by Roman Kupchinsky
On June 5, 2009, the Ukrainian stated-owned oil and gas concern, Naftohaz Ukrayina, paid Gazprom, the Russian gas monopoly $475 million for gas delivered in May 2009. By beating the June 7th deadline by two days, Naftohaz once again threw a monkey wrench into the propaganda blitz which had been carefully choreographed by Russian Prime Minister Vladimir Putin and Gazprom leadership in order to discredit Ukraine as a reliable transit country in the eyes of the European Union.
Speaking at a meeting of the Ukrainian National Defense and Security Council, Ukrainian President Viktor Yushchenko was uncommonly blunt about the state of affairs at Naftohaz and revealed how the payment was made. “The situation in Naftohaz is critical” Yushchenko stated, “frankly speaking it has never been so severe.” The Ukrainian President stated that Naftohaz owed $157 million for gas which was consumed and almost $500 million for gas placed in underground storage. “I had no choice but to order an emission (of the Ukrainian currency, the hryvnia) and in time the full sum owed Gazprom of 3.8 billion hryvnia will be paid.”
After news of the payment was released, Yushchenko’s advisor for energy matters, Bohdan Sokolovsky demanded that the Russian leadership apologize for their “incorrect and libelous statements about Ukraine’s ability to pay for gas.”
Gazprom officials told Kommersant that at the time the paper went to print they could not confirm receiving a payment, but added that the sum owed Gazprom by Naftohaz was about $640 million.
While the May payment was met before the deadline, Ukrainian officials are worried that this was due to a stopgap measure – a new emission. The average monthly debt to Gazprom is approximately $200 million for consumed gas and $500 million for gas placed into storage.
Come the end of June there remains a real possibility that Ukraine will be unable to pay $700 million for June gas deliveries and this will most likely give Putin the chance to again insist that the E.U. pick up part of the Ukrainian gas tab or else the gas spigot to the E.U. might once again be shut.
How will the E.U. Commission react? This remains anyone’s guess, but as oil prices keep rising, the Russian leadership is placing its bets that by mid 2010, when gas prices will once again begin to climb, the E.U. will finally throw its full support behind the South Stream and thus doom Ukraine’s most valuable geopolitical asset, it gas pipeline network, to the dustbin. This could also spell the beginning of the end for Ukraine as a fully independent state.
Monday, June 8, 2009
Friday, June 5, 2009
Friday Shorts
Russia Pushes for WTO Membership at the St Petersburg International Economic Forum
Russia renewed its efforts to join the World Trade Organization on the margins of the St Petersburg International Economic Forum, which concludes today. The E.U. Trade Commissioner Catherine Ashton, the United States Trade Representative Ron Kirk and the Russian Economy Minister Elvira Nabiullina met to discuss Russia's W.T.O. accession prospects. Russia, the largest economy outside the W.T.O., has been waiting to join the 153-member organization for close to 16 years. The Russian Deputy Foreign Minister Alexander Yakovenko stated that Russia would like to complete the process by the end of the year, which appears to be highly unlikely. Separately, the Russian officials told the Organization for Economic Cooperation and Development (O.E.C.D.) on Thursday that Russia will be submitting its formal membership application package on June 24-25, according to the O.E.C.D. Director of Legal Affairs, Nicola Bonucci.
Putin Reprimands the Aluminum Magnate Deripaska during his Visit to an Economically Depressed Town in Russia's Heartland
In an obvious populist stunt aimed at shoring up the waning public support, the Russian Prime Minister Vladimir Putin demonstrated his incredible micromanagement abilities during the visit to the economically depressed town of Pikalyovo with the population of 22,000 in the Leningradskaya Oblast. Protesting the wage arrears resulting from the closure of the alumina production plant the Pikalyovo residents blocked the federal highway Novaya Ladoga-Vologda for almost entire day on June 2. Fearing the spread of similar outbursts of dissent nationwide Prime Minister Putin rushed to Pikalyovo, where at a hastily arranged and highly choreographed meeting with the factory owners, local officials and union leaders, he resolved all matters and publicly humiliated once favorite aluminum magnate Oleg Deripaska by forcing him to sign a contract that would allow the alumina plant to resume production.
Russia's Chief of General Staff Reconfirms the Linkage between Progress on START Renewal and U.S. Plans for Missile Defense in Europe
Today the Chief of General Staff, Army General Nikolai Makarov told the media that Russia will not cut its nuclear deterrent as long as Washington's position on the missile defense system in Europe remains unclear. General Makarov stated, "So long as the situation in the world is not clear, including on the missile defence system, we will not touch our nuclear potential...The question of strategic nuclear forces for us is sacred. We will provide as many resources as are needed to maintain stability in the world...We will leave our strategic missile forces practically unchanged." General Makarov's words will surely pour some cold water on American negotiators, who concluded the second round of talks on the renewal of the Strategic Arms Reduction Treaty in Geneva this week. According to the chief U.S. negotiator, Assistant Secretary of State Rose Gottemoeller the talks held on June 1-3 were "very productive".
Russian Plane Makes an Observation Flight over Estonia under the Open Skies Treaty
On Wednesday, May 27, 2009, a Russian military aircraft carried out a surveillance flight over Estonia in accordance with the relevant provisions of the Treaty on Open Skies. According to the Estonian General Staff, an Antonov An-30B aircraft equipped with a vertical optical panoramic photo camera conducted an aerial surveillance flight with seven Estonian defense officials on board to make sure that the flight pattern corresponded with a pre-approved 795 km route. It should be noted that Russia performed similar observation flights over Estonia in 2005, 2006, 2007, and 2008. The Treaty on Open Skies is a confidence-building mechanism between the member-states of the Organization for Security and Cooperation in Europe that was signed in Helsinki in 1992 and entered into force 2002. The overflights are used to generate and disseminate information on defense capabilities between the signatory states. Estonia acceded to the treaty in 2005 and it is supposed to allow up to four such overflights a year.
Russian Law Enforcement Authorities Uncover Missile Parts Smuggling Ring
On May 29, Russia's Federal Customs Service announced that it had uncovered an international ring of active and retired military officers, who had been involved in smuggling parts of S-75, S-125, S-200 and S-300 air defense missile systems to Belarus, Kazakhstan, Ukraine and Bulgaria for at least two years. The Russian customs authorities detained a dozen suspects and expropriated 22 tons of missile spare parts and components intended for smuggling. The statement issued by the Federal Customs Service also referred to the two recent interceptions of illegal shipments of missile system components, including a radar, on the borders with Ukraine and Belarus.
Only Eight Russian Nuclear-Powered Ballistic Missile Submarines are Ready for Combat
On Monday, June 1, the Russian military analyst Mikhail Barabanov, who is the editor-in-chief of the Moscow Defense Brief, an influential defense publication produced by the Center for Analysis of Strategies and Technologies (C.A.S.T.), stated that out of the total of 12 nuclear-powered ballistic missile submarines currently in service in Russian submarine fleet, only 8 were actually combat-ready.
Russia renewed its efforts to join the World Trade Organization on the margins of the St Petersburg International Economic Forum, which concludes today. The E.U. Trade Commissioner Catherine Ashton, the United States Trade Representative Ron Kirk and the Russian Economy Minister Elvira Nabiullina met to discuss Russia's W.T.O. accession prospects. Russia, the largest economy outside the W.T.O., has been waiting to join the 153-member organization for close to 16 years. The Russian Deputy Foreign Minister Alexander Yakovenko stated that Russia would like to complete the process by the end of the year, which appears to be highly unlikely. Separately, the Russian officials told the Organization for Economic Cooperation and Development (O.E.C.D.) on Thursday that Russia will be submitting its formal membership application package on June 24-25, according to the O.E.C.D. Director of Legal Affairs, Nicola Bonucci.
Putin Reprimands the Aluminum Magnate Deripaska during his Visit to an Economically Depressed Town in Russia's Heartland
In an obvious populist stunt aimed at shoring up the waning public support, the Russian Prime Minister Vladimir Putin demonstrated his incredible micromanagement abilities during the visit to the economically depressed town of Pikalyovo with the population of 22,000 in the Leningradskaya Oblast. Protesting the wage arrears resulting from the closure of the alumina production plant the Pikalyovo residents blocked the federal highway Novaya Ladoga-Vologda for almost entire day on June 2. Fearing the spread of similar outbursts of dissent nationwide Prime Minister Putin rushed to Pikalyovo, where at a hastily arranged and highly choreographed meeting with the factory owners, local officials and union leaders, he resolved all matters and publicly humiliated once favorite aluminum magnate Oleg Deripaska by forcing him to sign a contract that would allow the alumina plant to resume production.
Russia's Chief of General Staff Reconfirms the Linkage between Progress on START Renewal and U.S. Plans for Missile Defense in Europe
Today the Chief of General Staff, Army General Nikolai Makarov told the media that Russia will not cut its nuclear deterrent as long as Washington's position on the missile defense system in Europe remains unclear. General Makarov stated, "So long as the situation in the world is not clear, including on the missile defence system, we will not touch our nuclear potential...The question of strategic nuclear forces for us is sacred. We will provide as many resources as are needed to maintain stability in the world...We will leave our strategic missile forces practically unchanged." General Makarov's words will surely pour some cold water on American negotiators, who concluded the second round of talks on the renewal of the Strategic Arms Reduction Treaty in Geneva this week. According to the chief U.S. negotiator, Assistant Secretary of State Rose Gottemoeller the talks held on June 1-3 were "very productive".
Russian Plane Makes an Observation Flight over Estonia under the Open Skies Treaty
On Wednesday, May 27, 2009, a Russian military aircraft carried out a surveillance flight over Estonia in accordance with the relevant provisions of the Treaty on Open Skies. According to the Estonian General Staff, an Antonov An-30B aircraft equipped with a vertical optical panoramic photo camera conducted an aerial surveillance flight with seven Estonian defense officials on board to make sure that the flight pattern corresponded with a pre-approved 795 km route. It should be noted that Russia performed similar observation flights over Estonia in 2005, 2006, 2007, and 2008. The Treaty on Open Skies is a confidence-building mechanism between the member-states of the Organization for Security and Cooperation in Europe that was signed in Helsinki in 1992 and entered into force 2002. The overflights are used to generate and disseminate information on defense capabilities between the signatory states. Estonia acceded to the treaty in 2005 and it is supposed to allow up to four such overflights a year.
Russian Law Enforcement Authorities Uncover Missile Parts Smuggling Ring
On May 29, Russia's Federal Customs Service announced that it had uncovered an international ring of active and retired military officers, who had been involved in smuggling parts of S-75, S-125, S-200 and S-300 air defense missile systems to Belarus, Kazakhstan, Ukraine and Bulgaria for at least two years. The Russian customs authorities detained a dozen suspects and expropriated 22 tons of missile spare parts and components intended for smuggling. The statement issued by the Federal Customs Service also referred to the two recent interceptions of illegal shipments of missile system components, including a radar, on the borders with Ukraine and Belarus.
Only Eight Russian Nuclear-Powered Ballistic Missile Submarines are Ready for Combat
On Monday, June 1, the Russian military analyst Mikhail Barabanov, who is the editor-in-chief of the Moscow Defense Brief, an influential defense publication produced by the Center for Analysis of Strategies and Technologies (C.A.S.T.), stated that out of the total of 12 nuclear-powered ballistic missile submarines currently in service in Russian submarine fleet, only 8 were actually combat-ready.
Russia Scraps MiG-31 Sale to Syria in Exchange for Israeli UAVs
by Alexander Melikishvili
Recent news reports in the Russian and Israeli press and media may shed light on the quid pro quo arrangement that was apparently concluded by Moscow and Tel Aviv in the area of military-technical cooperation. Tel Aviv's conditionality with regard to Russia's unprecedented deal with Israel to acquire the second-tier unmanned aerial vehicles (U.A.Vs), which was discussed on this blog back in April, has finally been revealed in detail. It turns out that in exchange for UAVs from the Israel Aerospace Industries (I.A.I.), Moscow may have indefinitely halted the sale of eight MiG-31 interceptor-fighter jets to Syria.
It is worth recalling that as early as in December of last year the Russian business daily Kommersant, citing the Israeli newspaper Maariv, reported that the UAV deal with Russia was causing major tensions between the Israeli Ministry of Defense (M.O.D.) and Ministry of Foreign Affairs (M.F.A.). At the center of the dispute were the irreconcilable views held by the respective ministries. While the M.F.A. saw it as crucial to improvement of bilateral relations and possibly a halt to the transfer of S-300 air defense systems to Iran, the M.O.D. was afraid that the sensitive UAV know-how would eventually leak to Iran. An unnamed M.O.D. official told Kommersant newspaper, "There is [a] fear in Israel that any [of] our military technologies can be transferred from Russia to Iran, for instance, via Syria." Meanwhile the I.A.I. has been exceedingly guarded and reserved with regard to the U.A.V. deal with Russia. In December the I.A.I. Director of International Marketing for Russia and the C.I.S. countries Robert Fisher provided no comments about the progress on the U.A.V. contract with Russia.
According to The Jerusalem Post, the groundwork for the aforementioned quid pro quo arrangement was laid in the aftermath of the August war between Russia and Georgia last year, when Major General Amos Gilad, the Head of the Diplomatic-Security Bureau of the Ministry of Defense of Israel traveled to Moscow, where he received assurances that "Russia would not sell the S300 defense missile system to Iran, and would consider halting the sale of MiG-31s to Syria." It appears that the Kremlin still keeps the options open for the first deal but may have halted the second transaction. It must be noted that in accordance with the Russia-Syria deal signed in early 2007, Moscow was to sell eight MiG-31 interceptor-fighter jets to Damascus for the estimated price of $400-500 million.
In late April Kommersant newspaper reported that the sale of MiG-31 interceptor-fighter jets to Syria was suspended. Quoting the annual report of the Open Joint Stock Company Sokol Aviation Plant (based in Nizhny Novgorod), which was approved by its Board of Directors, the preparation of planes for export was halted "due to the absence of a contract." The role of the Sokol Aviation Plant in the botched deal becomes clear considering that the production of MiG-31s stopped in 1994 and Syria was to receive these aircraft from the reserves of the Russian Air Force. For that purpose they had to be retrofitted for export by the Sokol Aviation Plant. An anonymous source with ties to the Russian state-controlled arms trading monopoly Rosoboronexport admitted to Kommersant that the abrupt annulment of the Syrian contract occurred as a result of Israeli pressure. As always in Russia, the speculations proliferate, but according to another source in the industry-relevant ministry, the deal fell through because Syria lacked sufficient funds to pay for the costly acquisitions. Russia's bargaining position vis-a-vis Syria is strong in any case. In 2005 Moscow generously wrote off close to 70 percent of Syria's debt to Russia, which at the time amounted to whopping $13.4 billion. After that Syria still owed Russia some $3.6 billion.
On May 20, the Russian Aircraft Corporation MiG broke its silence regarding the MiG deal with Syria. The MiG representative's comments carried by the Kommersant newspaper unequivocally denied existence of such a contract. An unnamed MiG representative stated, "There is no such contract in nature. This contract was concluded in 2007 only by the mass media and they were the ones, who annulled it in 2009." At the same time another unnamed source in the Russian defense industry pointed out that "several years ago Syria expressed serious interest towards the acquisition of Russian interceptors MiG 31-E." The same source continued, "In early 2007 the contract to transfer eight planes to that country was even initialed, but it never entered into force because it was not possible to settle all financial questions." "In 2007 the Sokol Aviation Plant began preparations for the fulfillment of the future contract. However soon after the work halted because Syria did not confirm the entry of the contract worth more than $400 million into force," the source concluded.
Israeli officials told The Jerusalem Post that the delivery of U.A.Vs to Russia will commence by the end of the year. In the meantime the Israeli government expects the visit by the Russian Deputy Defense Minister (in charge of procurements) Vladimir Popovkin, who will familiarize himself with the production of U.A.Vs for Russia. More alarmingly, however, it turns out that the Russia-Israel U.A.V. deal could at a later stage entail the sale of the advanced long-range Heron U.A.V. to Russia.
Notwithstanding the above claims and counterclaims, the Syrian government entered the fray on Sunday, May 24, when it issued a statement dismissing reports in the Russian media denying rumors that the deal was off. The statement issued by Damascus and timed to coincide with the official visit by the Russian Foreign Minister Sergei Lavrov read: "This is part of attempts to undermine the friendly relations and cooperation between Syria and Russia." It seems that Damascus chose a denial from the dearth of face-saving options available in the aftermath of the collapsed deal.
Recent news reports in the Russian and Israeli press and media may shed light on the quid pro quo arrangement that was apparently concluded by Moscow and Tel Aviv in the area of military-technical cooperation. Tel Aviv's conditionality with regard to Russia's unprecedented deal with Israel to acquire the second-tier unmanned aerial vehicles (U.A.Vs), which was discussed on this blog back in April, has finally been revealed in detail. It turns out that in exchange for UAVs from the Israel Aerospace Industries (I.A.I.), Moscow may have indefinitely halted the sale of eight MiG-31 interceptor-fighter jets to Syria.
It is worth recalling that as early as in December of last year the Russian business daily Kommersant, citing the Israeli newspaper Maariv, reported that the UAV deal with Russia was causing major tensions between the Israeli Ministry of Defense (M.O.D.) and Ministry of Foreign Affairs (M.F.A.). At the center of the dispute were the irreconcilable views held by the respective ministries. While the M.F.A. saw it as crucial to improvement of bilateral relations and possibly a halt to the transfer of S-300 air defense systems to Iran, the M.O.D. was afraid that the sensitive UAV know-how would eventually leak to Iran. An unnamed M.O.D. official told Kommersant newspaper, "There is [a] fear in Israel that any [of] our military technologies can be transferred from Russia to Iran, for instance, via Syria." Meanwhile the I.A.I. has been exceedingly guarded and reserved with regard to the U.A.V. deal with Russia. In December the I.A.I. Director of International Marketing for Russia and the C.I.S. countries Robert Fisher provided no comments about the progress on the U.A.V. contract with Russia.
According to The Jerusalem Post, the groundwork for the aforementioned quid pro quo arrangement was laid in the aftermath of the August war between Russia and Georgia last year, when Major General Amos Gilad, the Head of the Diplomatic-Security Bureau of the Ministry of Defense of Israel traveled to Moscow, where he received assurances that "Russia would not sell the S300 defense missile system to Iran, and would consider halting the sale of MiG-31s to Syria." It appears that the Kremlin still keeps the options open for the first deal but may have halted the second transaction. It must be noted that in accordance with the Russia-Syria deal signed in early 2007, Moscow was to sell eight MiG-31 interceptor-fighter jets to Damascus for the estimated price of $400-500 million.
In late April Kommersant newspaper reported that the sale of MiG-31 interceptor-fighter jets to Syria was suspended. Quoting the annual report of the Open Joint Stock Company Sokol Aviation Plant (based in Nizhny Novgorod), which was approved by its Board of Directors, the preparation of planes for export was halted "due to the absence of a contract." The role of the Sokol Aviation Plant in the botched deal becomes clear considering that the production of MiG-31s stopped in 1994 and Syria was to receive these aircraft from the reserves of the Russian Air Force. For that purpose they had to be retrofitted for export by the Sokol Aviation Plant. An anonymous source with ties to the Russian state-controlled arms trading monopoly Rosoboronexport admitted to Kommersant that the abrupt annulment of the Syrian contract occurred as a result of Israeli pressure. As always in Russia, the speculations proliferate, but according to another source in the industry-relevant ministry, the deal fell through because Syria lacked sufficient funds to pay for the costly acquisitions. Russia's bargaining position vis-a-vis Syria is strong in any case. In 2005 Moscow generously wrote off close to 70 percent of Syria's debt to Russia, which at the time amounted to whopping $13.4 billion. After that Syria still owed Russia some $3.6 billion.
On May 20, the Russian Aircraft Corporation MiG broke its silence regarding the MiG deal with Syria. The MiG representative's comments carried by the Kommersant newspaper unequivocally denied existence of such a contract. An unnamed MiG representative stated, "There is no such contract in nature. This contract was concluded in 2007 only by the mass media and they were the ones, who annulled it in 2009." At the same time another unnamed source in the Russian defense industry pointed out that "several years ago Syria expressed serious interest towards the acquisition of Russian interceptors MiG 31-E." The same source continued, "In early 2007 the contract to transfer eight planes to that country was even initialed, but it never entered into force because it was not possible to settle all financial questions." "In 2007 the Sokol Aviation Plant began preparations for the fulfillment of the future contract. However soon after the work halted because Syria did not confirm the entry of the contract worth more than $400 million into force," the source concluded.
Israeli officials told The Jerusalem Post that the delivery of U.A.Vs to Russia will commence by the end of the year. In the meantime the Israeli government expects the visit by the Russian Deputy Defense Minister (in charge of procurements) Vladimir Popovkin, who will familiarize himself with the production of U.A.Vs for Russia. More alarmingly, however, it turns out that the Russia-Israel U.A.V. deal could at a later stage entail the sale of the advanced long-range Heron U.A.V. to Russia.
Notwithstanding the above claims and counterclaims, the Syrian government entered the fray on Sunday, May 24, when it issued a statement dismissing reports in the Russian media denying rumors that the deal was off. The statement issued by Damascus and timed to coincide with the official visit by the Russian Foreign Minister Sergei Lavrov read: "This is part of attempts to undermine the friendly relations and cooperation between Syria and Russia." It seems that Damascus chose a denial from the dearth of face-saving options available in the aftermath of the collapsed deal.
Thursday, June 4, 2009
Russian Gas Update
by Roman Kupchinsky
The European Commission will send a delegation of officials to Moscow and Kyiv in order to ascertain the facts surrounding the latest gas-related tensions between the two neighboring countries the website Ukrayinska Pravda reported on June 4, 2009. The delegation comes on the heels of a statement by Russian Prime Minister Vladimir Putin who warned that if Ukraine is unable to pay its gas bills, the transit of Russian gas to Europe could be stopped by the end of June. The delegation’s report will be crucial for the upcoming EU summit to be held in Brussels on June 17-18.
At issue is Ukraine’s May 2009 gas bill which is due on June 7th and Naftohaz’s ability to pay for gas to be placed in underground storage which is shipped to Europe during the fall-winter heating season. These topics were discussed in Moscow on June 2, 2009 during a meeting between Alexei Miller, the CEO of Gazprom and Oleh Dubyna, the head of Naftohaz Ukrayina, but no results of the talks were reported in the media.
The mysterious case of the sale of the Hungarian gas company Emfesz KFT to an unknown company named RosGas based in Zug, Switzerland resurfaced today. The Russian daily Vedomosti reported that Emfesz was sold to RosGas for $1 by its manager, Istvan Goczi who apparently had a power of attorney to do so. Emfesz is owned by Mabofi Holdings which in turn is controlled by Dmytro Firtash, a Ukrainian businessman who owns 45 percent of RosUkrEnergo (RUE). Russia’s Gazprom owns 50 percent of RUE and 5 percent is owned by Firtash’s partner Ivan Fursin. Emfesz supplied about 20 percent of the Hungarian gas market with gas it purchased from RUE. However, in January 2009 RUE was eliminated from the gas supply chain and could no longer supply Emfesz.
When news of the sale was made public, the British-based organization Global Witness conducted an investigation into RosGas in order to determine who stood behind it. According to their report:
The European Commission will send a delegation of officials to Moscow and Kyiv in order to ascertain the facts surrounding the latest gas-related tensions between the two neighboring countries the website Ukrayinska Pravda reported on June 4, 2009. The delegation comes on the heels of a statement by Russian Prime Minister Vladimir Putin who warned that if Ukraine is unable to pay its gas bills, the transit of Russian gas to Europe could be stopped by the end of June. The delegation’s report will be crucial for the upcoming EU summit to be held in Brussels on June 17-18.
At issue is Ukraine’s May 2009 gas bill which is due on June 7th and Naftohaz’s ability to pay for gas to be placed in underground storage which is shipped to Europe during the fall-winter heating season. These topics were discussed in Moscow on June 2, 2009 during a meeting between Alexei Miller, the CEO of Gazprom and Oleh Dubyna, the head of Naftohaz Ukrayina, but no results of the talks were reported in the media.
The mysterious case of the sale of the Hungarian gas company Emfesz KFT to an unknown company named RosGas based in Zug, Switzerland resurfaced today. The Russian daily Vedomosti reported that Emfesz was sold to RosGas for $1 by its manager, Istvan Goczi who apparently had a power of attorney to do so. Emfesz is owned by Mabofi Holdings which in turn is controlled by Dmytro Firtash, a Ukrainian businessman who owns 45 percent of RosUkrEnergo (RUE). Russia’s Gazprom owns 50 percent of RUE and 5 percent is owned by Firtash’s partner Ivan Fursin. Emfesz supplied about 20 percent of the Hungarian gas market with gas it purchased from RUE. However, in January 2009 RUE was eliminated from the gas supply chain and could no longer supply Emfesz.
When news of the sale was made public, the British-based organization Global Witness conducted an investigation into RosGas in order to determine who stood behind it. According to their report:
We have been unable to find the company’s office, but have learned that its correspondence address is that of a mobile phone company in the Swiss tax haven of Zug. There is no evidence to suggest that RosGas AG is currently anything more than a shell company. Curiously, the Hungarian Energy Office (HEO) does not seem to know who owns RosGas AG either, despite having rapidly approved its takeover of Emfesz. The HEO said in an emailed response to questions from Global Witness that: “in the resolution we asked for further information in [the] Hungarian language on the new owner’s owner as the full ownership structure was not transparent enough.” A spokesman added that the HEO was seeking information on the “structure of ‘owners’ tree’”, presumably the chain of ownership of the company. RosGas AG is supposed to provide this information within 45 days of the deal being approved. But even if it does not, there is no suggestion from the HEO that its takeover of Emfesz will be cancelled. Instead, the company will merely face a fine.
Wednesday, June 3, 2009
Turkmen-Russian Gas Relations Continue to Sour
by Roman Kupchinsky
Compounding Russia’s ongoing problems with its European and C.I.S. gas clients is the geopolitically sensitive case of Turkmenistan. On June 2, 2009 The Moscow Times reported that Gazprom demanded that this prime Central Asian gas producing country either slash the price of gas it sells or reduce the volume it ships to Gazprom. The reason for the request was that Gazprom had no immediate need for expensive Turkmen gas at a time when its own exports had dramatically decreased due to depressed Ukrainian and E.U. demand for gas.
The Turkmenistan conundrum has placed the Russian government in a dire squeeze. It exposes the total failure of Russian Prime Minister Vladimir Putin’s strategy to maintain total control over Turkmen gas production which was meant to: A.) Supplement declining gas production in Russia; B.) Prevent Turkmenistan from supplying gas to the Nabucco pipeline.
The announcement was made by Valery Golubev, a former KGB agent who is now a deputy director of Gazprom responsible for sales to C.I.S. countries. Golubev stated: "Since Europe is not taking the gas anymore, we said, 'Dear colleagues, there is no market for your gas at such a price.” But it was Putin who in late December 2008 announced that he had made a deal with Turkmen President Gurbanguly Berdymukhammedov to buy Turkmen gas at “world prices.” Did Putin grossly miscalculate the demand for Turkmen gas or was he guided by other, more personal motives? It is well known that Turkmen gas was sold on the European market not only by the discredited company RosUkrEnergo, but also by various subsidiary companies of Gazprom Germania, Centrex and other Gazprom-affiliated intermediaries.
Golubev, speaking in the Urals city of Chelyabinsk, reminded Turkmenistan that they have no choice but to ship their most valuable export through Russia since no other pipeline routes exist, at least not for the next five years.
"There are no alternatives. Gas to Europe can be supplied from Turkmenistan mainly through the Central Asia-Center gas pipeline system," he said, the news agency reported.
A Turkmen official said last week that if talks failed, it could take Russia to the International Court of Arbitration. Presumably the Turkmen government would attempt to prove that Gazprom was not meeting its obligations under a “take or pay” contract signed with Turkmenistan. However, the contract between Turkmenistan and Russia has not been made public and it is not clear what the payment terms were.
At the same time Gazprom kept insisting that Ukraine meet the terms of its “take or pay contract” and while Putin was forced in mid-May 2009 to forego penalizing Ukraine for not meeting its contractual commitments it remains unclear if this a tactical move to give his pro-Russian friends in Kyiv room to maneuver and win the upcoming presidential elections or was it a slight of hand to cover-up his inept handling of the gas purchase agreement with Turkmenistan in December 2008?
Compounding Russia’s ongoing problems with its European and C.I.S. gas clients is the geopolitically sensitive case of Turkmenistan. On June 2, 2009 The Moscow Times reported that Gazprom demanded that this prime Central Asian gas producing country either slash the price of gas it sells or reduce the volume it ships to Gazprom. The reason for the request was that Gazprom had no immediate need for expensive Turkmen gas at a time when its own exports had dramatically decreased due to depressed Ukrainian and E.U. demand for gas.
The Turkmenistan conundrum has placed the Russian government in a dire squeeze. It exposes the total failure of Russian Prime Minister Vladimir Putin’s strategy to maintain total control over Turkmen gas production which was meant to: A.) Supplement declining gas production in Russia; B.) Prevent Turkmenistan from supplying gas to the Nabucco pipeline.
The announcement was made by Valery Golubev, a former KGB agent who is now a deputy director of Gazprom responsible for sales to C.I.S. countries. Golubev stated: "Since Europe is not taking the gas anymore, we said, 'Dear colleagues, there is no market for your gas at such a price.” But it was Putin who in late December 2008 announced that he had made a deal with Turkmen President Gurbanguly Berdymukhammedov to buy Turkmen gas at “world prices.” Did Putin grossly miscalculate the demand for Turkmen gas or was he guided by other, more personal motives? It is well known that Turkmen gas was sold on the European market not only by the discredited company RosUkrEnergo, but also by various subsidiary companies of Gazprom Germania, Centrex and other Gazprom-affiliated intermediaries.
Golubev, speaking in the Urals city of Chelyabinsk, reminded Turkmenistan that they have no choice but to ship their most valuable export through Russia since no other pipeline routes exist, at least not for the next five years.
"There are no alternatives. Gas to Europe can be supplied from Turkmenistan mainly through the Central Asia-Center gas pipeline system," he said, the news agency reported.
A Turkmen official said last week that if talks failed, it could take Russia to the International Court of Arbitration. Presumably the Turkmen government would attempt to prove that Gazprom was not meeting its obligations under a “take or pay” contract signed with Turkmenistan. However, the contract between Turkmenistan and Russia has not been made public and it is not clear what the payment terms were.
At the same time Gazprom kept insisting that Ukraine meet the terms of its “take or pay contract” and while Putin was forced in mid-May 2009 to forego penalizing Ukraine for not meeting its contractual commitments it remains unclear if this a tactical move to give his pro-Russian friends in Kyiv room to maneuver and win the upcoming presidential elections or was it a slight of hand to cover-up his inept handling of the gas purchase agreement with Turkmenistan in December 2008?
Tuesday, June 2, 2009
Troubles in the Russian Gas Sector
by Roman Kupchinsky
With demand for natural gas in Europe at new lows, the Russian gas industry is going through a period of decreased profits and dropping production. Russia’s gas giant, Gazprom, the majority of which is owned by the Russian state, has been hit particularly hard.
The International Energy Agency reported on May 15, 2009 that gas consumption in the European Union decreased by 2-3 percent in the first quarter of 2009. Gas imports dropped by 12 percent compared to the first quarter of 2008. During this period, Gazprom’s supplies to Europe fell by 39 percent (and by 50 percent to Germany and Italy) and its share of gas imports to the E.U. decreased from around 30 percent to 18 percent. Despite this, Gazprom remains the largest exporter of gas to the E.U.
According to the Polish Center for Eastern Studies, Gazprom sells gas at the current price of $390-400 per 1,000 cubic meters making it the most expensive gas in Europe. NorskHydro sells gas at $360-370 and Shell at $333. The cheapest gas in Europe is supplied by BP at US$196. BP mainly operates spot supplies, where the price is more flexible than in long-term contracts.
In what might be considered a response to the crisis it faces, Gazprom has begun expanding its LNG sector. The Moscow Times reported on June 1, 2009 that Gazprom was “speeding up its plans to sell more gas by tankers to a wider range of customers as it faces a sharp drop in demand from its traditional consumers in Europe.” "Trends on the global gas markets create conditions for Gazprom to increase the pace of producing and supplying liquefied natural gas," the company said in a statement late Thursday.
According to the Moscow Times:
Gazprom’s aim is to control 25% of the global LNG market by 2030 following the development of a number of key, but highly challenging fields in Eastern Siberia, the Yamal Peninsula and the Barents and Caspian Seas. However, unless the company provides greater strategic focus on developing domestic reserves, while also allowing for greater foreign investment and technical expertise, such a target is likely to remain elusive.
According to the Energy Business Review:
But Gazprom, despite its vast difficulties does not seem to be in the least bit deterred from achieving its strategic plan to strengthen its monopolistic role in southern Europe. According to the Romanian on-line news portal HotNews.ro, on June 1, 2009,
In April 2007 Gazprom Export signed long term gas supply contracts with three Romanian gas companies - Romgaz, Transgaz and Conef. The contracts provide Gazprom with long-term access to gas shipping facilities in Romania but do not provide any transparency. The blanket use of the term “commercial secret,” currently used by Gazprom to cover up its shady dealings in the countries of the former Warsaw Pact who are now members of the E.U. and N.A.T.O. is very disturbing and the E.U. Commission should conduct an investigation into what is really taking place in Romania. For insuring E.U. energy security it is the right thing to do.
With demand for natural gas in Europe at new lows, the Russian gas industry is going through a period of decreased profits and dropping production. Russia’s gas giant, Gazprom, the majority of which is owned by the Russian state, has been hit particularly hard.
The International Energy Agency reported on May 15, 2009 that gas consumption in the European Union decreased by 2-3 percent in the first quarter of 2009. Gas imports dropped by 12 percent compared to the first quarter of 2008. During this period, Gazprom’s supplies to Europe fell by 39 percent (and by 50 percent to Germany and Italy) and its share of gas imports to the E.U. decreased from around 30 percent to 18 percent. Despite this, Gazprom remains the largest exporter of gas to the E.U.
According to the Polish Center for Eastern Studies, Gazprom sells gas at the current price of $390-400 per 1,000 cubic meters making it the most expensive gas in Europe. NorskHydro sells gas at $360-370 and Shell at $333. The cheapest gas in Europe is supplied by BP at US$196. BP mainly operates spot supplies, where the price is more flexible than in long-term contracts.
In what might be considered a response to the crisis it faces, Gazprom has begun expanding its LNG sector. The Moscow Times reported on June 1, 2009 that Gazprom was “speeding up its plans to sell more gas by tankers to a wider range of customers as it faces a sharp drop in demand from its traditional consumers in Europe.” "Trends on the global gas markets create conditions for Gazprom to increase the pace of producing and supplying liquefied natural gas," the company said in a statement late Thursday.
According to the Moscow Times:
“Gazprom's management board ordered the company's engineering divisions to work faster in studying options for building an LNG plant in the Far East, the statement said. The board also ordered the engineers to report on the possibility of building a long-discussed LNG plant that would use prospective gas from the Yamal Peninsula, saying for the first time that the plant would take gas from independent producers.“Gazprom’s main competition in the LNG market would come from Qatar which produces cheaper LNG and has a substantial LNG tanker fleet as compared to Russia’s fledgling few tankers. However, Russia has used gas swaps in the past to export LNG and will presumably do more such deals in the near future.
Gazprom’s aim is to control 25% of the global LNG market by 2030 following the development of a number of key, but highly challenging fields in Eastern Siberia, the Yamal Peninsula and the Barents and Caspian Seas. However, unless the company provides greater strategic focus on developing domestic reserves, while also allowing for greater foreign investment and technical expertise, such a target is likely to remain elusive.
According to the Energy Business Review:
“Gazprom clearly believes that international aspirations can successfully coexist with domestic production in order to achieve such goals. However, the scale of investments and technical expertise required to launch major LNG capabilities, both inside and outside Russia, could be beyond Gazprom's reach without the help of greater foreign investment and a strategic focus on upstream assets. Even then, Russia will face growing competition from other LNG players in the Middle East, North and West Africa and Asia Pacific in its bid to claim a 25% mantle.”“According to recent calculations, investment of up to $200 billion in the Russian gas sector will be required by 2020 if it is to meet international demand. The growth of Gazprom's production rate dropped to a mere 0.5% in 2005 and to almost zero in 2006, underlining the IEA's forecasts that, without the major development of reserves, Gazprom could be unable to fulfill contracts” the Energy Business Review states.
But Gazprom, despite its vast difficulties does not seem to be in the least bit deterred from achieving its strategic plan to strengthen its monopolistic role in southern Europe. According to the Romanian on-line news portal HotNews.ro, on June 1, 2009,
“Romanian gas producer Romgaz and Russian company Gazprom signed a collaboration memorandum as a consequence of the Moscow visit the Economy minister Adriean Videanu and his delegation made two weeks ago. Videanu says that this is the first agreement signed by the two companies since 1989, but he would not reveal its content, as it is confidential…Videanu told the press the access to the agreement was denied, as the memorandum was classified. The minister said that, according to the agreement, this September will see the creation of a Romanian-Russian project between Gazprom and Romgaz, meant to store and use gas. The future depots could store up to 5-6 billion cube metres of gas.”Videanu also stated that Romgaz will be able to import gas directly from Gazprom, hinting that intermediary companies might be excluded from the deal. However, HotNews.ro reported on May 25, 2009, that Gazprom would not exclude the present intermediary companies:
“Gazprom (Export) head Alexander Medvedev said he was pleased with the intermediary companies, in an interview for Radio Romania Actualitati. Romanian authorities believe that if the intermediary companies are eliminated, the prices for imported gas, considered to be some of the highest in Europe, could drop. Medvedev agrees only with the fact that the prices are competitive. The medium price for the second quarter was set to $370 for one thousand cube meters. Markets expect the gas price to drop to $220 by the end of 2009.”On April 2, 2007, Gazpromexport, Gazprom’s foreign trading subsidiary headed by Medvedev, signed a contract with Conef, a Romanian company owned by the Russian/Israeli businessman Vitaliy Machitsky, to sell Conef up to 2 billion cubic meters of gas annually from 2010 to 2030. Under the contract the aggregate supply volume would reach 42 billion cubic meters. The Romanians were concerned that Machitsky, not only acquired ownership in the country’s aluminum industry but also controlled a substantial percentage of Romania’s gas imports from Russia. At this time Gazprom Export agreed to increase gas deliveries to the Alro Slatina aluminum plant owned by Machitski’s Marco Group. The price Gazprom Export charged Conef for this gas was classified a “commercial secret.”
In April 2007 Gazprom Export signed long term gas supply contracts with three Romanian gas companies - Romgaz, Transgaz and Conef. The contracts provide Gazprom with long-term access to gas shipping facilities in Romania but do not provide any transparency. The blanket use of the term “commercial secret,” currently used by Gazprom to cover up its shady dealings in the countries of the former Warsaw Pact who are now members of the E.U. and N.A.T.O. is very disturbing and the E.U. Commission should conduct an investigation into what is really taking place in Romania. For insuring E.U. energy security it is the right thing to do.
Monday, June 1, 2009
Amid Growing Tensions Russia Postpones $500 Million Loan to Belarus
On Thursday, May 28, the Russian government delegation led by the Prime Minister Vladimir Putin traveled to Belarus to participate in another session of the Council of Ministers of the Belarusian-Russian Union State, a chimera of bilateral state integration that has been dragging on with mixed results for close to a decade. The visit laid bare the growing differences between Russia and Belarus on a number of important issues. At the press conference before the meeting of the Council of Ministers of the Belarusian-Russian Union State, the Russian Finance Minister Alexei Kudrin harshly criticized the Belarusian government's inept economic policies.
In particular, Kudrin stated that because Belarus refused to accept the $500 million loan in Russian rubles, Moscow decided to postpone it. It should be noted that the aforementioned loan was supposed to be the final installment of the $2 billion loan, which Moscow and Minsk agreed upon last year as part of the bilateral anti-crisis economic recovery program. Russia gave Belarus $1 billion last year and another $500 million earlier this year. Kudrin ridiculed the Belarus' planned economy and described the Belarusian government's control of its currency as a "meaningless policy." He went on to accuse Belarus of having a "parasitic" attitude toward Russia. Kudrin warned that the deepening hard currency deficit in Belarus may lead to the country's insolvency. In this regard Kudrin noted, "We may see insolvency of the Belarusian government and the Belarusian economy as a whole due to the hard currency shortage at the end of this year or next year."
Emerging after a frosty meeting with President Lukashenko, Putin tried to alleviate tensions caused by Kudrin's remarks by calling them "extreme assessments" which were "inappropriate." He provided the assurance that "whatever happens in the world economy, Russia will always give its shoulder to Belarus when necessary." On Friday, May 29, in another attempt at belated damage control, the visiting First Deputy Prime Minister Igor Shuvalov interpreted the recurrent Russian-Belarusian "complications" as the byproduct of "intensive work," which in his view "must be settled calmly."
However, the damage appears to have been done. On Friday, at a meeting of the Belarusian government devoted to the discussions of socio-economic developments, President Lukashenko bluntly rebuffed Kudrin's criticism and strongly urged cabinet members to diversify sources of external economic assistance to Belarus. In an impassioned soliloquy he implored Belarusian Prime Minister Sergei Sidorsky and the Chairman of the Board of the National Bank of Belarus Piotr Prokopovich to stop relying on Russian assistance. President Lukashenko pointedly remarked:
In particular, Kudrin stated that because Belarus refused to accept the $500 million loan in Russian rubles, Moscow decided to postpone it. It should be noted that the aforementioned loan was supposed to be the final installment of the $2 billion loan, which Moscow and Minsk agreed upon last year as part of the bilateral anti-crisis economic recovery program. Russia gave Belarus $1 billion last year and another $500 million earlier this year. Kudrin ridiculed the Belarus' planned economy and described the Belarusian government's control of its currency as a "meaningless policy." He went on to accuse Belarus of having a "parasitic" attitude toward Russia. Kudrin warned that the deepening hard currency deficit in Belarus may lead to the country's insolvency. In this regard Kudrin noted, "We may see insolvency of the Belarusian government and the Belarusian economy as a whole due to the hard currency shortage at the end of this year or next year."
Emerging after a frosty meeting with President Lukashenko, Putin tried to alleviate tensions caused by Kudrin's remarks by calling them "extreme assessments" which were "inappropriate." He provided the assurance that "whatever happens in the world economy, Russia will always give its shoulder to Belarus when necessary." On Friday, May 29, in another attempt at belated damage control, the visiting First Deputy Prime Minister Igor Shuvalov interpreted the recurrent Russian-Belarusian "complications" as the byproduct of "intensive work," which in his view "must be settled calmly."
However, the damage appears to have been done. On Friday, at a meeting of the Belarusian government devoted to the discussions of socio-economic developments, President Lukashenko bluntly rebuffed Kudrin's criticism and strongly urged cabinet members to diversify sources of external economic assistance to Belarus. In an impassioned soliloquy he implored Belarusian Prime Minister Sergei Sidorsky and the Chairman of the Board of the National Bank of Belarus Piotr Prokopovich to stop relying on Russian assistance. President Lukashenko pointedly remarked:
“If things don’t work out in Russia, bowing, nagging and weeping is useless. We should seek our happiness in another part of the planet...We are an independent sovereign country and we will do everything in our interest...Therefore, you must remember: no praying or begging. If they don’t have the $500 million that they promised a long time ago and that we included in our budget, don’t go and beg...Let’s build our economy and policy as a sovereign independent state. We have many levers to influence the situation, those challenges that we face, including in Russia. Let’s use them. When will we start thinking as civil servants of an independent sovereign state?”Referring specifically to Kudrin's remarks, Lukashenko stated:
"Yesterday we witnessed an interesting situation. The President of Belarus and Vladimir Putin were discussing things from private to state ones in an absolutely friendly manner. The discussion went well. Meanwhile Aleksei Kudrin held a press conference before the session of the Union Council of Ministers in order to sow panic in Belarus...If their economy is that good, where did the 10% GDP decline come from? Our economy is different, but our GDP growth stands at 1.5%."At times noticeably irritated President Lukashenko continued to press his cabinet members and even implied that Kudrin's remarks were approved by Prime Minister Putin:
“What is your problem? Why do you go to Russia where you are kicked? Don’t you understand that it is not the first time when they want to get us for free? Yesterday Vladimir Putin said that he had discussed the situation with Kudrin while flying to Minsk. And after that Kudrin broke out his rant. Wasn’t it arranged? It was, totally."The global economic downturn caused severe hard currency shortage in Belarus and forced President Lukashenko to pass the law simplifying procedures for foreign companies to deposit funds in Belarusian banks. As the independent Belarusian political analyst Leonid Zaiko suggests, Belarus' impending default may provide Moscow with an opportunity to pull Minsk back into its orbit. In this regard two matters are of particular importance to the Kremlin. First, Belarus' recent overtures to the West have been an irritant for the Kremlin in part because improved relations will increase Minsk's bargaining leverage with Moscow. Minsk's goodwill gesture of release of political prisoners, Brussels' decision to lift the travel ban on top Belarusian officials, followed by President Lukashenko's unprecedented visit to Vatican and Minsk's accession to the Eastern Partnership greatly concern the Kremlin. Moscow is fully aware of the hard currency shortage in Minsk and the sudden change of the monetary format of the last installment (from U.S. dollars to Russian rubles) of the loan may have been intended to remind Belarus of its obligations. Second, Moscow expects Minsk to recognize the independence of Georgia's breakaway regions of Abkhazia and South Ossetia. During his visit to Minsk, Kudrin was quick to deny the existence of any linkage between Minsk's continued refusal to recognize the independence of Georgia's secessionist provinces and the postponement of the loan. He told the press: "I have never raised this issue with any Belarusian official." Nonetheless, judging by the fact that President Lukashenko raised this issue in his speech at the government meeting on Friday, there is little doubt that it was indeed discussed during his meeting with Prime Minister Putin. On this matter Lukashenko stated:
“The bottom line is the recognition of South Ossetia and Abkhazia is the question between us and these countries, with which we have excellent contacts and they know our tactics...nobody will pressure us about it from the East and the West”.Proverbially resilient President Lukashenko proved many a times in the past that he is capable of resisting Russia's pressure effectively. It will remain to be seen whether he will succeed this time under the impact of the global economic crisis. In conclusion of his Friday speech at the government meeting President Lukashenko made a veiled reference to the peculiar geopolitical setting in which Belarus is caught due to the struggle for influence between the E.U. and Russia:
"This is a big game. Keep it in mind. If we make it, the state will survive. If we don’t, we will be crushed and pocketed. Our sorrow is nothing. But we lead 10 million talented and hard-working people, who we mustn’t expose or deceive.”
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