Hybrid war raises paradox and uncomfortable questions. In particular, can you trade with the country with which there is a war for the fifth year? May the enemy dictate energy demands? Despite political statements that Ukraine got rid of gas dependence on the Russian Federation, up to two-thirds of its imports from Russia are energy carriers.
Energy carriers are more than 60% of all imports from the aggressor country to Ukraine. On the eve of the New Year, this figure was announced in the press center of IA “Glavkom” by Veronika Movchan, the Director for Research, the Head of the Center for Economic Research at the Institute for Economic Research and Policy Consulting.
“In recent years, imports have increased in the trade with Russia, and this indicates one of the most vulnerable elements of the Ukrainian economy, since about two-thirds of imports are energy carriers, and Ukraine is still dependent on supplies from the Russian Federation”, the economist said. “Now we are independent of gas, at least de jure, but oil, refined products, coal, fuel for nuclear power plants remained. This is the main component of import. The economy is growing and, accordingly, the demand for energy carriers and import from a source, closest to us and economically beneficial, is growing”.
To hide Ukrainian GTS is too early
In the gas issue, new challenges arise, related to the end of the ten-year agreement with the Russian Federation, as well as the possibility of completing the Nord Stream-2 gas pipeline (NS-2), with the launch of which the load on the Gas Transmission System (GTS) of Ukraine will drop significantly. Meanwhile, on the eve of the elections, individual presidential candidates promise to significantly reduce the price of gas. Although, the chairman of the board of the NJSC “Naftogaz of Ukraine”, Andriy Kobolev, warned that this is unrealistic. The issue is politicized, and it is difficult for the average consumer to understand what is happening in the market, and who should be trusted.
“We only got rid of direct contracts with Gazprom, but there is no gas dependence”, Gennadiy Ryabtsev, the director of special projects for STC Psyche, explained to Opinion. “There are several aspects. The first is dependence on the transit of Russian energy. If it was not, we would not be worried about the construction of NS-2. The second aspect is the fact we don’t buy Slovak gas. In Slovakia, it is not mined, just as it is not mined in Poland and Hungary. And how does it get to these countries? From the Russian Federation”.
Energy dependence is a strange thing: in one place you press it ‒ in another, it gets out. Although, many countries do not have energy at all, the problem is overcome without shocks for the economy. Experts say, in fact, the question is in diversification.
“The wording that Ukraine has lost Russian gas will make me laugh”, Oleksii Kucherenko, the former minister for Municipal Engineering, told to Opinion. “Are we fighting for what gas transit? It is Russian. The conversation should be about diversification, consisting of maximizing the volume of domestic production and external sources. We buy Russian gas de facto but called it reversible. We pay an extra 40 dollars for a thousand cubic meters, for the fact that certain “liners” is driving that gas to us back through Slovakia and Hungary. Second, we fight for transit and lose it drastically. Third, the talk about the replacement of production is still a chatter”.
This year the term of the agreement, signed in 2009 between Ukraine and the Russian Federation, expires. The signature under it was put by ex-Prime Minister Yuliya Tymoshenko, the current presidential candidate, who promises to cut the price of blue fuel down by half. On January 21, trilateral negotiations between Ukraine, the Russian Federation and the EU began. They are expected to be tough, and they are also superimposed on the presidential and parliamentary election campaigns in our country. But the first pancake for us was not tricky. Rather the opposite.
“The joint Ukrainian and European position is that the new agreement is based only on European legislation already adopted by Ukraine”, said Olena Pavlenko, the president of the DIXI Group analytical center, on Ukrainian Radio. “And this is a fundamental difference from the position of Russia, which wants to preserve the old treaty, which will allow it to break it at any time with the completion of NS-2. If the Ukrainian pipe will operate under the laws of Europe, then in 2-3 years, the European companies will not need NS-2. If the Russian Federation does not launch this pipeline, it will lose leverage over the EU, its action plan for Ukraine will collapse”.
By the beginning of 2020, there are no alternatives to the Ukrainian GTS. Russia’s actions are blackmail, an attempt to scare Ukraine and the EU. However, the use of domestic gas pipe still requires intervention.
“Over the next year, we need to change the control system of the gas transportation system so that Europe buys gas not on the border of Ukraine and the EU, but on the border of Ukraine and Russia”, Veronika Movchan is convinced. “Now this is the only way to ensure the loading of our gas transport system, which is important not only for the economy but also for the national security of Ukraine.”
Gennadiy Ryabtsev has a similar position, “You can make the European company sign a contract with Gazprom, and the Ukrainian operator will provide services for the transit of this gas through our territory of the European company. But for this, you need to move the point of sale of Russian gas to the eastern border”.
We buy “Russian” coal from… Separate Regions of Donetsk and Luhansk Region. For big money
Perhaps, the most paradoxical story about the coal, which resembles the situation from the fairy tale about the Fox and the Wolf, about how beaten one carries the unbeaten. Ukraine buys expensive coal from Russia, mined in… Ukraine. More precisely, on the territory, uncontrolled by our government, in the so-called DPR and LPR.
A year and a half ago, Prime Minister Volodymyr Groisman stated that not a single state-owned company buys coal in Russia, and the government is taking all measures to diversify its supplies. However, according to the assurances of the co-chairman of the Public Initiative “Right Business” Dmytro Snegiryov, the official Kyiv cannot be unaware that he is buying Donbas coal under the guise of Russian, significantly overpaying. And this situation, obviously, suits the officials, gives a reason to assume that they are interested in this scam.
Statistics from the Ukrainian officials is different. The head of the Ministry of Temporary Occupied Territories and Internally Displaced Persons of Ukraine, Vadym Chernysh, reported about 2,800,000 tons of coal, illegally mined from the occupied Donbas regions of Ukraine, and exported to Russia. Ukraine lost $ 280 million. His Deputy Georgiy Tuka stressed: Russians annually steal about 7 million tons of our coal, and the number of losses to Ukraine can reach $ 400 million. The coordinator of the Information Resistance (“IR”) group, People’s Deputy Dmytro Tymchyk noted that in 2017 coal export from the SRDL territory to Rostov region amounted to about 1,600,000 tons in the amount of approximately 100 million USD. Mr. Tymchuk clarified to Оpinion that the source of his message is the operational reports of “IR”.
“Mr. Nasalyk (Minister of Energy and Coal Industry ‒ Ed.) recently, during an hour of questions to the Government in the Parliament, said that since 2016 Ukraine has reduced the consumption of anthracite coal three times,” said Dmytro Sniegiryov. “He called the numbers: in 2016 PJSC “Centrenergo” consumed 2,200,000 tons, and in 2018, 4,400,000. What kind of decrease in the number of coal purchases are we talking about, if from January to October 2018 the volume of imported coal and anthracite increased by 15.5%, by 2, 3 million tons? For example, in January 2018, Ukraine increased imports of coal and anthracite by 1.8 times, by a million tons, as compared with the same month of the year before last. Again, the discrepancy in numbers. And this is evidenced by the data of the SFS. In monetary terms, coal imports amounted to $ 281.2 million, 64% more than in January 2017 ‒ $ 171 million”.
Dmytro Snegiryov is convinced that by the statements of officials, the real volumes of export of Ukrainian coal to the territory of the Russian Federation and, accordingly, its imports from the territory of Russia are hiding, “If the government reports a decrease in the purchase of anthracite for state-owned power plants, and the SFS on the contrary, of increased coal consumption by generating stations, this indicates the fact that private entrepreneurs, who own these stations are given preferences to increase electricity production at the expense of reduction of volumes of power generation of the nuclear power plant. This is one of the corrupt components”.
Oleksii Kucherenko also stresses the corruption manifestations. According to him, in Ukraine, coal comes from the occupied territories of Donbas under different schemes. This question should be in the field of view of the SSU, military counterintelligence and the prosecutor’s office.
“We need full control, but the problem is political,” Mr. Kucherenko says. “If senior officials, deputies, businessmen are feeding on this, then they will hold to it. “Rotterdam +” scheme was created to hide all abuses in the import price”.
And Gennadiy Ryabtsev points to a significant reduction of this disgraceful phenomenon, “Such transactions really took place, but 3-4 years ago, and now they don’t. Coal, mined in Donbas is used at the thermoelectric station in Kursk and Belgorod regions. Some part is sold through the offshore companies to Turkey. Small volumes. Maybe some crumbs come to us”.
It is possible to reduce the energy dependence on Russia by transferring blocks of PJSC “Centrenergo” and private generating stations to the gas group of coal. Occasionally, the authorities promise to do this, but the business almost did not budge.
Say ‘no’ to Gazprom, say ‘yes’ to Rosatom?
It is not that easy with fuel for nuclear power plants. Ukraine buys it mainly from Russians (TVEL), although, we signed an addendum to the current agreement with Westinghouse to increase the supply of American-made fuel assemblies. According to Gennadiy Ryabtsev, we cannot fully replace Russian fuel for nuclear power plants with American ones, despite the fact that the Russian Federation is an aggressor country. No need to rush from one extreme to another, you need to balance between American and Russian manufacturers, and this will encourage Russians to lower the price, to offer the best conditions.
“I agree that we should not have a relationship with Gazprom, but the nuclear industry is regulated by the International Atomic Energy Agency”, Mr. Ryabtsev continued, “and any disruptions in supplies, deviations from the security regimes, can lead to the imposition of large sanctions on the Russian Federation, TVEL or Rosatom . And the Russians, despite political problems, gritting their teeth, trying to fulfill contracts. This does not mean that we do not need to engage in our own mining of uranium, zirconium, and the production of semi-finished products. But the concept of the development of the nuclear industry, approved a few years ago, was not fulfilled; mining is decreasing.”
Ukraine has indirect dependence on Russian oil products. Those that we buy, for example, in Poland, Lithuania, Belarus, produced from Russian oil. We need to develop our own fields, however, in recent times, there has been almost no oil and gas condensate production in the country.
There are many problems, they are serious. However, despite all the problems, it is hardly possible to assert that the Russian energy noose is knotting Ukraine more tighter. On the contrary, it gradually weakens.
“The structure of energy consumption is gradually changing, alternative energy and energy saving are gradually developing, Ukraine is gradually switching to supplying fuel for NPPs from other sources, and not from Russia, but all this cannot happen instantly”, Veronika Movchan assured. “Everything is going very slowly, but if we have reoriented about half of the imports in 5 years, this is a good indicator, given the technological complexity of the processes”.
Text by Viktor Tsvilikhovskyi