02 March 2004 10:55
Ukraine`s energy minister attacks oil transport company over pipeline policy
Ukrainian Fuel and Energy Minister Serhiy Yermilov has said that he wants the managers of the Ukrtransnafta oil
transport company sacked because they are "deliberately blocking" the implementation of the government's
instructions on preparations for the Odessa-Brody oil pipeline to be used to carry oil to Europe. Ukrtransnafta chiefs
favour the reverse flow in the pipeline, so as to carry Russian oil, which Yermilov strongly opposes, he said in an
interview with a daily. Yermilov hailed the recent decision to set up the Energy Company of Ukraine in order to protect
the state-owned energy installations. He criticized Russia for its failure to provide a level playing field for all
partners in the Single Economic Space. The following is the text of the interview with Yermilov by Oleh Ivantsov,
Maryana Oliynyk and Vitaliy Knyazhanskyy, published in the Ukrainian newspaper Den on 26 February under the title
"High tension. Serhiy Yermilov: Ukraine is working on energy sources at world prices. We don't depend on
anyone's favour"; the original subheadings have been retained:
Fuel and Energy Minister Serhiy Yermilov, who is occupying this post for the second time (on the first occasion, he
had to leave it owing to a disagreement with former Deputy Prime Minister Yuliya Tymoshenko), has been in the process of
being "retired" since virtually his first day at work in [Prime Minister] Viktor Yanukovych's government.
The latest news in the energy sector at the moment is that the problems of putting the Odessa-Brody oil pipeline into
operation, which seemed completely insoluble, have been resolved (not without the minister's participation). This
was followed by yet another attack. The Internet circulated rumours of his dismissal, which were not subsequently
confirmed. Speaking of their sources, the minister commented: "I have many 'friends' who would regard the
day of my dismissal as their own second birthday. Since there is still no [such] decree, they are keeping each other
happy with rumours and are having a good time." Den journalists talk to Serhiy Yermilov about the difficult areas
and priorities in the development of Ukraine's energy sector.
Odessa-Brody
[Interviewer] There is a shortage of information about your last visit to London. What was its purpose? What was
done, and what wasn't?
[Yermilov] A meeting was organized in the British capital between a Ukrainian delegation and all the leading
companies that might take part in developing the Odessa-Brody oil pipeline project. They included the firms that are
extracting oil in the Caspian, the oil-refining companies that consume it and the oil transporting companies of Eastern
Europe that may help to deliver the Caspian oil. I can name the main participants. They are ChevronTexaco, Conoco
Philips and the transporting companies that are linked with Ukraine's Transnafta - Slovakia's Transpetrol and
the Czech Republic's Mero. All these companies were represented by top managers, authorized to make decisions.
Characteristically, there were no discussions about whether or not to operate on that route. All the companies without
exception support it. The only obstacle is the passive position adopted by the Slovak company Transpetrol. That is quite
easy to explain. In its statutory fund, 49 per cent of the shares belong to the Russian company Yukos. We understand
what lies behind that. So vigorous study of that link [in the chain] is now beginning, since it is a bottleneck in the
Eurasian oil transportation corridor, which is already quite close to being launched. So consultations will be held
shortly at various levels, and, bearing in mind that 51 per cent of Transpetrol's shares are owned by the Slovak
state, which wishes to join a united Europe soon, the problem should be resolved.
As for the sources of oil to fill the pipeline and to be transported through it, the money to purchase that oil and
the market outlets, all the problems have reached the stage of practical resolution. Naturally, the best possible
options are still being discussed - with precisely which firm it is more profitable to operate, to buy the oil or to
take it on commodity credit terms, and for what period... [ellipsis as published]. All that will be intensively studied
over the next two months. We already have various proposals. I personally think the oil should belong to the oil
transport company. But, at the moment, we're talking about Ukrtransnafta. After all, the processed oil is an
integral part of the cost of the whole facility and its fixed assets. That enables the real cost of the transportation
to be included in the charge and the efficiency of the pipeline to be evaluated in real terms. The amount of the
facility's depreciation can also be worked out, allowing for the depreciation of the cost of the processed oil.
In London, the Ukrainian delegation initiated the signing of a memorandum between Ukraine, Slovakia and the Czech
Republic. In accordance with the document, a working party is to be set up to study the technical side of the
possibility of transportation across Slovakia. (The Czech company has already confirmed its readiness). The party's
second assignment is to study the economy in each sector and, if any additional technical decisions have to be made, to
determine the investment requirements. I would point out that the spare capacity in the sector of the Druzhba pipeline
from Brody to the Czech Republic via Slovakia is about 9m tonnes a year. A unified through rate from the Pivdennyy
[Southern] terminal [on the Black Sea] to the refinery at Kralupy [near Prague] is an important matter for the owners
and purchasers of the oil. It needs to be calculated, and then an agreement to that effect has to be signed between
Mero, Transpetrol and Ukrtransnafta. Preparing a draft of that agreement is the fourth task in the memorandum.
The meeting considered routes for transporting Caspian oil to Austrian and south German refineries. There are no
particular problems there either. As far as Poland is concerned, it is common knowledge that one contract has already
been concluded, and work on others is in progress. This is helped along by the fact that Ukrzaliznytsya [Ukrainian
Railways] is actively cooperating with its Polish counterparts and has agreed to create a single route for supplying oil
to that country's refineries and a single rate at which rail transportation will be paid. At first, it will be at a
promotional level, but will rise to the normal level as the volume increases. Other consumers of Caspian oil are the
Ukrainian refineries [Nadvirna-based] Naftokhimik Prykarpattya and [Drohobych-based] Halychyna. All in all, the 9m
tonnes that the pipeline will carry during the first phase are building up. There are already proposals for financing
(on favourable terms) both the purchase of the processed oil and the extension of the pipeline from Brody to Plock.
Regarding the extension, several major banks already want to work with us, including the European Bank for
Reconstruction and Development. But we are in no hurry. The relevant technical specifications are now being worked out
with Poland. The fact is that there is a very high level of interest, just as there is a high level of interest among
all the firms that are extracting oil from the Caspian in seeing that it finds an outlet to the Baltic and to the
northern part of Germany, where it is possible to load it on to tankers with a displacement of 300,000 tonnes.
All in all, it was a very successful trip. In London, we also had top-level meetings with ChevronTexaco. Its
management assured us that they were quite ready to embark on putting the project into effect as soon as the bottlenecks
we have mentioned are "opened up".
[Interviewer] Parliament recently postponed a vote on amendments to the law on concessions relating to the
Odessa-Brody project. Are you able to forecast who the future concessionaires will be? It has been suggested that
Russian companies may be among them.
[Yermilov] I personally have proposed that the question of the participation of Russian companies should be discussed
if our parliament passes a decision to that effect. They have Tyumen oil, which is of almost the same quality as Caspian
oil, but they can't transport it because it gets mixed up with heavy oil. If it were possible to separate oils of
different quality, the owners of Tyumen oil could sell it in Europe by taking part in our project. But even that's
beside the point. If you know the oil business, you can simply take part in a consortium that is being formed and,
accordingly, in a concession where the aim, like that of any other commercial undertaking, is to make a profit on the
money invested.
[Interviewer] The parliamentary opposition is both against the consortium and against turning the pipeline into a
concession.
[Yermilov] The logic of the opposition is often hard to understand. Ardent defenders of national interests will
always be found there, and for the sake of those interests they are prepared to oppose perfectly reasonable things. I
have said repeatedly that a concession is one of the supplementary ways of drawing the owners of the Caspian oil into
the project. As the person who is now directly responsible for putting the project into operation, I don't so much
need the concession as I need clarity in this matter, so as to be able to negotiate with the relevant companies.
ChevronTexaco, mentioned earlier, is asking what the concession will be like, what the terms of the concession agreement
will be, when the draft agreement will be forthcoming and who else will be participating. If we drag our feet regarding
the answers to these questions for two, three or more months, who will then want to do business with us? But, if we have
a legally prescribed right to form the concession and if we put the oil pipeline into operation, we can declare that
those who took part in the consortium at the first stage of its creation will have a preferential status in the
concession. That could spur on the project. So the decision to postpone the vote does not substantially affect the
situation. That is also a result. It means that today we are operating in a situation in which the pipe is state
property, and those taking part in the process will be dealing with the state.
"Oil" baiting
[Interviewer] When the controversy over the direction of flow was in full swing, it was perfectly obvious that you
came under concentrated fire from the media and the political forces represented in the coalition government. That being
the case, what do you think of the quality of our coalition, the "majority plus government" linkage that is
often referred to as an achievement?
[Yermilov] The effectiveness of any decision is determined by time. Not much time has passed since the coalition was
formed. In my view, the coalition is moving us forward towards stability rather than collapse. The amendments to the
constitution have been put to the vote, laws are being passed and the government is working quite smoothly. As for the
attacks on me personally, they aren't in any way connected with the coalition as a whole. They stem from various
shady processes that have taken place and still are - to a smaller extent, but they still remain. Certain figures used
the discussion on the Odessa-Brody project as an excuse and so were able to join in it [i.e. the discussion] "on
the cheap" and switch over to personalities. I know what they look like, I often talk to many of them, and their
level of competence is no mystery to me. Their actions were doomed to fail, since, in the real world, there was none of
the compromising material that they wanted to damage me with so as to force me to step down.
[Interviewer] So why did staff not draw the appropriate conclusions? After all, even after the government decided on
the direction in which the pipeline would be used, the chairman of the Ukrtransnafta board, Stanislav Vasylenko, said
that he thought the reverse flow was the ideal decision. There were corresponding statements from TNK-BP [Tyumen Oil
Company-British Petroleum]. At the moment, it's hard to rule out a rerun of the reverse flow issue... [ellipsis as
published].
[Yermilov] If by May we have not been able to start up the pipeline in the planned direction, a second wave of the
attack by the reverse flow lobbyists may begin. They are hoping for that, and it may be supposed that we shall soon
encounter covert, and even overt, resistance. It was for that reason that I proposed replacing virtually the whole of
the Ukrtransnafta management - the director-general and his deputies. I have sufficient grounds and evidence for that:
they are deliberately blocking government decisions - specifically, the trial pumping of 20,000 t of oil. It could have
happened long ago. There is even a communication on the subject from the company Transyug [Trans south]. This vicious
practice still continues today. If there is no change before the end of February and I see no wish on their part to put
the pipeline into operation, then next week I shall invite all the participants in the process to the government
commission that I head, and I shall table repeat proposals. Unfortunately, today the government is unable to take any
staffing decisions on Ukrtransnafta. It is under the control of one man, Yuriy Boyko, head of the Naftohaz Ukrayiny
[Ukrainian oil and gas] national joint-stock company. For Ukrtransnafta, he is the shareholders' meeting. So the
next "round" will be about Boyko.
Concentration of assets
[Interviewer] Yet another national joint-stock company is now being set up in the country - an energy company [Energy
Company of Ukraine]. There has not been much information about the reasons for creating it - just different glosses.
[Yermilov] The president's gloss is the truest and most correct. In effect, he created the company by decree and
explained why he did so. The aim is to preserve what still remains under state ownership. Any continuation with
privatizing the remaining shareholdings on a normal, civilized basis, as it were, is impossible in today's
circumstances. And I support that. All the companies are undergoing bankruptcy and economic rescue procedures. If the
State Property Fund even puts them up for privatization, it is clear that the operation will be a failure. The energy
industry will simply be pulled apart, and the state will get nothing from it - our financial-industrial groups have
already learnt how to do that. So the president's decision is absolutely correct, especially at such a difficult
time as a presidential election year. Oleh Dubyna [first deputy secretary of the National Security and Defence Council,
formerly a deputy prime minister], who has been appointed to head the company, has shown himself to be a good public
servant, and I think it will be easier today for the two of us to preserve this state property than for me on my
own.
As for the actual process of creating the new national joint-stock company, the ministry decided to take the lead and
bring it to fruition as quickly as possible. A government committee should soon decide on a draft resolution, approve
the company's charter, endorse the list of shareholdings that will go into its statutory fund, and perform all the
procedures envisaged by the president's decree and by the legislation - although there are already several versions
of the charter, several options for approaches and so on. They will, in some way, get to the Cabinet of Ministers.
Certain people, certain advisers want to warm their hands through this business. I don't think that will work. In
other words, a quite transparent company - essentially a holding company - will be set up. We are now completing our
work on the sources and the kind of activities on which it will exist. According to the rules for operating in the
electricity market, it is not entitled to engage in all kinds of activities simultaneously, but only in one - either in
transferring electricity through the bulk power supply networks or in a particular kind of generation or distribution.
For the company to be financially independent and able to affect corporate management through its shareholdings, some
single type of activity must constitute its core business. We shall try to see that the matter is ready in time for the
next meeting of the government and that the company starts to operate. There is, admittedly, a view that the creation of
such a company will harm the development of free markets. But I was talking to Mr Dubyna just the other day, and he has
no plans whatsoever for interfering with the operation of the wholesale electricity market.
[Interviewer] So what will the company consist of - the state regional electricity boards or the power
generators?
[Yermilov] All the state shareholdings will be transferred to it. A holding company does not itself engage in
entrepreneurial activities. It manages shares. So, apart from anything else, it will have to be given some business
content - something that it will do directly. In the energy market there are six kinds of licence. It must obtain one of
them in order to make money. Everything will be very transparent and very clear. As with the other monopolies, the
charges for the services of this monopoly will be set via a transparent procedure, at public hearings, and will be
approved by a national commission. There is no need to look for any shady operations here. The first and principal task
is to preserve what the state still owns - we still have quite a lot - and to give those facilities the opportunity to
work normally.
Let me give you an example. We spent two years putting the company Dniproenerho on a sound footing. Before the
bankruptcy procedure started, its liabilities totalled 3.1bn hryvnyas [nearly 580m dollars]. We managed to reduce it to
1.4bn, cutting it by more than half. The company had virtually achieved a positive difference between accounts payable
and debts receivable. In other words, it had become financially stable. But, at that moment, the decisions of relevant
courts were taken, for some reason, and the company was transferred to the economic rescue stage. From then onwards, it
was managed by a creditors' council... [ellipsis as published].
[Interviewer] In other words, "for some reason", court decisions appear, occasioned by debts that have,
"for some reason", arisen?
[Yermilov] Yes. Moreover, at Dniproenerho, of these debts (over 1.3bn hryvnyas) 65 per cent are owed to the state -
the state reserve, the tax administration and the Finance Ministry, as well as all kinds of charges, plus - again -
state suppliers of fuel (coal companies and - again - Naftohaz). It's all down to the state. The proportion of debt
owed to the private sector is totally insignificant. Nevertheless, a court today disregards who has brought the action -
a creditor who is owed 5m hryvnyas or 500m: it acts in the same way. This may be seen as the "independence of the
courts". But one really ought to take into account how much money and property the state is losing through this. I
think that the new national joint-stock company may eventually be privatized, maybe even piecemeal, if normal conditions
are created for that to happen. But today each entity that will form part of the company has huge debts. The law that is
in the queue for its second reading (I'm sure it will be passed) - the law on the repayment of fuel debts - will
enable all of the company's enterprises to be given a clean bill of health, "freed" from debt and made
attractive to investors. Privatization may be considered after that, since our facilities can then be sold several times
dearer.
[Interviewer] To sum up, it can be said that the company's aim is to prevent the state's energy assets from
being frittered away, since property prices generally fall in the run-up to presidential elections.
[Yermilov] I think that's one of the main reasons. As for the ministry, my position has always been in favour of
noninterference in economic matters. The media periodically accuse the Fuel and Energy Ministry of managing with its
hands... [ellipsis as published]. I would remind you that we rejected administrative interference with the operation of
the energy market two years ago. The work proceeds in accordance with price bids, and the distribution of resources in
accordance with an algorithm approved by the directors' council. Moreover, the market council no longer has a
majority of directors who are answerable to the ministry. There have very frequently been cases where the
ministry's proposals have been turned down by the directors' council. That's normal. It's market
money, and they are in a better position to know how to distribute it. That's the way it should be in the future
too. I don't think that Dubyna, as company president, will interfere in the processes of market relations because
the holding company will consist both of generating companies, which sell electricity to the wholesale market, and of
regional electricity boards, which will buy electricity there. But, by concentrating corporate powers, it will be
possible to conduct a unified management policy, a single policy for protecting the financial and economic interests of
the state and of each of the companies.
[Interviewer] Can it be assumed that, with the creation of the electricity national joint-stock company, the regional
electricity board privatization process will be suspended?
[Yermilov] It has already been suspended by presidential decree. And that will be consolidated by a resolution of the
Cabinet of Ministers. In other words, all the blocks of shares that are transferred to the energy holding company must
be securely assigned to the state. At this stage, privatization is not a good idea.
"Gas" formula
[Interviewer] The Russian ambassador, Viktor Chernomyrdin, recently voiced the conviction that the international gas
transport consortium will start work at the end of March. Could you comment on that statement? In what format will it
start work? What stage has the process reached now?
[Yermilov] Today the consortium can only start work in a Ukraine-Russia bilateral format. The participants will be
Naftohaz and the Russian joint-stock company Gazprom. The point of that stage will be to make a start on building a
300-km section. A decision on a feasibility study of construction work as far as (?Novoplock) may have been taken by
then. That's the point.
[Interviewer] In other words, a new pipe will be built, and the consortium will "sit" on it. But it
won't have anything to do with the old Ukrainian pipe.
[Yermilov] No such decisions have been taken to date.
[Interviewer] But the prospect is still there? Precisely in that direction?
[Yermilov] There is always a prospect. The question is rather: how is it to be approached? I head the working group
on the gas transportation consortium. We've spent more than a year studying all the models and submodels. The
outcome is that we've discarded them all. One of three possible models remains - turning the transport system into
a concession. A group of legal experts is now working on draft amendments to Ukraine's normative and legislative
base so that, first, the concession is possible and, second, it is attractive to concessionaires. At the moment, there
are no definitive proposals that may be acceptable to the government and, ultimately, to the Supreme Council. We have
very complicated legislation, and the gas transport system is very heavily protected. So the concession is theoretically
possible, but the law has to be changed first.
Coal revolution
[Interviewer] You were talking about the debts of companies in the fuel and energy sector. But the industry is also
in debt to its own people, particularly the miners. Statements to that effect from the trade unions have reappeared
recently... [ellipsis as published].
[Yermilov] I have seen one statement from trade unions that don't seem to support the payment of wage arrears.
That is an absurd statement. The ministry has a programme. It is very sound and well honed. We spent all last year
drawing it up. It has been approved by the ministry's board and considered by the Cabinet of Ministers coordinating
council for anticrisis situations in the coal industry, which includes the leaders of all the main trade unions in
Ukraine. I was asked hardly any questions at that discussion. There were questions for the tax administration, the
Pension Fund and so on. It is totally realistic to pay all the arrears this year, but just look at what happens.
The main mechanism that helps to balance the coal companies, whose losses we halved last year, is the wholesale
market in power station coal. That market is now at the stage of being introduced. But resistance to it can be felt in
the regions. Why? Coal is starting to be sold on totally transparent terms. In other words, previously a mine and a
power station could come to an agreement - to "add" a bit to make up the weight and so on, or to add something
to a load or to underload somewhere - whereas now all the commodity and money flows that pass through the wholesale
market are very transparent. Here, as in the wholesale market for electricity, a decision is taken not by one or two
people, but by the directors' council, 10 people. And it's their overall commodity and money flow, their
commodity wholesale price. If you know that I am, let's say, deliberately loading coal in a shoddy fashion,
you'll stop that. As the experience of the electricity wholesale market shows, collusion is virtually
impossible.
Apart from that, it is possible today to purchase coal at artificially low prices, especially where commercial bodies
are involved. For example, the cost price of coal at the pit is, let's say, 180 hryvnyas a tonne, but they sell it
for 160 hryvnyas. So the mine is operating knowingly at a loss, but they explain: no one buys it from me at 180
hryvnyas. As we set up the wholesale market in power station coal, we say: we buy from everyone at cost price, protected
and transparent. Now each manager has an alternative - to sell at 160 or 180. If he has sold cheaply, it's then a
matter for prosecutors.
[Interviewer] If he's put something in his own pocket?
[Yermilov] He may not have, but there is a good reason for looking into it. Secondly, the trade unions can very
precisely monitor the company's earnings and see the amount of financial resources that goes towards the
miners' social protection. There have been cases where the manager tells the miners: I can't pay your wages
because I have to buy electricity, pit props and other things. I won't bring the mine to a standstill. Yet he sells
the coal at 20 hryvnyas below cost. We are providing an opportunity to level prices out.
It doesn't benefit some generating companies either. Previously, they could manoeuvre, but today we're
setting equal conditions for everyone. That's normal. You should compete according to the technical and economic
performance of your equipment, your efficiency and your unit costs, not according to where you reached an agreement at
someone else's expense - especially since virtually all the coal companies are state-owned and are financed partly
from the state's pocket. We give him money from the state budget, and he goes in for dumping on certain bilateral
contracts. That won't happen any more. Here we protect the state's interests. Several private mines that have
appeared are in the same circumstances. We are creating a normal level of profitability, and companies are starting to
pay taxes. It's something of a revolution in the coal industry. It's in progress, but it's hard
going.
[Interviewer] Which financial-industrial groups are out of pocket as a result of this revolution?
[Yermilov] Those that used to buy coal at less than its real price. They'll all be out of pocket.
[Interviewer] In other words, there will be a lot of people out of pocket?
[Yermilov] There are already such people, and they are all against. But they can't come out and say: let's
fire Yermilov for proposing transparent operations. They'll act from round the corner. But the miners have already
weighed up the advantages of the coal market, and it will be very hard to turn back. Yes, the process can be held up by
two or three months or postponed, but it can't be stopped, especially since the coal industry made a loss of 1.4bn
hryvnyas last year. But now we are about to break even, allowing for the state support (of 900m). That loss of 1.4bn ate
up the 900m in depreciation deductions that the coal industry has. That means safety measures, breakdowns, falls in
output, etc., etc.
What other changes have taken place? Previously there were 180 mines - 180 corporate bodies. The same number of
managers had to be directed. Today 25 of them, let's say, are left. It is now possible to select the best and most
suitable. Nowadays these people are familiar with the fundamentals of financial analysis, financial management,
marketing and logistics. In other words, we all speak the same language: what is the balance, what are the incomings and
outgoings, where are the reserves, what will we cover the deficit with, where are the sources, and how are they being
used? They become involved in the process themselves, since they find it interesting. The second stage, corporatization,
has now begun, and the work will be even more interesting for the managers of coal companies. Some of them will forge
ahead and make their companies profitable, and privatization can then be discussed. So the coal industry today is seeing
the start of the processes that operated throughout the country's economy between eight and 10 years ago. They
can't be stopped.
Nuclear matters
[Interviewer] How do you see the situation regarding nuclear power?
[Yermilov] Enerhoatom [the national nuclear energy company] has been fully extricated from its financial crisis.
There are problems with its accounts payable, endless court actions and so on. But now that the company has virtually
100-per-cent funding of all its cost elements, it has learnt how to deal with that. We need a debt repayment law that
will settle this problem once and for all. Today the company is independently completing the construction of two power
units, is virtually into its second year of implementing a safety enhancement programme at all nuclear power stations,
has established normal relations with all its contractors - regarding fuel supplies, removal of spent fuel, spare parts
and so on - and has virtually resolved all social issues. Consequently, the ministry has to deal less with day-to-day
matters.
[Interviewer] But given that today, on the one hand, the company is obliged to engage in creating the nuclear cycle
at its own expense, and, on the other hand, its charge for selling electricity to the energy market is reduced, is that
fair?
[Yermilov] The current charges, which are guaranteed 100 per cent, include the costs of the nuclear fuel cycle. They
are small - 120m hryvnyas a year against the company's turnover of 6.5bn. But, to exclude any subjective factor, we
have just submitted amendments to the law on electrical power, and the company should be freed from that. The nuclear
fuel cycle will be financed via the electricity wholesale market, like many other state programmes.
Safety "regulations"
[Interviewer] Can you briefly spell out the basic principle for the state's energy security? Possibly, the gas
situation in Belarus prompts certain conclusions?
[Yermilov] There are various opinions on energy security, energy strategy and so on. Different countries have
different possibilities in that respect. In Russia, for example, there is a surplus of all kinds of energy resources -
oil, gas, nuclear fuel and coal. Japan, which has nothing at all, closed its last mine 15 years ago and imports gas in
liquefied form, doesn't see that as a tragedy. What is more, I would say that energy security is lower in Russia
today because pricing matters have not been worked out on a civilized level, and there is widespread
cross-subsidization: some industries are supported by others, there is no transparency and there are no basic principles
in the relations between producers and consumers. Over the past three years, Ukraine has substantially raised its level
of energy security by establishing more civilized relationships between the fuel and energy sector and consumers.
Consequently, if the consumer of any energy resource approaches the question responsibly, pays and thereby enables the
supplier to renew that resource and recover his costs, then that consumer may ignore the question of whether the gas was
extracted in Ukraine or in Tyumen. It is the task of the supplier to find it, deliver it and recoup his costs. That, it
seems to me, is the basic principle - the mutual responsibility of the consumers of energy resources and those who
produce them today or deliver them. That does not happen in Belarus. Belarus has not switched over to buying energy
resources at world prices, as Ukraine has. We no longer depend on anyone's favour and do not ask anyone for
anything. There are external economic contracts, and we service them. I remember when gas in our country was purchased
at 82 dollars per 1,000 cu.m. Today we have moved into the Turkmen market and have begun to work with Uzbekistan and
Kazakhstan. We don't buy any gas in Russia. We receive it only as payment for transit services. The price of that
gas is pegged firmly to the transit charge: if the gas price rises, so does the charge. We are protected here. [We buy]
oil virtually at world prices. If the Odessa-Brody project is put into effect, we shall have a further source of oil
coming into the country.
[Interviewer] One more question linked to this - on the formation of the SES [the Single Economic Space, comprising
Russia, Belarus, Ukraine and Kazakhstan]. One of the arguments in favour is energy prices, which are close to Russian
domestic prices. What would happen if it came into being? Would Ukraine benefit, or would the opposite be the case?
[Yermilov] I think that was the hope of the amateurs: we join the union, and we'll be given gas at 30 dollars.
That's wrong. When we talk about cooperation in the four states' energy field, that means the overall fuel and
energy balance. If Ukraine has a gas and oil shortfall, it is entitled, within the SES framework, to buy a certain
amount of the surplus from its partners. But that should not apply to prices. Until equal prices are set in the domestic
and external markets, fair competition in the SES is impossible. So, when people start talking about cooperation with
the Russian joint-stock company UES [Unified Energy System of Russia], we say: you can sell to Ukraine on an equal
footing with our regional electricity boards only when our generators can buy gas at the same price as you do. Those are
equal conditions in a free trade zone.
[Interviewer] But that hinders Russia's entry to the WTO... [ellipsis as published].
[Yermilov] Yes, that condition has been set for them.
[Interviewer] Isn't that an impasse in the way of the SES?
[Yermilov] It isn't an impasse if Russia takes these matters seriously. It proclaims the SES, a free trade zone,
and then wants to move on to a customs union. But everything needs to be organized on a parity basis. If you want to
have access to our main electricity grids, then give us access to yours. If you want to have access to our oil or gas
pipe, give us the same. If we had such access, we would freely conduct a marketing policy for buying gas in Russia and
Central Asia. All these questions are still open.
[Den] |
RUSSIA IN FACTS
