German Energy Firm’s Pro-Gazprom Stance over Ukraine Gas Debts Shows Warped Thinking

June 24, 2014.

So German oil and gas producer Wintershall supports Gazprom’s tough stance in its ongoing dispute with Ukraine over gas bills. “Ukraine must repay its billion-dollar debt to Gazprom…. As other companies will be reluctant to supply natural gas. Ukraine cannot afford to be in breach of contract,” CEO Rainer Seele told Handelsblatt resolutely recently. Perhaps that should be no surprise. Seele is, after all, responsible for gas trading at the BASF-owned subsidiary. He heads the German-Russian Chamber of Commerce in Moscow, with joint ventures between the two numbering at least 4,500. Bilateral trade is huge, reaching 106 billion dollars in 2013. The Germans export machinery, electrical equipment and cars to Russia, but imports gas and oil. And Wintershall is owned wholly by BASF and, more importantly, Wintershall is very active in Russia. As Kyiv and Moscow lock horns in their duel over the price of gas at the Stockholm court of arbitration, the question is: why should Ukraine pay Gazprom?

After all, they used to say ‘my word is my bond’ in the City of London. Well, that is not the case in dealings with the Kremlin, it seems. So let’s have a look at that ‘breach of contract’ issue mentioned by Seele. Ukraine is very wary of any new gas agreement being made which can then be halted unilaterally by Russia, or by a Russian government decree (as opposed to a deal ratified by its State Duma). And Ukraine is right to be very wary. The two sides hit a brick wall recently after several rounds of gas talks. The Kharkiv treaty, controversially pushed through by the Party of Regions-led Parliament back in April 2010, envisaged Ukraine getting a big discount in exchange for Russia prolonging the stationing of its fleet in Sevastopol till 2045 (the previous deal was set to expire in 2017). But the Russians tore up all the deals when they militarily grabbed Crimea for themselves this spring. Both the fleet deal and the 2010 Kharkiv treaty were denounced in a one-sided way by Russia, making the age-old claims of ‘Slav brotherhood’ a mockery. A gas discount cracked by Yanukovych and Russian PM Medvedev in December 2013, during the Maidan protests, had cut the price from 385.5 dollars to 268 dollars per thousand cubic meters. But Russia is claiming that from April 2014 the price returned to the 485 dollar price fixed in that gas treaty signed in January 2009. But why should Naftogaz Ukrainy pay up? It is Russia that should be paying tens of billions in compensation, for state, corporate and individual losses and damages caused by Russia through annexation! It was Russia that invaded Crimea and then duly tore up the deals. And it may have to pay. Premier Arseniy Yatsenyuk has promised a spate of lawsuits around the globe in coming months.

Former top cop Yuriy Lutsenko made a few insightful comments last weekend, on 22 June. Vladimir Putin apparently told Western leaders behind the scenes in France earlier this month that he is able to resolve the bloody fighting in east Ukraine. But Lutsenko confirmed that Russia wants Ukraine to observe the gas deal struck in January 2009 by the then premier, now oppositionist and losing presidential runner, Yuliya Tymoshenko. The deal was a 10-year one that was very profitable for the Russians, with a very high sale price and guaranteed volumes taken by Ukraine, a part of which was actually surplus to Ukraine’s needs. We can see why Russia wants Ukraine to keep paying a huge, over-inflated price and take gas it has no need for.

Even in the summer of 2013, during the presidency of the pro-Russian Viktor Yanukovych, Gazprom chief Sergey Kupriyanov said it intended to fine Ukraine for failing to take up volumes in 2013, as was done with regard to gas not taken in 2012 (then it was not a penalty, but a warning letter!).  Back then Gazprom wanted sneakily to use this ‘virtual debt’ as leverage to get its hand on Ukraine’s pipe taking gas to Western Europe.

And let’s not forget narrow, vested interests. Last December BASF and Gazprom signed a deal to swap assets, with Wintershall handing over its storage units and in return receiving better access to gas fields in Siberia. Günther Oettinger, European Commissioner for Energy, and himself a German, was surprised the deal was not opposed on national security grounds. In fact, on 1 April (not a joke) the site of German newspaper Sueddeutsche Zeitung quoted him as saying “Gazprom’s praises should not be sung”, as he pointed a finger at Germany. So Russia now controls Germany’s gas storage. Wintershall and Gazprom are joined at the neck. They also jointly own the 2,300-kilometre Gascade pipeline network. Wintershall is also involved in the building of the North and South Stream, the Russia-sponsored gas pipeline projects being built to take gas around Ukraine, owning a 15% stake in both. It will naturally try to do Gazprom’s bidding and continue to act as its mouthpiece. Seele had earlier done the same. Speaking at the end of March on the topic of EU sanctions against Russia over Crimea, he said: “Economic sanctions will not help anyone, they will affect not only Russia but also Germany and the whole of Europe.” So Ukraine better get used to fighting its own corner; it may not have corporations ready to speak for it but it must be able to identify and fight foes in the corporate world, and fast.

 Peter Dutczyn
for Ukraine Crisis Media Center

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