Third Round of Talks on Russian Gas Transit Via Ukraine May Indicate Things Moving Forward
The third round of trilateral talks between Russia, Ukraine and the European Union on the future transit of Russian gas through Ukraine to Europe ended on Thursday without any concrete decisions, although the parties unanimously noted that the dialogue was constructive, which may indicate that the things are moving forward
"In my view, the consultations were very constructive, in a working order. Maybe this is the first time in many of our recent tripartite consultations of this kind," Russian Energy Minister Alexander Novak told reporters after the meeting, which was held in Brussels.
Ukrainian Energy Minister Oleksiy Orzhel shared Novak's position regarding the new round of consultations, noting that the parties heard each other.
The existing contracts between Russia and Ukraine for the transit and supply of gas expire at the end of this year, and the countries, together with the European Commission, are attempting to agree on the terms in order to proceed with the gas transit to the European Union after 2019. There are two options on the table: to extend the existing contract for a certain period of time or to reach a new gas transit deal in line with European standards, which Kiev promises to implement in its legislation before January 1, 2020.
One of the key conditions for this process is the creation of a separate Ukrainian transmission system that would be fully independent from state energy company Naftogaz, with which Russia's Gazprom signed the current transit contract. The Ukrainian government plans to complete the necessary procedures for this by January 1, 2020.
According to European Commissioner for the Energy Union Maros Sefcovic, this means that the extension of the current contract for the transit of Russian gas to the European Union via Ukraine is legally impossible, and therefore other solutions must be found.
Novak added that Russia "took note" of the new regulatory framework, according to which the Ukrainian market is expected to operate after 2019.
"Our position is that if the European legislation is really implemented in the Ukrainian legislation by January 1, 2020, we are ready to work in accordance with the European legislation. This means we are ready to reserve capacities from January 1, 2020," the minister explained.
According to him, the reservation of transit capacities can be both short-term and long-term. However, the deadline for a long-term reservation at such rates had already been missed. If the parties consider the reservation, for example, for January 2020, then, in accordance with the legislation, the corresponding application must be considered before December 1 of the current year.
"Therefore, [Ukrainian] colleagues should, of course, bring their legislation to such terms when it is possible to file such applications, as early as December 1 of this year," Novak concluded.
In turn, Gazprom CEO Alexey Miller noted that such a process, if approached responsibly, took time, and there were risks that by January 1, 2020, Ukraine would not be able to implement the "third energy package" and create an independently certified gas transmission operator and an independent regulator.
"The problem is not only that it [operator] must be created. It is necessary to give it real authority and resources to carry out its functions. Only then the operator must be certified first by the Ukrainian regulator, followed by the Energy Community Secretariat's confirmation.
If the certification procedure is approached responsibly and not formally, it takes a lot of time. The Ukrainian legislation gives the regulator only four months to do this. European practice requires a careful and thorough check of the application," Miller said.
As for the European Commission, Sefcovic announced that the proposal to Russia and Ukraine on a possible gas transit option after 2019 that was made in January was still relevant. The European Commission said that in its opinion, a new contract should then be signed for a period of more than 10 years, and the volumes should be attractive, including for investors, who would be invited to modernize the Ukrainian gas transportation system.
If Ukraine fails to implement the EU legislation in time, then it is still possible to consider an extension of the current contract. Milled called this option "plan B." Novak also added that the signing of an additional agreement could be considered.
"We proposed to our partners and colleagues - if this [Ukraine's implementation of European rules] is not done before January 1, 2020, we will be able to offer partners to extend the existing contract or sign an additional agreement until the entire regulatory framework and legislation of Ukraine is really ready," the minister said.
As the Gazprom CEO noted, the first priority was the question of whether Ukraine would buy Russian gas under a direct contract, since gas transmission capacities, which the company must guarantee and maintain for the supply of gas to Ukrainian consumers, depended on it. In turn, Russia's proposals for gas supplies were presented to Ukraine during the last consultations.
"The Ukrainian side has taken our proposals to task. Today, they are considering both direct deliveries and deliveries by reverse. For them, of course, it is important to understand what will be the volumes and price conditions in terms of efficiency in supplies to Ukraine. These are commercial negotiations between companies," Novak added.
The issue of disputes between Gazprom and Naftogaz in the Stockholm arbitration court remains unresolved. The Russian side once again stressed its importance during the talks. However, no new details on the issue were announced.
The Russian energy minister expressed confidence that a solution for the future transit of Russian gas will be found in any case.
"I want to highlight once again the important point that European consumers will be supplied with necessary volumes [of gas] in accordance with the contractual terms. Including for this purpose, we are ready to use Ukraine's gas transportation system under economically appropriate terms in accordance with the legislation that will be applicable in Ukraine," Novak told reporters.
When asked if there would be enough gas that had been accumulated by the company in European underground gas storage facilities for consumers for the coming winter in case a scenario occurred in which no agreement was reached with Ukraine on transit after 2019, Miller responded on the Rossiya 24 television channel with the following: "The volumes of gas that are in European storage facilities... allow for some time to make up for some interruptions if suddenly, God forbid, they arise, for end consumers."
In any case, the parties will continue the dialogue on future transit. In particular, the next round of tripartite consultations between Russia, Ukraine and the European Union at the ministerial level will be held in late October, Orzhel said.