Russia approves Slovak limits on gas to Ukraine

By bne IntelliNews May 20, 2014

Tim Gosling in Prague -


Slovakia and national pipeline operator Eustream continue to prove less than enthusiastic in their efforts to pump gas from the EU to Ukraine, even as the company said on May 19 that the limited reversed route it has set up should be ready to operate at full capacity by the start of September.

Meanwhile, as if to offer Bratislava the Kremlin's blessing, Russian Foreign Minister Sergei Lavrov said Moscow has "no complaints" over the Central European country's agreement to send up to 10bn cubic metres (cm) across its eastern border. 

One of its most potent weapons to put pressure on the cash-strapped interim government in Kyiv, Russia has raised gas prices for Ukraine by almost 100%, and has said it will cut supplies unless Kyiv pays its outstanding bill. The EU has been pushing to reverse pipelines that usually run east to west to carry cheaper gas to the country. However, Slovakia has dragged its feet. 

Seeking a significant contribution to its annual consumption of about 55bn cm, Kyiv was pushing for Bratislava to reverse one of the mainline pipes that carry Russian gas to Europe. That would have supplied 30bn cm per year. However, Bratislava insisted such a move would break contracts with Gazprom. 

On April 26, it announced that it has agreed instead to send 8bn-10bn cm to Ukraine via an unused pipeline. "With 90 to 95% probability, we should be able to ship 8 to 10 [bn cm] per year already as of September 1, depending that certain technical preconditions are met on both the Slovak and Ukrainian side," said Tomas Marecek, chairman of Eustream, according to Reuters.

However, the executive added that the volume of gas could come in lower than the capacity. Eustream wants to evaluate bids for booking the pipeline's capacity by the end of June, Marecek said, although initial bids will be for less than full capacity and instead for flows that Eustream will be certain it can transport.


The lack of enthusiasm is nothing new for Bratislava. Poland and Hungary began pumping gas to Ukraine - which usually transits Russian gas the other way - in 2012. Those flows have only become more important due to the crisis in Ukraine. However, Slovakia - which sits on the main pipeline route into Europe and therefore could make the biggest contribution - has been stalling on a deal for years.

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 their own gas contract. Bratislava 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.

At the same time, questions have started to be asked over the role of the Czech business figures that control Eustream. Energy holding EPH - controlled by closely-held financial groups PPF and J&T - bought control in the Slovak pipeline operator in 2013. 

In particular, PPF - owned by the Czech Republic's richest man Petr Kellner - is under the spotlight. Kellner has considerable investments in Russia and strong links to the St Petersburg oligarch circle surrounding ICT Group. Meanwhile, J&T is speculated to have close ties with Fico.


The failure to persuade Bratislava and Eustream to play ball puts Brussels' difficulties presenting a united front to Russia's aggression in Ukraine in a nutshell. Moscow is a master at picking off individual member states. A glance to the south sees Bulgaria furiously opposing Brussels' attempts to block South Stream - Gazprom's planned gas pipeline into southern Europe.

Jakub Groszkowski at the Centre for Eastern Studies (OSW) says Bratislava is now being viewed with suspicion. That hints that the agreement on the smaller route is a bid to alleviate pressure from Brussels and Washington. "Slovakia has begun to be viewed as a representative of Moscow's interests," the analyst warns.

Moscow apparently understands. Following a meeting with Slovak Foreign Minister Miroslav Lajcak in Moscow, Lavrov sought to offer Russia's support. 

"Of course we follow the discussion of the topic of gas reverse to Ukraine from the countries that buy gas from Gazprom, as there are corresponding intergovernmental agreements and there are contracts, and the way the Slovak leadership treats this topic absolutely does not violate such arrangements with Gazprom and the Russian Government, so here we have no pretensions," said Lavrov, according to Ukrainian News.




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