Energy diplomacy: How not to let bypass Ukraine

Author : Natalia Katzer-Buchkovska

Source : 112 Ukraine

Plans for building gas pipelines to bypass Ukraine and inefficient internal management in the energy sector challenge energy security of Ukraine and the whole European Union
18:42, 31 October 2016

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Solving complex energy problems in the international market is possible through joining efforts in the country and use all available levers on the diplomatic front.

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The range of opportunities is becoming increasingly narrower

 Ukraine has some two years until 2019 when expires the contract on transit of Russian gas in our territory. With the loss of transit potential not only a significant portion of national income (transit fees) will be lost, as well as a portion of the energy security and advantages in negotiations with the Russian monopoly.

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Meanwhile ghostly plans of alternative gas pipelines from Russia to Europe are becoming more realistic. October 5, the media reported that former German Chancellor Gerhard Schroeder led the board of directors of "North Stream-2" - "daughter" of Russian "Gazprom". Just as headed the "Nord Stream-1". This is definitely a signal of strengthening diplomatic offensive in the gas market in Europe, after all, "North Stream-2" can double the direct gas supplies. The application for appointment was made in October, although in fact Mr. Schröder took office on 29 July. In the same July, the Polish competition regulator UOKiK contested joint venture for the construction of the "Nord Stream-2". According to the decision, the creation of the pipeline company may limit competition in the gas market. For Ukraine, this project clearly threatens energy security, pursuing the idea to bypass our country which is a member of the European Energy Community to transport gas to Western Europe. It also undermines the energy security of the European Union as a whole. Construction of the pipeline will be a direct violation of Directive 2009/73 / EC on common rules for the internal market for gas and the third energy package in the division of property.

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However, the European Union and EU each country have their own energy plans. Perhaps that is why 25 October the European Commission agreed to authorize the Russian "Gazprom" to increase gas transportation to the European Union through the pipeline OPAL, which is part constructed to circumvent Ukraine "Nord Stream" and runs through Germany - from the Baltic Sea to the town of Brand, on the border with the Czech Republic. Commission allegedly allowed Russia to use more than 50% of the pipeline capacity (previously there were limits - no more than 50%), but 10-20% of transport capacity "Gazprom" will have to provide to other suppliers. Such requirements are stipulated by European legislation.

October 10, Russia and Turkey announced the signing of an intergovernmental agreement on "Turkish stream". This was stated by Chairman of the Board of "Gazprom" CEO Miller: "The intergovernmental agreement that will be signed, provides for the construction of two strands gas pipeline under the Black Sea, the power of each filament 15 billion 750 million cubic meters of gas. One thread is provided for gas supply directly to Turkish market, the other - for deliveries in transit through Turkey to European countries." The agreement also defines the term: both threads must be built before December 2019.

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 Both projects - OPAL and "Turkish Stream" - in the absence of technically and commercially objective reasons for implementation only with explicit political in nature, given the current geopolitical architecture. Also in Stockholm ended oral hearing in a united case for the mutual claims of "Naftogaz Ukraine" and Russian JSC "Gazprom" on contract for gas supplies to Ukraine. Refined amount of claims of "Naftogaz" to "Gazprom" in the Stockholm arbitration on two claims - with gas supply and contract for transit - represent more than 26.6 billion dollars, claims of Russia - 38.7 billion dollars. The final decision of the Arbitration Institute of Stockholm Chamber of Commerce contract for the supply of gas is expected to be March 31, 2017

 Ukraine will help the energy security of Europe if...

It is clear that the scale of challenges for Ukraine and their urgency requiring us to mobilize all available means of influence on energy front diplomacy. This set of tools for lobbying the state in the energy sector internationally. Until recently, no special attention to Ukraine's energy diplomacy as a separate direction of foreign policy is not paid. After all, domestic politicians and bureaucrats convenient to classify the historical existing monopoly dependence on Russia in energy supply as Russian expansion. This was not used effective measures to change the situation in connection with the transformation of international relations. The situation changed in 2014. At least many officials realize that to ensure energy security of Ukraine should use all tools of diplomacy range. This should be part of a broad public policy advocacy of national energy interests. Ukraine objectively has good preconditions for development of the energy sector and foundation for the sustainable development of the national economy. Moreover, our country can become a central element of energy security in Europe as a whole if make reforms in the energy sector, meet their obligations and fully complies with the requirements of the Energy Community.

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The question of strengthening energy diplomatic front was raised under a special joint session of parliamentary committees on foreign affairs and on the energy industry, which took place in September this year. Last week the Verkhovna Rada Committee on Fuel and Energy Complex has made a number of recommendations made by the results of the round table.

From an institutional point of view, there is a need is to create an interagency group on energy diplomacy with the participation of the Ministry of Foreign Affairs, Ministry of Energy and Mines, representatives of parliamentary committees, "Naftogaz Ukraine", the presidential administration and relevant organizations in the energy sector. The work group is to increase the effectiveness cooperation of all involved state agencies to achieve the goals of energy diplomacy, develop and deliver a unified state position on energy security of Ukraine internationally.

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Ukraine has already received the first official warning of the failure of the timing changes. In the implementation of energy reforms we are lagging a year. Regarding electricity market is just beginning to move amendments in Parliament. The law "On Electricity Market" is adopted at first reading, and its implementation might start at least a year.

 Energy Diplomacy: go or lose

Regarding Ukraine’s energy security, the issue of development and approval of a new energy strategy that takes into account the new geopolitical conditions, the interests of all members of the energy sector of the country is on time.

A key objective of active energy diplomacy is defending the use of Ukrainian gas transport system to preserve the status of Ukraine as a key transporter of Russian gas to European countries. This will facilitate a regular and effective informing European partners about the possibilities and advantages of the Ukrainian GTS and implementation status of our country reforms.

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Ukraine has committed itself to the implementation of the Third energy package that divides the state company "Naftogaz" and the separation of the functions of supply and transportation of natural gas. However, the project "North Stream-2" could significantly undermine Ukraine's energy security, lower revenues from gas transportation and threaten Ukrainian investments in infrastructure that are essential to the proper functioning of the national energy system. Without Ukraine, gas transit business loses profit on $ 2 billion per year (about 1.5% of gross domestic product).

In order to strengthen cooperation in energy security Verkhovna Rada of Ukraine has developed a resolution which provides for appeal to parliamentarians and the executive authorities of States - members of the European Union on strengthening cooperation in the field of energy security and the potential risks of projects on construction of transit gas pipelines bypassing Ukraine. The document refers to support Ukraine on its way to implementation of energy reforms in line with international obligations of the EU harmonization and integration of energy markets Ukraine to the market of the European Energy Community. And on the involvement of our European partners to control and operational management of gas transportation system of the country to complete its download.

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An important direction of diplomacy is also opening up new markets and strengthening its presence in Ukraine energy markets in the Middle East, Africa, Latin America, and Asia. Work in relevant international energy organizations should also be intensified to counter external threats to Ukraine's security, including the "Nord Stream-2" and "Turkish stream".

To speed up the positive developments in the domestic energy market Ukraine needs a new simplified tax system hydrocarbon production revised rent to a level of 12% and legal framework to simplify licensing and works for the extraction of hydrocarbons having open opportunities for public and for foreign companies.

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Ukraine needs practical steps and measures to implement the provisions of the Paris agreement and increase the share of renewable energy in the United Energy System under the National Action Plan on renewable energy for the period until 2020. Effective coordinated cooperation of all government agencies and enterprises to protect national Ukraine's interests will help strengthen our position in the regional markets of Europe and make a significant contribution to the transformation of the energy market in Europe.


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