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
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