Kyiv
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Ukraine’s response to the threat of Nord Stream 2 should be reform in gas sector, reference to international agreements and emphasis that Ukraine has always been a reliable supplier –  experts

Kyiv, July 08, 2017.

To prevent the Nord Stream 2 project, Ukraine should speed up reform in the gas sector, increase extraction of its own gas. In the negotiations with the European partners, it is important to make reference to agreements to which Ukraine is part and stress that Ukraine has always been a reliable partner as a transit country, stated experts at a discussion “Russia’s Gas Wars: what must Ukraine and the EU do to deweaponize energy security”.

Ilya Zaslavskiy, the expert of Free Russia Foundation, presented his analytical report “The Kremlin’s Gas Games in Europe: Implications for Policy Makers”. The key conclusion is that Nord Stream 2 is a politically motivated project that presents a major challenge to European law and EU principles and jeopardizes the security interests of the United States and its EU allies; while “Gazprom”, despite statements that it pursues only business interests, is Kremlin’s tool for geopolitical games. “The purpose of Nord Stream 2 and Turkish Stream projects is not only to build a pipeline bypassing Ukraine but also to create new gas hubs in Europe, in Germany, perhaps in Turkey […] and bypass Central and Eastern Europe as well. In this situation, Ukraine should emphasize that it undergoes transformations and becomes a more reliable partner, that it has always been a reliable partner and that Ukraine bottlenecked the pipeline neither in 2006, nor in 2009. Secondly, we must emphasize implications for collective security in Central and Eastern Europe. We must respond to propaganda related to all these projects to see what are real supply & demand … And all negotiations with “Gazprom” must start from the point that we must anyway guarantee safe gas supply to Ukraine, and that we cannot change the existing infrastructure so quickly: we must clarify what implications will be for Ukraine, for CEE countries, for German consumers, and how this flow of costs moves”, Zaslavskiy stressed.

Mikhail Krutikhin, RusEnergy expert, says that Nord Stream 2 is very likely to be put in practice: it is an advantage for German partners of “Gazprom”, because it will insure constant income from gas transportation, and other German companies – as an additional diversified source.

According to experts, the first thing that Ukraine can do to prevent “green light” to the project is to become more attractive and transparent partner, implementing its commitments under the Third Energy Package and other agreements. These are unbundling, liberalization of the gas market according to European rules, presentation of the “roadmap” until 2019 and transit fees issue, reminded Alan Riley, Professor of Law, Atlantic Council Expert. “Ukraine offering very competitive low transit fees which will allow Russian gas to cross Ukraine, a competitive rate which will make the Nord Stream 2 completely economically redundant – that is what you should do”, he noted. Alan Riley emphasized that in fact Ukraine’s gas storage and gas transit system and its own gas resources offer rather good opportunities for the country to participate in the development of the open European gas market. The only question is whether Ukraine will manage to seize these opportunities, or the slow pace of reforms will exhaust hope and good will of western partners to support Ukraine.

There is a complete understanding of this state of things, says Natalia Boyko, Deputy Minister of Energy, Fuel and Coal industry of Ukraine. “In order to be able to oppose it [the Nord Stream 2] on the international level, we must do our ‘homework’. When we implement all our commitments under Third Energy Package, when we have clear pricing and clear understanding how all this works in Ukraine, then we will be able to negotiate with potential investors and offer them our market, then we will be able to protect our interests. […] Meanwhile, we must continue our dialogue with Brussels and the US, negotiate with Gazprom about what we are going to have in 2019 and use the available legal toolkit… Only when Ukraine will become transparent and understandable for potential investors, for EU and the US, then we can receive the support we hope for,” she commented.

“I guess Ukraine should emphasize that the main threat to European energy security is not the state of Ukrainian transit system – it is old, but it functions perfectly – but the unpredictability of political decisions in Kremlin,” noted Mikhail Krutikhin. Olena Pavlenko, president of the DiXi Group analytical center, pointed to the fact that discussions about a pipeline bypassing Ukraine always reemerge after Russia’s statements about a possible stop of gas transmission via Ukraine.

Mykhailo Honchar, President of the Center for Global Studies “Strategy XXI”, drew attention to the fact that according to Art. 274 of EU-Ukraine Association Agreement both Ukraine and Brussels must hold consultations on such issues. In the case of OPAL and Nord Stream 2 that did not happen. “As far as I’m concerned, now there are preliminary agreements that there will be such consultations. And we must take a very decisive stand in our negotiations with Brussels and Berlin: there must be no ‘green light’ to Nord Stream 2, because it contradicts the interests not only of Ukraine and Poland but the whole EU, in the context of Energy Union; moreover, it would result in losses for Ukraine up to $2 billion. And if they will decide to implement the project together with Russia, then Ukraine must receive compensation for these losses,” Honchar stressed.

Natalia Boyko added that the agreement on the Energy Union is going to be amended soon and Ukraine should suggest including new tools into the agreement, such as commitment to hold consultations about transfrontier communications and use of strategic infrastructure.

A “point of no return” for prospects of Nord Stream 2 and Ukraine’s gas sector reform will be the shift of entry point to Ukraine’s eastern border, says Olena Pavlenko. “Since that time, Ukraine’s transit system will be regarded as European transit system working according to European rules, which has to comply with European laws and can be held responsible for that. … There is still a very difficult way to go – there will be many attempts to prevent the shift of entry point to the eastern border. We have to do this work in close cooperation with European partners because it requires negotiations with European companies,” Pavlenko said.

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