Archive for November 18th, 2010


Gazprom – Naftogaz Ukraine JV

November 18, 2010

Yesteryday, Gazprom announced a joint venture with Naftogaz Ukraine although nothing so far (but today is yet young) has been said by the Ukrainian side.

However, looking at the Gazprom statement, it would appear that thus far, if any agreement has ben made, it is for both sides to start evalutating which assets could be contributed to any joint venture (and of course which would not).

That sounds a little bit limp and not yet the creation of a JV at all……simply an agreement to see what both sides “could” (not would, will, shall, are going to) put into any future  JV.

But what of Europe?  What of the hopes Ukraine have had since 2002 of having EU involvement in such a JV?

Well, 8 years have passed since the EU was first approached.  During this time there has been 5 years of political instability amongst what should have been the most pro-EU administration Ukraine has ever seen.  That administration has now passed of course, however not before 2 occasions of the gas to Europe being switched off.

In the meantime Nordstream has got underway direct from Russia to Germany.  South Stream seems certain to go ahead after events in Buglaria this week.

Is there any real reason for the EU to invest in a joint venture with Russia and Ukraine?

When it comes to gas supply, probably not on the assumption both Nord and South Stream projects are completed as per schedule.  After all the pipelines currently serving the EU have seen no maintainence since Ukraine became independent 18 years ago.  The chances are it will last 2 or 3 more years until EU dependence on the Ukrainian pipe system is radically reduced.

However, there is much more at stake than simply gas supply.  As I have written many times, at a certin level, where nothing appears connected…..everything is connected.

If the EU does not involve itself in the JV, how does it influence Ukraine?  There is obviously Visa-free travel for its citizens (a matter to be discussed in 3 days time between Ukraine and the EU), there is the current slowly moving Deep Free Trade Agreement which looks likely to be the middle of next year before it is suitable to both sides and signed off and there is the Eastern European Agreement.

The timing of this Gazprom announcement is what is most interesting today (although the JV is obviously a serious issue in itself) with the EU-Ukraine summit on the 22 November.  This adds presure to the EU to give Ukraine “something”, whether it be the roadmap to Visa-free travel or the announcement of some form of Ukraine-EU JV (whether it is in the field of space, R&D, technology…..whatever) to balance the latest Russian announcement in the eyes of the Ukrainian people.  (Of course as a Ukrainian citizen you are far more interested in not needing a tourist Visa for Rome than you are of cooperation in space.)

So why is the EU (and we do not know what is in the DFTA to be fair) not involving itself in the Ukrainian gas infrastructure when there is such a large geopolitical consequence?  Is it not exactly what the EBRD is for?  Well, yes and no is the answer.

Taking a look at the historical actions of the EBRD, it seems very shy, (and this must be by policy for I see no other reason) to avoid investment in matters where a State has an overwhelming interest/share/stock holding in a project.  Its actions seem to back a policy of investing in ventures where the State is a minor stake holder, if it is a stake holder at all.  Looking at EBRD action historically, involvement in this JV would be automatically ruled out as both parties in the proposed JV are very much State owned.

So who else would enter the fray with such entities?  Many of the European companies who may entertain such a project are already committed to JV’s with Gazprom in Nordstream and/or South Stream.  It is a question of cash flow, capital commitment and no less importantly risk management.

There will be many critics internally and externally of Ukraine should this JV actually go ahead (and the longer it takes, the more decrepid the existing transit system becomes) but who and what within Europe will get involved?

If we discount Europe and look to those wanting a revenue stream far into the future on investment then a private company will never see the attraction of being in bed with the governments of Russia and Ukraine over a protracted term. 

This leaves the soveriegn “State capitalist” modelled nations…….enter China?  Hardly in the interest of Russia,Ukraine or the EU.

Options anyone?  (Or should the existing system just be allowed to fall apart and serve only the internal uses of Ukraine)

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