The en­ergy two-step: first for­ward, now back­ward

How cor­rupt oli­garchic lob­by­ing by a Rus­sian mo­nop­oly on Ukraine’s elec­tric­ity mar­ket is de­stroy­ing the coun­try’s en­ergy se­cu­rity and mak­ing Ukraini­ans pay more for en­ergy than they should

The Ukrainian Week - - CONTENTS - Olek­sandr Kra­mar

How cor­rupt oli­garchic lob­by­ing by a Rus­sian mo­nop­oly on Ukraine's elec­tric­ity mar­ket is de­stroy­ing the coun­try's en­ergy se­cu­rity and mak­ing Ukraini­ans pay more for en­ergy

An anti-Ukrainian come­back in all ar­eas of the en­ergy sec­tor is one way to call what’s been go­ing on in Ukraine’s fuel and en­ergy com­plex (FEC) over the past year. In the in­ter­ests of Ri­nat Akhme­tov’s busi­ness em­pire and cor­rupt busi­ness schemes for the sup­ply of en­ergy from Rus­sia by other oli­garchic en­ti­ties, and with the ac­tive sup­port of govern­ment agen­cies, a num­ber of phe­nom­ena have been pick­ing up pace:

(1) ar­ti­fi­cial re­stric­tions on the pro­duc­tion of in­ex­pen­sive power at the coun­try’s AESs and the ob­struc­tion of di­ver­si­fied sup­plies of nu­clear fuel for them;

(2) ar­ti­fi­cial in­creases in power gen­er­a­tion at TESs or CHPs op­er­at­ing on an­thracite im­ported al­most ex­clu­sively from the Rus­sian Fed­er­a­tion, in­clud­ing coal from Rus­sian-oc­cu­pied ORDiLO;

(3) the ob­struc­tion of a switch from coal to coal gas at such TESs;

(4) pro­tracted fail­ure on the part of the cen­tral govern­ment to act to stop years long sab­o­tage by lo­cal gov­ern­ments and Geon­adra, pos­si­bly also un­der in­flu­ence from the ag­gres­sor coun­try, which has been aimed at dis­rupt­ing the ex­pan­sion of do­mes­tic ex­trac­tion of nat­u­ral gas;

(5) in­creased do­mes­tic de­pen­dence on Rus­sian petroleum prod­ucts and gaso­line. The sys­temic and large-scale na­ture of these de­vel­op­ments and the threat that they present to the coun­try’s en­ergy se­cu­rity in­di­cate that this is de­lib­er­ate sab­o­tage aimed against Ukraine.

The cor­rupt oli­garchic push­back that has been grow­ing since the par­tial suc­cess of re­cent years, es­pe­cially spring 2017, has al­ready thrown Ukraine off track on the path to in­creased en­ergy in­de­pen­dence, even com­pared to the lev­els that had been reached in the first half of 2017. Things are only likely to get worse fur­ther.

START­ING WITH A 20/20 VI­SION

Ukraine is unique in that it has all the re­sources nec­es­sary to cover do­mes­tic de­mand for nat­u­ral gas, yet it is not only not us­ing these re­sources but has re­mained hostage to im­ported Rus­sian gas ever since it de­clared in­de­pen­dence. As a re­sult, all these years Ukraini­ans have not only suf­fered eco­nomic losses but also po­lit­i­cal and se­cu­rity risks, by be­com­ing the tar­get of black­mail­ing ex­ter­nal play­ers in­stead of tak­ing ad­van­tage of their own nat­u­ral wealth.

In May 2016, the new man­age­ment of Ukrgazvy­dobu­van­nia, the state gas ex­trac­tion con­glom­er­ate, fi­nally pre­sented its 20/20 pro­gram, which had the sup­port of the Cabi­net and aimed to in­crease ex­trac­tion of nat­u­ral gas to 20 bil­lion cu m by 2020 from the then 14.5bn cu m. To­gether with pri­vate com­pa­nies, out­put would have reached 27bn cu m. With gas con­sump­tion on a pos­i­tive trend to­wards re­duc­tion in 2015-2016, this level of ex­trac­tion would have al­lowed Ukraine, if not to com­pletely stop im­port­ing gas to at least keep im­ports within a rel­a­tively sym­bolic range of 5-10% of do­mes­tic de­mand. That kind of level would clearly no longer rep­re­sent an en­ergy se­cu­rity threat to the coun­try.

The suc­cess­ful im­ple­men­ta­tion of the 20/20 pro­gram was es­pe­cially sig­nif­i­cant as it would have re­moved the big­gest risk: Gazprom’s threat­ened shut-off of tran­sit gas through Ukraine’s GTS once it com­pleted its by­pass pipe­lines to Europe through the Baltic and Black Seas. This had con­stantly pro­vided a means for se­ri­ous black­mail as long as Ukraine had a huge short­fall in gas for do­mes­tic needs. But most im­por­tantly, had there been a suc­cess­ful bal­ance be­tween do­mes­tic ex­trac­tion and do­mes­tic con­sump­tion, the win­dow of op­por­tu­nity would have opened for a con­sid­er­able re­duc­tion in the price of gas for Ukrainian con­sumers as the price for­mula “Euro­pean hubs + trans­port” would change to “Euro­pean hubs — trans­port.”

At this point, how­ever, it’s clear that the 20/20 pro­gram has been thor­oughly dis­rupted be­cause of the ac­tions and in­ac­tion of govern­ment agen­cies, and mainly be­cause of the de­struc­tive emer­gence of an in­ter­nal strug­gle among dif­fer­ent in­ter­est groups in the cur­rent govern­ment. In their eyes, stop­ping their ri­vals out-trumped the other fac­tors: un­der­min­ing na­tional se­cu­rity, weak­en­ing Ukraine’s po­si­tion in the face of pres­sure from Gazprom, dis­cred­it­ing the idea of the coun­try be­com­ing gas in­de­pen­dent and in­sti­tut­ing mar­ket re­forms in its gas sec­tor.

END­ING WITH 20/17?

Ex­ter­nal ev­i­dence of this cat­a­strophic sit­u­a­tion on the gas mar­ket was when in­for­ma­tion about the vol­umes and dy­nam­ics of nat­u­ral gas ex­trac­tion in the coun­try sud­denly be­came un­avail­able. A sec­tion called “in­for­ma­tion in the form of open data” ap­peared on the Min­istry of Power and

IN­STEAD OF MOV­ING TO­WARDS EN­ERGY SELF-SUF­FI­CIENCY THE GOVERN­MENT TO­DAY AP­PEARS TO BE TAK­ING THE COUN­TRY TO A VARI­A­TION OF “DUTCH DIS­EASE” AND A TIME WHEN RENTS AND OTHER REV­ENUES FROM EX­TRAC­TION SLOWLY TURN INTO A KEY SOURCE FOR BUD­GET FUNDS

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