Ukraine-A Week of Surprises, Contradictions and Missed Opportunities
05/31/2011 | Smart Economy
Week of Surprises, Contradictions and Missed Opportunities
OPED By Walter Derzko, Toronto, Canada
The previous week in Ukrainian politics was full of surprises, contradictions and missed opportunities.
First, the spat between EU integration and the Russian-proposed Customs Union was conclusively settled. The Ukrainian Parliament passed legislation "on the current state and prospects of development of economic relations with the EU and the customs union," which states that the completion of the political association and free trade talks with the EU is the top, short-term priority for Ukraine. As for the Customs Union, the document only advises the government to develop "cooperation" with the organization and its member states according to World Trade Organization (WTO) guidelines (www.rada.gov.ua May 19), Surprisingly, the Party of Regions and the opposition united, and both voted in favour of the EU vector, sending a clear signal back to Russia on what Ukrainian legislators (read oligarchs) wish - 289 out of 385 deputies voted in favour of the EU. This included all caucus fractions except the Communist Party, whose deputies abstained from voting. Clearly, self-interest trumps pro-Russian interests here.
Also, the Ukrainian General Prosecutor’s Office indicated that it is ready to drop all charges against Leonid Kuchma. Not a surprise - too many skeletons in various people's closets.
As gas talks between Ukraine and Russia get under way, the concessions Ukraine is ready to make to get a lower gas price remain unclear. Last year, the Russian Deputy Prime Minister, Igor Sechin, set the tone: "Ukraine can expect a discount on the price of gas, but it has to offer something in return." One possible scenario is that Ukraine will try to balance between threatening Russia with international court actions and making some economic concessions. But, since the negotiators, Ukrainian Fuel and Energy Minister Yuriy Boyko and Gazprom's Aleksey Miller, are not obliged to discuss the details, the public is not privy to the progress of talks. Thus, the agreement is likely to be reached via political and /or economic concessions or both. We may never know.
It is difficult to understand in these energy negotiations, why Ukraine needs to make concessions at all. In fact, Ukraine has more trump cards on the table than Russia does, but yet, it curiously refuses for some reason to use them. Besides, Ukraine has several months of gas stored in reserve and Gazprom can’t withhold gas indefinitely - it will go bankrupt. But, if Russia insists on blackmailing Ukraine and Europe with threats of future gas embargos, then Ukraine has the equal right to withhold its technology, intellectual property, or services, to Russia's gas transit industry. Ukraine has a number of "hard to replace" technologies that Russia desperately needs.
One example is Zaryamashproekt (http://eng.zmturbines.com/) - a former Soviet monopoly that designs and builds steam turbines for ships, and more importantly, turbines for compressor stations on trunk gas pipelines. They are a very critical component of all Russian gas pipelines - construction is impossible without them. Russian oligarchs such as Putin, Timchenko, and the Rottenberg Brothers all have direct financial interest in these pipeline projects ("South Stream", "Nord Stream", Sakhalin-Khabarovsk-Vladivostok, etc.), valued at around US $40 billion. So, Russia is trying to grab Zaryamashproekt, but Ukraine refuses to budge.
The Ivano-Frankivsk National Technical University of Oil and Gas was one of the best university-level educational institutions in the oil and gas sector in the former USSR. It continues to train operational specialists from numerous countries,including India, Pakistan, Jordan, Mongolia, Bulgaria, Vietnam, Israel, Poland, Russia, Belarus, Turkmenistan, Moldova and Lithuania. (See
http://www.nung.edu.ua/about/index.html).
In the beginning of the 1990s, a Ukrainian newspaper outlined the "early days" of the Ukrainian gas industry in Western Ukraine - Drohobych, Dashava etc. This was before the Soviet Union depleted traditional fields and sent many Ukrainian oil and gas experts to Siberia to develop Russia's gas sector and start Gazprom. To this day, Ukrainians continue to service Russian gas production in Western Siberia. Upstream in the production cycle, all pipelines are designed by Yuzhniigiprogaz (see http://www.ungg.org/eng/index.html) (formerly Yuzh Trub Proekt), which has a controlling stake owned by Gazprom, but it's located in Donetsk. Ukraine could start to repatriate this expertise to develop its own internal gas industry, if it wanted to. A reverse brain drain, just as Russia plans to do with its intellectual ex-patriots.
Ukraine is making slow progress in diversifying away from dependence on Russian oil and gas. In November 2010, the Ministry of Environment and Natural Resources stated that Ukraine "enjoys the biggest supply of shale gas deposits in the world." However, the exact reserves were not specified. And, according to Energy Minister Yuriy Boyko, over the next 2 years, Ukraine plans to invest about $300 million into its existing gas fields to modernize and improve its own gas extraction efficiency. This will boost extraction by 1.2 billion cubic metres of natural gas, annually. However, very little is currently being done in Ukraine to develop new gas fields. (Den, May 26).
Watch for more surprises in the coming weeks.
OPED By Walter Derzko, Toronto, Canada
OPED By Walter Derzko, Toronto, Canada
The previous week in Ukrainian politics was full of surprises, contradictions and missed opportunities.
First, the spat between EU integration and the Russian-proposed Customs Union was conclusively settled. The Ukrainian Parliament passed legislation "on the current state and prospects of development of economic relations with the EU and the customs union," which states that the completion of the political association and free trade talks with the EU is the top, short-term priority for Ukraine. As for the Customs Union, the document only advises the government to develop "cooperation" with the organization and its member states according to World Trade Organization (WTO) guidelines (www.rada.gov.ua May 19), Surprisingly, the Party of Regions and the opposition united, and both voted in favour of the EU vector, sending a clear signal back to Russia on what Ukrainian legislators (read oligarchs) wish - 289 out of 385 deputies voted in favour of the EU. This included all caucus fractions except the Communist Party, whose deputies abstained from voting. Clearly, self-interest trumps pro-Russian interests here.
Also, the Ukrainian General Prosecutor’s Office indicated that it is ready to drop all charges against Leonid Kuchma. Not a surprise - too many skeletons in various people's closets.
As gas talks between Ukraine and Russia get under way, the concessions Ukraine is ready to make to get a lower gas price remain unclear. Last year, the Russian Deputy Prime Minister, Igor Sechin, set the tone: "Ukraine can expect a discount on the price of gas, but it has to offer something in return." One possible scenario is that Ukraine will try to balance between threatening Russia with international court actions and making some economic concessions. But, since the negotiators, Ukrainian Fuel and Energy Minister Yuriy Boyko and Gazprom's Aleksey Miller, are not obliged to discuss the details, the public is not privy to the progress of talks. Thus, the agreement is likely to be reached via political and /or economic concessions or both. We may never know.
It is difficult to understand in these energy negotiations, why Ukraine needs to make concessions at all. In fact, Ukraine has more trump cards on the table than Russia does, but yet, it curiously refuses for some reason to use them. Besides, Ukraine has several months of gas stored in reserve and Gazprom can’t withhold gas indefinitely - it will go bankrupt. But, if Russia insists on blackmailing Ukraine and Europe with threats of future gas embargos, then Ukraine has the equal right to withhold its technology, intellectual property, or services, to Russia's gas transit industry. Ukraine has a number of "hard to replace" technologies that Russia desperately needs.
One example is Zaryamashproekt (http://eng.zmturbines.com/) - a former Soviet monopoly that designs and builds steam turbines for ships, and more importantly, turbines for compressor stations on trunk gas pipelines. They are a very critical component of all Russian gas pipelines - construction is impossible without them. Russian oligarchs such as Putin, Timchenko, and the Rottenberg Brothers all have direct financial interest in these pipeline projects ("South Stream", "Nord Stream", Sakhalin-Khabarovsk-Vladivostok, etc.), valued at around US $40 billion. So, Russia is trying to grab Zaryamashproekt, but Ukraine refuses to budge.
The Ivano-Frankivsk National Technical University of Oil and Gas was one of the best university-level educational institutions in the oil and gas sector in the former USSR. It continues to train operational specialists from numerous countries,including India, Pakistan, Jordan, Mongolia, Bulgaria, Vietnam, Israel, Poland, Russia, Belarus, Turkmenistan, Moldova and Lithuania. (See
http://www.nung.edu.ua/about/index.html).
In the beginning of the 1990s, a Ukrainian newspaper outlined the "early days" of the Ukrainian gas industry in Western Ukraine - Drohobych, Dashava etc. This was before the Soviet Union depleted traditional fields and sent many Ukrainian oil and gas experts to Siberia to develop Russia's gas sector and start Gazprom. To this day, Ukrainians continue to service Russian gas production in Western Siberia. Upstream in the production cycle, all pipelines are designed by Yuzhniigiprogaz (see http://www.ungg.org/eng/index.html) (formerly Yuzh Trub Proekt), which has a controlling stake owned by Gazprom, but it's located in Donetsk. Ukraine could start to repatriate this expertise to develop its own internal gas industry, if it wanted to. A reverse brain drain, just as Russia plans to do with its intellectual ex-patriots.
Ukraine is making slow progress in diversifying away from dependence on Russian oil and gas. In November 2010, the Ministry of Environment and Natural Resources stated that Ukraine "enjoys the biggest supply of shale gas deposits in the world." However, the exact reserves were not specified. And, according to Energy Minister Yuriy Boyko, over the next 2 years, Ukraine plans to invest about $300 million into its existing gas fields to modernize and improve its own gas extraction efficiency. This will boost extraction by 1.2 billion cubic metres of natural gas, annually. However, very little is currently being done in Ukraine to develop new gas fields. (Den, May 26).
Watch for more surprises in the coming weeks.
OPED By Walter Derzko, Toronto, Canada