Russ Oil-Gas

16 January 2009 - The Wall Street Journal by Alexander Medvedev - European consumers of Russian gas could be forgiven for being frustrated and bewildered by the impasse which has prevented supplies from Gazprom being delivered to them in recent days. An agreement brokered by the European Union and signed on Monday by Russia and Ukraine ought to have ensured the resumption of supplies on Tuesday. For all the obfuscation surrounding the issue, the reason this has not happened is simple. Gazprom, as required by the agreement, notified Ukraine of its intention to pipe gas to European customers on Tuesday, Wednesday and again yesterday. We opened the taps to start the flow. The Ukrainian transit company, Naftogaz Ukrainy, refused to let the gas through, citing a flurry of contradictory reasons. First, it was claimed that we were deliberately using the wrong pipelines. Yet a glance at the map shows that we chose the normal routes to the neediest countries, namely Bulgaria, Moldova and Slovakia. Ukraine then claimed it could not send the gas onwards because there was insufficient pressure in the system to make it work. What Naftogaz failed to explain was that the reason there is insufficient pressure is because Ukraine illegally siphoned off the gas that was sitting in the pipelines when they shut down the export system. This gas was never intended for Ukrainian domestic consumption; it belongs to European customers. Having created the problem by siphoning off the gas, Ukraine is now demanding that Russia supply more gas, basically free of charge, to get the flow started. Theft is theft, whether it is gas or goods from a shop. Ukraine must put the gas back into the system. If it cannot because the gas has been consumed, then it should pay for the additional volumes they are asking us to supply. Ukraine claimed that Gazprom had to supply the gas needed to fuel the transmission system itself, the so-called "technical gas," for free. This is like a taxi driver asking you to pay your fare, and then driving you to the gas station and asking you to pay to fill up his tank. Then Ukraine said it would pay for the "technical gas" which would allow Europe to get the supplies it was due, but only at a price of its choosing and only when and if an agreement was reached on domestic Ukrainian supply, thereby holding European communities and businesses hostage in what should be a commercial discussion between two companies. We are more than willing to help Ukraine overcome its technical difficulties. Indeed, we have offered massive up-front payments to help Ukraine pay for its gas and restore its infrastructure. But we cannot just pump free gas into Ukraine's domestic system. This would be to condone state-sponsored embezzlement, something which EU countries, with their commitment to the rule of law, must surely abhor. All the more so as we still have no contract for the supply of gas to Ukraine itself. We are grateful for the EU's recent mediation efforts. But sometimes even the most scrupulous of mediators have to take a stand where flagrant breaches of the law are taking place. The roots of the gas transit problem lie, of course, in the still unresolved dispute over Ukraine's failure to pay for deliveries of gas for its own purposes. During 2008, Gazprom tried to settle the issue of Ukraine's gas debt to avoid an extreme situation at the end of the year when our supply contract expired. We are ready to resume talks at any time. Who stands to gain from this dispute? Not Gazprom: We are losing substantial amounts of money every hour and therefore have a keen interest in resuming deliveries to our European customers as soon as possible. Not Europe: Our partners are suffering from the lack of gas that they expect and we want to deliver. Our record for respecting our contractual obligations toward them is unrivalled in the gas industry. Under an existing bilateral transit contract between Ukraine and Russia and also under international agreements, Ukraine must guarantee the transit of Russian gas. According to Article 7 of the European Energy Charter, which it has ratified, Ukraine is obliged to provide unhindered transportation of energy resources through its territory. Ukraine is thus in flagrant violation of its obligations. What the world has witnessed recently is arguably the most serious breach of transit obligations ever, creating a stranglehold over the supply of gas to the whole of Europe. As winter bites across the continent, the most important thing is for our customers to receive their gas. We are doing everything in our power to minimize the side effects of Ukraine's illegal actions. We have increased gas supplies to European consumers through alternative routes and we are buying more gas on the spot market. But sadly, this isn't enough. The only way to alleviate the situation, and to avoid a humanitarian catastrophe, is for Ukraine to immediately open up the route to Europe. Mr. Medvedev is deputy chairman of Gazprom and director general of Gazprom Export.