Ukrainian Requests Not to Affect European-Russian Ties, Says Naftogaz Official
While Russia’s President Vladimir Putin was saying on Wednesday that Russia cannot provide Ukraine with the gas price discount it once had, Naftogaz tabled its requests to the European Commission, asking Brussels to take a more active role in the contracts involving Slovakian, Ukrainian and Russian companies. According to Ukrainian politicians and companies, the legacy contract between Slovakia’s Eustream and Russia’s Gazprom violates EU law.
Additionally, Naftogaz asks for the conclusion of the standard interconnection agreement between Ukraine’s Ukrtransgaz and Eustream.
“Setting the interconnector matter right involves two things. First, it is the conclusion of the standard interconnection agreement, approved by the European Commission, between Ukrtransgaz and Eustream. This would establish a direct relationship between the two adjacent TSOs, in compliance with the EU rules. Such an agreement is irrelevant to the supply contracts Gazprom has with its European clients and will not affect these relations in any manner” Yuriy Vitrenko, Managing Director of Business Development at Naftogaz, told Natural Gas Europe on Wednesday.
Ukrainians have also asked to receive shipping code pairs.
“Second, we expect to start receiving shipping code pairs related to the volumes of gas transmitted across Ukraine from Gazprom. A refusal to provide this information, which Ukrtransgaz needs to perform its TSO functions in full, could be treated as an intention of a dominant player to abuse its market position,” Vitrenko explained.
According to the Ukrainian official, as a consequence of these two pillars, Ukraine would be enabled to offer Europeans an “economically viable solution at hand,” increasing energy security, while avoiding EU taxpayers’ investments in new “redundant pipelines.” Vitrenko argued that these changes would have positive repercussions on Bosnia, Bulgaria, Greece, Hungary, Macedonia, Romania, Serbia and Turkey.
Doing so, the Ukrainian company also confirmed Kiev’s commitment to get closer to Europe.
“Last month, with the great support of the European Commission, we have developed and signed the first direct interconnection agreement between Ukrtransgaz, the Ukrainian TSO, and its Hungarian counterpart, FGSZ. This model agreement complies with the newly adopted EU network codes that regulate the use of gas networks. We are hopeful of replicating such agreements with the rest of Ukrtransgaz' counterparts in Slovakia, Poland and Romania shortly” Vitrenko told Natural Gas Europe.
THE POSITION OF THE UKRAINIAN GOVERNMENT: LEGACY AGREEMENT BETWEEN EUSTREAM, AND GAZPROM
Kiev said that the refusal to permit the utilisation of the unused capacity constitutes an abuse of dominant position under Article 102 of the Treaty of the Functioning of the European Union. It asked Brussels to take legal action to solve the “bottleneck” issue at the Uzhgorord/Vel’ke Kapušany gas interconnector point between Slovakia and Ukraine.
“Eustream the transmission system operator (TSO) of the Slovak gas transmission system (GTS), has declined to enter into an interconnection agreements with Ukrtransgaz, the TSO of the Ukrainian GTS, because it claims that Gazprom Export holds exclusive rights under a legacy agreement regulating the utilisation of the interconnection point” the Prime Minister of Ukraine Arseniy Yatsenyuk wrote in an emailed note on Tuesday, adding that the legacy contract between Eustream and Gazprom Export is in direct violation of EU law and Energy Community Treaty.
Ukraine’s position is backed by a memo written by law firm Wikborg Rein on June 2.
"Ukrtransgaz is effectively hindered from carrying out one of its central functions as a transmission system operator," Wikborg Rein said in the document.
The memo made available by Naftogaz explained that the only way to increase eastward physical reverse flow capacity is to reallocate the physical flows between the different pipelines in order to maximise their utilisation.
Naftogaz says that the inter connector's full capacity is "nearly 115 bcm per year, and only 15 bcm of it is now available for bi-directional gas flows.
According to Kiev, full Slovak reverse flow would allow Ukraine to end its dependency on Gazprom and eventually import 100% of its gas from the EU.
“Unrestricted gas flows in both directions between Ukraine and Slovakia would also allow European energy companies to use Ukrainian natural gas storage capacity, the largest on the continent and situated next to Slovakia, Hungary and Poland” Yatsenyuk added.
According to Naftogaz’ Vitrenko, Ukraine’s 31-bcm underground storage amounts to nearly a third of EU-28 total.
“Almost a half of this capacity is currently unused” he explained Natural Gas Europe on Wednesday.
RUSSIA’S STRATEGY: GAS PRICE TO UKRAINE, NEW ROUND OF NEGOTIATIONS
The moment remains delicate, with a complex nexus of national interests and European strong positions. Germany is facing an internal arm-wrestling between companies asking for stronger ties with Moscow, and Chancellor Angela Merkel standing her ground.
Meanwhile, on Wednesday, Putin said that Moscow will extend the measures taken “in response to the actions of our partners in some countries.” Russia’s President then signed the order to extend these ‘counter-measures’ to June 23, 2016. The Russian sanctions will include a ban on the import of several agricultural products from western countries. According to the Russian government, among the banned importers, Germany, Poland, the US, the Netherlands, France, Italy and Spain are the top food suppliers to Russia.
During the meeting with Government members, Putin spoke with Energy Minister Alexander Novak, who said that Ukraine did not yet make any request for discount on gas price for the third quarter.
“I want to let you know that until now, the Ukrainian side has not made any such request, so today, the situation is as follows: the quarter is about to end, and we are awaiting our Ukrainian colleagues’ request” Novak told Putin, as reported by a note released in the afternoon.
At the same press release, Putin argued that, given the current market conditions, Moscow cannot afford to grant current gas prices to Kiev. On the other hand, prices for Ukrainian customers should not be higher than the ones paid by Poland.
“Clearly, with such a serious drop in oil prices, which is ultimately used to calculate gas prices, we cannot offer the same discount, in the same volume, as before. But in any case, the final price for Ukrainian consumers should be at the same level as for neighbouring nations like Poland, it should not be higher.”
More details will emerge in the coming weeks. Some rumours indicated that gas prices could be discussed during the next round of the trilateral negotiations between Russia, Ukraine and the European Union that should take in the next week or so.
“We have planned another round of these consultations for the end of this month,” Novak said on Wednesday, referring to the negotiations that should also comprise supplies to Europe.
However, only time will tell whether the latest developments will impact the negotiations.
Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci