Slovakia set to send limited gas flows to Ukraine

By bne IntelliNews April 28, 2014

Tim Gosling in Prague -

Slovakia is set to sign off on a deal with Ukraine on April 28 to pump gas into Ukraine from the EU. However, the flows will remain limited, as Bratislava stalls on sending larger volumes to Kyiv for fear of muddying its own waters.

Slovakia and Ukraine will sign a deal to reverse an unused pipeline, the economy ministry in Bratislava said on April 26. That will allow it to ship over 3bn cubic metres of gas a year (cm/y) starting in October, rising to up to 10bn cm/y from next spring.

Economy Minister Tomas Malatinsky said the deal is almost ready. "We believe that we will be able to make minor additions so it can be signed on Monday," he told reporters, according to Reuters. However, Slovakia continues to block a deal that would allow bigger shipments along the main international pipeline running from Russia to the EU.

Ukrainian Energy Minister Yuri Prodan complained that the volumes under the deal will not be sufficient. "There are technical possibilities, for shipments of up to 30bn cm, [but] there are legal problems in contracts," he said. "We will look for compromises on Friday, Saturday, Sunday so we can sign the memorandum."

Gas wars

With military action against Russian action in Ukraine not an option, Brussels is pushing to offer support to the pro-western interim government in Ukraine. Gas is a major stick used by Moscow, and the price it charges Ukraine has almost doubled in the second quarter of the year. The EU wants to alleviate the pressure by sending Russian gas, bought at cheaper prices, back east to Kyiv.

The likes of Poland and Hungary began pumping gas to Ukraine - which usually transits Russian gas the other way - in 2012. However, despite drawn-out talks, Slovakia - which sits on the main pipeline route into Europe and therefore could make the biggest contribution - has yet to sign up.

While Bratislava says it is now ready to seal a deal, it's not the one that either Brussels or Kyiv are pushing. As well as offering Ukraine cheaper gas, the plan is intended as a fail safe in the event that Russia cuts its supply entirely. Supply cuts in 2006 and 2009 saw eastern EU states shivering.

Those previous "gas wars" have not helped the deal, suggests Jakub Groszkowski at the Centre for Eastern Studies (OSW). "The negotiations concerning... have been additionally impeded by the distrust between the governments of these two countries," the analyst writes. "Both parties have been regularly accusing each other of ill will and of sabotaging the reversal deal. This is partly an effect of Slovakia's negative experiences during the talks with Ukrainians at the time of the gas crisis provoked by Gazprom in 2009, when Slovakians complained several times that they had been misled by the government in Kyiv."

Ukraine will need a lot more gas than Slovakia is offering if Russia turns off the tap. Energy minister Prodan said Kyiv has offers from gas suppliers from Europe if the shipment bottlenecks can be resolved.

However, Vahram Chuguryan of Slovak pipeline operator Eustream reiterated that the country is not prepared to put its relations with Russia at risk, and will only sanction a deal to send gas through the unused, smaller route. "Use of the Vojany-Uzhgorod pipeline is at the moment the best possible solution from a technical, time and legal nature," he said according to the FT.

Picked off

European Energy Commissioner Guenther Oettinger offered Bratislava support for its stance that any wider action risks breaking its contracts with Gazprom. "Legal analysis shows that on the basis of current contracts, the big solution is impossible without the agreement of Gazprom, and the small solution is possible without Gazprom's consent," Oettinger admitted. He added that the EU will discuss the larger solution with Russia.

Slovakia has spent recent months alternately warning that it's vulnerable to legal steps from Moscow should it implement the reverse flow on the main route, or busy looking for a technical solution. Officials, from Prime Minister Robert Fico down, have insisted throughout that Slovakia is not delaying the launch of the reversal on purpose.

"We are ready to help them, but any kind of help has its bounds and it is economically limited," the PM said in March. "Slovakia's first priority is to ensure guaranteed and secure Russian gas deliveries through Ukraine to the country."

On the one hand, Slovakia is fully dependent on Russian gas and earns large revenue from transiting Russian gas to the west. On top of that, the country's vital auto sector makes significant exports to Russia and, according to the FT, the Slovak military is reliant on parts from Russian suppliers.

However, at the same time as Ukraine has been struggling to persuade Bratislava to help lower its gas bill, the Slovaks have also been renegotiating its own gas contract. sealed a 15 year gas price discount from Russia late last month. On April 24, Bratislava extended an oil supply and transit deal with Russia.

The failure to persuade Bratislava to play ball puts Brussels' difficulties presenting a stern and untied front to Russia's aggression in Ukraine in a nutshell. Moscow is a master at picking off individual member states, as it has been successfully doing for years. A glance to the south sees Bulgaria furiously opposing Brussels' attempts to block South Stream - Gazprom's planned gas pipeline into southern Europe.

Groszkowski indicates the US has joined the EU in pressing Bratislava to unblock the wider option, and warns "Slovakia has begun to be viewed as a representative of Moscow's interests".

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