Opinion: South Stream gamble

By Anna van Densky, Brussels 

Kiev’s military operation against the uprising in the south-east is aggravating Ukraine’s’ dissaray, topping $30 billion in sovereign debt, with $3.5bn of unpaid Gazprom bills having accumulated since the Maidan revolution.

Gazprom has rejected to continue supplies apart from on a pre-pay basis - the proposal was considered as unacceptable by the Ukrainian government, suggesting a much lower price for ‘blue  gold’.

Commenting on the dispute, Russian Ambassador to the EU Vladimir Chizhov did not exclude  the rupture of gas delivery via Ukraine to Europe. Experts are gathering in Brussels on 12 May in an attempt to get out of the impasse, preparing the meeting of energy ministers in Athens on 16 May .

The problems of gas transit came together with the independence of Ukraine after the collapse of the USSR: the gas infrastructure, inherited from the Communist past, became a subject of vehement  arguments between different groups in power and with the Russian energy giant itself. Gas prices  became a key factor for the Ukrainian economy, both for internal consumption and for transit profit  fees.

This struggle became notorious globally when former prime minister Yulia Tymoshenko,  nicknamed ‘Gaz Princess’, was jailed, accused of betraying the national interest in signing an inferior agreement with Gazprom. The campaign was launched by her political rivals, led by President  Victor Yanukovich. However, this was just a chapter in the struggle for the control of gas flow.

In reality, Ukraine has never paid the market price for the gas since the  collapse of the USSR – in 1993, a high official formulated a clear-cut concept: ‘No gas for Ukraine – no gas for Europe’.

The geographical  position and absence of alternative routes of supply threw the Russian energy giant  at the mercy of Ukrainian corrupt elites. In attempting to halt deliveries to Ukraine, it was Gazprom's reputation which was suffering in the West, as Ukrainians simply used the  gas paid for by European consumers.

An expression 'unsanctioned consumption of gas’ was invented  to replace ‘theft’ – a symbol of the helplessness of the Russians, who were being taken hostage by the predator’s mentality of the new Ukrainian elites, who were making maximum profits from outdated infrastructure.

In more than two decades, Gazprom was not able to break the wretched scheme, as every closure of the tap in an attempt to get payment led to a anti-Russian campaign in the West, which accused the Russians of being ‘non-reliable’ partners. The Ukrainians have been used to the restoration of gas supply without paying the bills – this happy ending concluded all disputes in the past, as Gazprom  had no alternatives for gas delivery to the EU. Clearly, Ukranians expect this to happen again on 16  May.

Mariupol, in the Donetsk region, a wealthy industrial city on the Azov Sea, headlined in the world news for violent clashes between Kiev troops sent against local  separatists, is a non-systemic case.

The independence of energy supply reflected the independence of the local population - around 10% of the whole of Ukrainian  consumption is delivered from Russia directly in a smaller pipeline, which ensures work for the biggest steel giant, Mariupol's Azovstal. Since 1994, the company obtained the privilege of paying their bill to Gazprom directly, bypassing Kiev. This direct payment plays a  crucial role in the well-being of the successful industrial city, unwilling to be associated with the endless saga of the disastrous centralized-in-Kiev payments scheme.

Mariupol is a rare exception to the general rule – collecting money from the buyers through intermediate shady companies, which never managed to pay Gazprom: Nordex, Slavutich,  Respublica; and more recent Itera, EuralTransGas, and the most notorious RusUkrEnergo (50%  of which belongs to Gazprom transporting Turkmen gas to Europe).

The scandals surrounding RusUkrEnergo did not stop, pointing towards embezzlement in the presidential circles: before being sentenced, Yulia Tymoshenko tried to sue a close associate  of President Victor Yanukovich – Dmytro Firtash – for fraud. Although RusUkrEnergo was formally excluded from the mediation in 2009 when Tymoshenko signed her ill-fated contract with Gazprom, leading her to jail, the RusUkrEnergo saga continues to preoccupy different anti-corruption watch dogs, which are delivering volumes of  reports on the most horrendous abuses, while re-exporting Turkmen and Russian gas via Ukraine to  the EU.

A salvation from the ongoing gas transit abuses came in a simple proposal of two  direct pipelines bypassing Ukraine – North Steam and South Stream – through the Baltic and Black seas. While the North Stream has already started to function, the South Stream is still under construction, hindered by unexpected political whims.

Corruption scandals and embezzlement did not turn Europeans away from the idea of transit through Ukraine – lately, the European Parliament voted against the construction of South Stream in a gesture of repercussion for the disaccord with Russia over political developments in Ukraine.  Meanwhile, European energy policy has become increasingly haphazard – while Bulgaria following  the winds from Brussels rejected the project and symbolically detached the pipe, the Austrian  OMV AG, Swiss Allseas and Itailan Sapiem were striking agreements with Gazprom to prioritize the  construction of South Stream.

The algorithm of EU energy policy will continue to swing in the near future – in case right wing parties win seats in the upcoming European elections, energy policies may become  much closer to national interests – in this case, South Steam would be welcome as an  ultimate solution for secure gas delivery. Regaining its status as an EU priority project, delivering more than 10% of entire  consumption, it will contribute to EU economic growth. The sacrifice of national interests in the name of a chain of Ukrainian anti-corruption revolutions, Orange or Maidan, will not find many adepts among the  decision-makers struggling for European competitiveness in the global world.

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