Interview: Russia, EU- doomed to have good cooperation: Konstantin Kosachev

Interview with: Konstantin Kosachev, head of the Russian Duma Foreign Affairs Committee
8 January 2009 - Issue : 816

Konstantin Kosachev, the head of the Russian Duma Foreign Affairs Committee was in Brussels on Thursday, 8^th January 2009, in an attempt to find a solution to the ongoing gas crisis which has left European countries without gas. As the crisis settled into its 8^th day, Kosachev talked to New Europe editor Alexandros Koronakis about the next steps.

To go directly to a question click below, or read on for full interview:

When will the gas flow to Europe again?

How exactly did an issue of commercial nature turn into European energy crisis?

The European Commission initially kept distance from mitigating the solution. How do you judge the Commission’s response to the dispute?

There was a similar crisis in 2006. In fact a contract is negotiated yearly. How can this reoccurring phenomenon be resolved for a long term situation?

Do you think that the current crisis will give a new impetus to the Nord Stream and South Stream pipelines bypassing transit countries?

Do you think that recent crisis has hurt Gazprom reputation as a reliable supplier to Europe?

Do you see Gazprom overcoming its financial problems and becoming a world energy giant? Does it plan to get rid of subsidies practice of selling cheap gas to its neighbors for political reasons?

First of all the most important matter is when the gas will start to flow again in Europe; when do you expect this to happen?

It is not decided yet. The only decision I am sure of is that gas flow will be resumed as soon as we have an acceptable, satisfactory monitoring mission. This is still a matter of discussion and the reason is that on one hand the Commission needs to have a special mandate from the Council in order to formally participate in the multilateral monitoring group, or mission, which we proposed. The idea, which originally came from phone conversation yesterday between Mr. Putin and Mme Merkel, is that this composition should include people from Russia, Gazprom, ministry of Energy, Ukraine – Naftogaz and ministry of Energy, some enterprises which are major consumers of Russian gas, and of course the Commission itself.

As an idea it was accepted by Mr. Piebalgs. Again, bureaucratic procedures will not make it possible to have any decision immediately. The other option was proposed by the Ukrainians, and that option – and this is a mission which will appear in Ukraine maybe tomorrow, maybe on Friday – this option may be good but it is not acceptable for us because it excludes Russian at all: no Gazprom, no people from the government, nobody from Russia. It should be, according to the Ukrainians, a purely European mission. And in case the system had been as simple as some amount of gas coming out from Russia inside, some amount of gas coming outside, it would be completely acceptable.

Anybody may monitor that type of very simple transportation. But it is much more complicated because some gas comes through transit to Europe according to existing countries, comes from the inside of Ukraine, from gas reserves there, it’s too complicated and it would not be positive to have a real qualitative monitoring in case people from Russia are not involved. This is why we do not feel happy about this proposed format. Yes, the monitors from the EU may start working in the Ukraine as soon as possible but its not enough to solve the problem as it is. And I don’t like the way Ukraine tries to treat us Russians as something hostile, as an enemy that is to be kept outside.

That is a wrong approach . We are partners, we are friends and we need to have a construction which would be workable, functional and comfortable for everyone included, nobody excluded. We accept European Union, we accept Ukrainians on the Russian territory if they need to be there. I hope we’ll be able to agree for this construction as soon as possible and we have this accepted by everybody format. The same day this happens, and this is my promise, the same day Russia will resume the gas supply to Ukraine and transit further on to Europe.

Now, backtracking, how exactly does an issue of commercial nature turn into European energy crisis? How much was commercial? How much was political?

This is a very good question. Starting of previous crisis of 2006, we made at least one conclusion, one lesson was drawn: we need to keep commercial business of our gas supply to Ukraine and transit as separated as possible. And this is exactly how we were handling the situation last three years. The transit issue we made a bilateral contract valid until the year 2013, between Russia and Ukraine signed by the two governments and two gas providers. It is valid until the year 2013 and the rate for transit is settled there until the end of 2010 1.6 USD for the coming two years: 2009 and 2010 is settled completely.

So the question of transit was at no point a matter of negotiations between Russia and Ukraine the previous months, because everything has been settled three years ago and it should function and the obligation and the commitment of Ukraine according to the Energy Charter, and Ukraine has ratified energy charter in 1998, there is an article 7 there which says that a transit country in case any disagreements, any problems occur has no right to interrupt transit.

This country may appeal to court, and other legal procedures but the transit should be kept unchanged. So now when Ukraine again tried to repeat same model mixing up transit issue and bilateral supplies issue it repeats the same mistake it was doing the previous years and is absolutely in legal terms, absolutely unfair, because yes we have disputes on prices of Russian gas coming to Ukraine but it has nothing to do with the transit issue and Ukraine not being able to make an agreement with Russia in this bilateral issue tries to destabilize the transit process in order to draw attention from the European Commission to this bilateral issue. It’s not good, not fair and does not correspond with the obligations by Ukraine according to the Energy Charter. This is what we try to avoid.

We were continuing to supply transit gas through Ukraine to Europe the first days of January, but the Ukrainians started to take certain amount of gas outside of the transit transportation – 21 mln m3 per day. In case we will say cost let’s say 200 USD per 1000 cubic meters. It means more than 4 mln USD a day they were stealing from this transit transportation. We cannot afford it you know. Maybe it’s not a big money for Gazprom but it’s big money for Russia.

As soon as the Ukrainians guarantee that hey transit the same amount they receive from Russia further on to Europe, the same day the problem will be solved.

The European Commission has kept distance from mitigating the solution. Things as you said did change. How do you judge the Commission’s response to the dispute so far?

The European Union, made a mistake the year 2006 that we were discussing the crisis. Because at that time the European Union, or most countries of the European Union, concentrated exclusively on what Russia was doing or was not doing, not discussing Ukraine at all. At that moment Ukraine is a transit country, has its own commitments and obligations according to the Energy Charter. It was not discussed at all and this is how this repeated crisis occurred because Ukraine still believes that can do anything with transit gas as it was were belonging to Ukraine.

For the European Union, the most important thing right now, is to try to address Ukraine as a part of a problem and try to convince Ukraine that they cannot abuse its transition position in order to solve bilateral issues with Russia. This is what we want to get from the European Union and I think we have rather good understanding of a situation right now.

There was indeed a similar crisis in 2006. In fact a contract is negotiated yearly. How can this reoccurring phenomenon be resolved for a long term situation?

The long term solution is a consortium created on a trilateral basis by Ukraine, Russia and the European Union, companies from the European Union. We would welcome that development. Ukraine is in some dimensions, some terms, worse than any former socialist country. What I mean the Naftogaz is 100 percent state owned company. But the pipelines as the infrastructure do not belong to this company. They belong to the state of Ukraine. And strangely enough Naftogaz – 100% state owned company leases this infrastructure from the state so is absolutely in contradiction with market economy principles because it means that this infrastructure right now, the pipelines which we and you use for transit, these pipelines more or less do not belong to anybody and they are not being maintained properly, they are not being financed properly, they are not being repaired and if you don’t establish this trilateral consortium with European Union companies involved, I believe that sooner or later we will come to the situation where the Ukrainian part of this pipeline system will just collapse. And I don’t know what will happen then. They don’t have money to repair it; simply.

Do you think that the current crisis will give a new impetus to the Nord Stream and South Stream pipelines bypassing transit countries?

Hopefully yes. For us the Nord Stream and Southern Stream are not an attempt to set additional pressure on Ukraine. For us it is a kind of security against this type of crises. As soon as we have an alternative routes for supplying gas to Europe, we will not have any problems at all with the Ukrainians, because it will be free competition between different routes of gas supplies and this is what market economy is about.

Do you think that recent crisis has hurt Gazprom reputation as a reliable supplier to Europe?

It is hurting Gazprom’s reputation. it is hurting Russia’s reputation. I know that for sure. But we are somehow trapped. We cannot just continue to supply Ukraine with gas for free. We cannot do it and we are dependent on Ukraine because 80% percentage of Russian gas to Europe goes through Ukraine.

Yes, we need to cooperate, but we want to have contracts. We want to have legal agreements with the Ukraine, and this is what we try to achieve. If we don’t succeed in that, then we have a crisis, and this crisis is very painful, both for Ukraine and Russia. This is what I understand, and this is what I want to avoid.

This morning, Mr. Miller told us that being a good friend of Ukraine, being a personal friend of Mr. Dubina, Last October, November, December, he personally took him around to Deutche Bank, and to some other banks in order to assist Naftogaz Ukrainy to get credit from some western banks. So we try to help Ukraine to have financial and economic solutions. We failed unfortunately.

Do you see Gazprom overcoming its financial problems and becoming a world energy giant in the like of Shell, Exxon-Mobil, etc? Does it plan to get rid of subsidies practice of selling cheap gas to its neighbors for political reasons?

This practice is now in the past. We were trying to propose to Ukraine this time, a more or less a subsidized price of $250, which is much lower than the existing price in most European countries, and this is the lowest price for a post-soviet country. The one exception is Belarus, where the prices are lower, but the reason is that we jointly own the pipelines, and there is an investment part of the price incorporated.

Russia and the EU are doomed to have good cooperation in the field of energy. Russia has huge amounts of gas till the end of the century, and we want to sell this gas and earn money on that. And this is why we need Europe. And this is why we will stay a good and reliable partner for Europe for all years and decades again.