victory in this field has been put off until least 2012-2014. In light of this, until that time Kyiv has no chance of haggling for a fair price or reaching some other stable compromise with Russia in the sphere of gas cooperation.
Transdnistria gas flop
Gazprom’s failure in Transdnistria began when in autumn of last year former president of Transdnistria Igor Smirnov demanded from the Russian gas monopoly to hike the gas transit tariffs of TiraspolTransgaz to the level of European rates starting from 2012. As revenge for such outrageous disobedience, the Kremlin opposed the candidacy of Smirnov in the Transdnistria presidential elections held last December and the more pro-Russian candidate Anatoliy Kaminskiy garnered the support of Moscow in the elections. Despite this, the pro-European candidate Yevgeniy Shevchuk, who was supported by Smirnov, won the elections.
The failure of the pro-Moscow candidate in the Transdnistria elections inspired central authorities of Moldova and on January 5, in the course of talks with Gazprom, the Moldovan government decided to suspend the talks and appealed to the EU commission for assistance and support. Brussels agreed to provide such assistance. This decision can be attributed to the fact that in the course of Moldovan-Russian gas talks Gazprom demanded that the norms in Moldovan legislation that would set requirements of the so-called Third Energy Package of the EU on Moldova be stricken from the legislation.
The issue is about annulling the right of gas producing companies to perform operations in the sale, distribution and transportation of gas via pipelines. Under European law only companies that are not engaged in production have the right to operate in this sphere. All around Europe such an approach has a very positive effect on the prices of gas and electricity for consumers. In accordance with such European laws, it is not gas rather energy corporations in Germany, France and Spain that have long dominated these sectors of the economies of Moldova and the neighboring Romania.
MoldovaGaz, the parent company of TT in which Gazprom owns a 50% stake, is an exception in this particular case. For the Russian monopoly Chisinau’s appeal for help to the EU boils down to nothing other than a proprietary disaster. Moreover, there are similar cases in the past. Having fulfilled the laws of the aforementioned EU’s Third Energy Package since 2010, Lithuania filed a fairly successful lawsuit against Gazprom for its right for the ownership of its shares in the Lithuanian gas distribution company Lietuvos dujos. It is not clear at this point whether Moldova will borrow the Lithuanian experience having been inspired by the presidential elections in Transdnistria.
The only thing that is clear, however, is that it will not beneficial for Moscow to enter into serious gas projects with Ukraine until the gas issues are settled with Moldova, as talks with Ukraine in these conditions Gazprom would lose its strongest bargaining chip.
Therefore, with the loss in Transdnistria behind it one can assume that Gazprom will not make a serious advance in its relations with Kyiv in 2012. After all, even if Kyiv forces Moscow to set up a joint venture, consortium or some similar structure, it is unlikely that this venture will be productive or successful, because after the Moldova fiasco it would be unwise on the part of the Kremlin to enter into conflicts with the EU regarding Ukraine and will be better off moving forward one step at a time.
Phantom of Belarusian victories
Along with Moldova, there is another reason for the prolongation of time in the gas projects with Ukraine that are also located along its borders. The issue is about the Belarusian company BTG. Thanks to the financial crisis that hit Belarus in 2011, Gazprom managed to obtain all 100% of its shares without too much trouble. The next step in Russia;s expansion on Minsk will likely be the purchase of Belarusian energy assets: thermal energy stations, high-voltage power lines and distribution energy networks. For the sake of the cheap purchase of this portion of Belarusian state property by Russian companies, Belarus and Russia signed a new energy agreement on January 10, 2012, specifically the inter-government agreement on conditions of the purchase and sale of shares and further operation of BelTransGaz. Under this agreement Gazprom and BelEnergo undertook an obligation to increase the export of electricity produced at Belarusian thermal energy stations from Russian gas to Poland and Baltic countries.
For Ukraine, this agreement poses a real threat of full reduction of export of Ukrainian electricity to Belarus. The start of execution of the agreement will in 2012 create ideal conditions for increasing pressure on Kyiv with the aim of inexpensive alienation of Ukrainian state-controlled gas transport assets and not only that.
The fact is that if Gazprom manages to pressure Moldova into getting what it wants - to gain a stronghold on Belarus, Russian investors will have the opportunity to buy any Ukrainian state assets dirt cheap ranging from power stations to seaports, as Europe will simply be standing on the sidelines.
From this point of view, in 2012 Russia’s gas monopoly has good reason to conclude a new “phantom” gas contract – additions to the agreement of 2009 and postpone for a year or two more viable Ukrainian-Russian gas projects. It looks like Ukraine is pushing itself into financial isolation, which means that in the future GTS and other assets will be much cheaper for Moscow, if not for free.
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