Slovakia remains caught between Russia and Brussels as EU presidency looms

Slovakia remains caught between Russia and Brussels as EU presidency looms
Deputy PM Peter Pellegrini stressed in a meeting on April 26 with Gazprom's Viktor Zubkov Slovakia's desire to ensure energy security and continue long-term cooperation with Russia.
By Brian Kenety & Tim Gosling in Prague April 27, 2016

Slovakia has stressed that it will make the preservation of the Ukraine gas transport corridor a cornerstone issue of its EU presidency, which kicks off in July. However, the country clearly remains pulled in opposite directions by Moscow and Brussels.

Alongside the Nord Stream pipeline, Slovakia is one of two main entry points for Russian gas exports supplies to the EU, picking up the fuel at its border with Ukraine. The country earns huge revenue from its role operating the mainline. 

However, the Kremlin has vowed to build alternative routes to bypass Ukraine by 2020. Slovak Prime Minister Robert Fico has branded a deal agreed by several large European companies with Russian gas monopoly Gazprom and to build Nord Stream II a “betrayal” that will cost his country and Ukraine billions of euros in transit fees in years to come.

Gas transit through Slovakia rose around 10bn cubic metres to total 56bn cm last year, the Slovak Gas and Oil Association said on April 27. However, with gas markets slack, the rise only brings the volume back to previous levels. In the meantime, the country has also added to transit activity by carrying gas from the west to Ukraine. Like the gas flows in its pipelines, Slovakia is being pulled in different directions by the EU and Russia.

Deputy Prime Minister for Investments Peter Pellegrini told the Central European Gas Congress (CEGC) on April 26 that the Slovak transport system, operated by Eustream, is key for security of supply for the European network. “Therefore, we’ll insist on maintaining the gas transportation corridor via Ukraine and promote the maximum use of transport networks passing through Slovakia,” he said, according to TASR

The Slovak state owns 51% of Eustream, the most important asset in closely-held Czech/Slovak EPH’s recently spun off unit EP Infrastructure (EPIF). The risk may have helped persuade EPH to scrap the float on April 27, just 15 days after the plan was announced. The vast majority of Eustream's €630mn revenue in 2014 was earned for the transmission of Russian gas imports to the EU.

EPIF makes around half of its revenues meeting Gazprom’s exports on the eastern Slovak border to carry them to Austria. The Slovak coalition government’s four-year programme, approved on April 26, pledges financial support for Eustream’s gas pipeline project Eastring, which plans to carry gas from the EU to the Balkans, which will be cut off should Gazprom halt supplies via Ukraine. In any case, the project will likely remain a pipe dream if the EU doesn’t help fund it.

Pellegini, who is substituting for Fico while he recuperates from open heart surgery, told the CEGC that the EU's Energy Union project will also remain a focal point during Slovakia’s EU Presidency. In November, Slovakia and Poland, which are leading the opposition to Nord Stream II, sent a letter to the European Commission signed by eight other member states objecting to the proposal, which is backed by Berlin.

The bear in the room

However, the Czech Republic, a fellow member of the Visegrad Four and traditionally Slovakia’s closest partner, has opted out of that push to oppose the Russian plan. Prague stands to enjoy raised revenue from gas transmission should it go ahead. That hints at just how tough a job Bratislava has on its hands to push past the individual interests of member states to put together a solid coalition opposing Nord Stream II.

Slovakia’s call for unity on the gas issue is not without irony. Bratislava has led furious resistance to the EU’s efforts to deal with the migrant crisis and has even launched a lawsuit against Brussels’ quota system to distribute refugees around the bloc. Meanwhile, reflecting the crux of the issue, Slovakia has also long pressed to soften EU sanctions against Russia, although it has refused to veto them outright.

Still, it clearly has many significant voices on its side. European Commission Vice-President for Energy Union Maros Sefcovic - who is Slovak - acknowledged that the issue is of extraordinary importance both in terms of geopolitics and foreign affairs to Central Europe in particular and that any projects that might pose a threat to transit routes via Ukraine are the subject of heated debate.

“I know that this project was presented as a purely commercial one. However, I have never seen a commercial project that would be so heavily discussed – even at the political level,” said Sefcovic, according to TASR. “We don’t want the completion of any energy project to create winners and losers. All members must benefit from the joint projects as a European community.”

Pellegini appeared to soften the message somewhat in a meeting on the sidelines of the conference with Gazprom Chairman Viktor Zubkov. The deputy PM said that the Slovak government believes it is possible to reach an agreement with Russia ensuring the smooth supply of gas to Slovakia and its transit on to other EU countries, the government press office said in an April 26 statement.

For his part, Zubkov told the conference “Russia has been and will remain prepared to serve as a serious economic partner for each European country and as a reliable natural gas supplier,” according to TASR. “In this respect, we clearly strive to boost all aspects of energy security; we’re adopting necessary risk-reduction measures, including measures on developing non-transit routes,” he said.

“Although it’s been said that all is well in Ukraine today, events of recent years have shown that this transit link only creates risks for gas supplies and sales,” Zubkov said, without directly addressing the elephant – or rather bear – in the room.

Gazprom last autumn signed the proposed Nord Stream II expansion deal, which would double capacity along the route via which the Russian gas monopoly already ships gas to Europe, with Germany’s E.ON and BASF/Wintershall, Austria’s OMV, ENGIE of France and Royal Dutch Shell. Moscow insists it needs to bypass Ukraine as it is an unreliable partner, and remains keen to cast the blame for the “gas wars” of 2006 and 2009 – which saw much of CEE freeze –  squarely at Kyiv’s door.

Ukraine halted imports of Russian gas last year. The country remains embroiled in a cold civil war with Russian-backed rebels in the east of the country which has cost more than 9,000 lives.

An official from Ukrainian gas company Naftogaz reiterated at the conference Kyiv’s charge that Nord Stream II is “ politically motivated” – a divide and conquer strategy aimed at weakening CEE countries by forcing them to pay more for Russian gas while depriving them of crucial revenue from transit fees, CTK reports.