Slovakia still coy on sending gas to Ukraine

By bne IntelliNews April 16, 2014

Tim Gosling in Prague -

The latest talks on sending gas from the EU to Ukraine via Slovakia ended on April 15 without agreement, as Bratislava continues to shy away from the plan. The same day, the first European supplies to Ukraine this year began to flow from Poland.

Russia is using gas supply and pricing as a stick in its tussle with the pro-Western interim government in Kyiv. In response, the EU has been trying to accelerate a plan to reverse the flow on pipelines that usually carry Russian gas through Ukraine and into Europe, in order to offer Kyiv energy at cheaper prices than Russia will now make available.

However, while gas began arriving via Poland and Hungary over the past couple of years - ahead of the overthrow of former president Viktor Yanukovych which kicked off the crisis - Slovakia, which could make the greatest contribution, continues to stall.

The latest meeting between Slovak, Ukrainian and EU officials saw a deal still out of reach. "No agreement on the issue has been reached yet due to unresolved issues regarding contracts between [Slovak gas transmission company] Eustream and third parties," a spokesman for the Slovak Economy Ministry said, according to the Wall Street Journal.

Slovakia has not agreed to reverse the flow of one of four main international pipelines carrying Russian gas westwards, Economy Minister Tomas Malatinsky said during a break in the talks with Ukrainian counterpart Yuri Prodan, reports Reuters. However, it has offered to use a smaller, disused pipeline, to pipe some gas back to Ukraine from the mainline route.

"We are ready to invest in this pipeline link to make it operational by this winter," the spokesman said, adding that Eustream wouldn't put its agreements on bulk transit of Russian gas at risk by using the smaller pipeline. "We are working on an option which needs to be discussed further before signing a memorandum," Malatinsky said. The spokesman added that a memorandum on the plan should be signed on April 28.

Not enough

However, with Russia suggesting it's ready to cut supplies to Ukraine unless it pays its bill immediately - an unrealistic proposal for a country scrambling to avert economic meltdown - Prodan complained that the plan will not guarantee enough energy from Europe. "The memorandum which is prepared is a certain step toward reverse supplies from the European Union, but I am saying openly that given the situation - a very exceptional situation - we would need substantially more."

The Vojany-Uzhorod pipeline can ship about 3bn cubic meters (cm) of gas to Ukraine, rising to 9bn cm within the next 12 months. Flows from Poland could total around 1.5bn cm annually, while Hungary and Romania could offer around 5.3bn cm between them. Eustream's bulk pipelines handle more than 50bn cm annually.

The first of those routes was opened on April 15, as German utility RWE announced it has begun pumping gas from Poland. "RWE ... is the first European supplier to commence gas deliveries to the Ukraine in 2014. Today RWE re-starts deliveries to the state-owned company Naftogaz of Ukraine with gas from its pan-European portfolio," a company statement read.

The reversal of the pipeline linking to Poland has been carried out under the terms of a contract signed in 2012. RWE added that "deliveries to Ukraine are based on European wholesale price levels including delivery costs to the Ukraine."


Prodan insists, however, that reversing one of the major pipelines linking to Slovakia is key for his country, which consumes around 55bn cm of gas per year. "Together with what we have (agreed) with Hungary and Poland, that would give us certain security," he said.

Over the past few years, disagreements with Russia have seen supplies cut twice - also hitting supply in the eastern end of the EU. That has seen Kyiv clashing with Gazprom over contractual terms as it seeks to reduce the volumes it buys. The annexation of Crimea in March, and the subsequent seizure of Ukraine's main oil and gas explorer, has put a huge question mark over efforts to boost domestic production.

Meanwhile, although the EU has been criticized in some quarters for its unwillingness to offer a sterner front to Moscow, many suggest offering Ukraine as much support as possible will provide the most palpable hit. However, Slovakia's lack of enthusiasm illustrates the leverage that Russia enjoys in the region.

The plan has been on the table for some time, but Bratislava has looked to be scrambling to duck out of it as the pressure has risen in recent weeks. The Slovaks now say that they worry that reversing a pipeline could violate its supply contracts with Gazprom.

"We remain concerned about contractual aspects of our agreements to ensure steady supplies of gas to Europe even if we were to transport some of it back to Ukraine," the economy ministry spokesman said, according to WSJ, although he did not elaborate. Slovakia's main importer of Russian gas, Slovensky plynarensky priemysel (SPP), announced on March 28 that it has secured a gas price discount from Gazprom.

Prime Minister Robert Fico has stressed in recent weeks that securing Slovak supplies is top priority in Bratislava. "We are ready to help them, but any kind of help has its bounds and it is economically limited," he said following talks on the reversal in Brussels in late March. The Slovaks have also complained Kyiv is not following the correct procedures to set up the deal. Meanwhile, Ukraine has claimed its experts have been blocked from accessing Slovak facilities to investigate technical possibilities.

Russian gas transit through Ukraine to Europe is also a major revenue earner for Bratislava. Eustream parent company SPP is 51% controlled by the state, although management control rests with Czech-based energy group EPH. The ownership of that company features Slovak financial group J&T, which is speculated to have close ties with Fico, and Czech billionaire Petr Kellner, who has numerous business interests in Russia, mainly connected to the St Petersburg oligarch circle surrounding ICT group.

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more