Posts Tagged ‘oil & gas’


50 ways to leave your lover – Gazprom and Ukraine

July 9, 2013

The problem is all inside your head she said to me, the answer is easy if you think about it logically.  I’d like to help you in your struggle to be free – there must be fifty ways to leave your lover“.

Well, perhaps there are not 50 ways for Ukraine to leave its abusive relationship with Gazprom, but there certainly appear to be quite a few – despite there being no progress by the current Ukrainian government in finding legal grounds to break the odious, asymmetrical contract signed by Ms Tymoshenko in 2009.

Hardly hiding  itself within the current – and that which existed at the time the contract was signed in 2009 –  Anti-monopoly laws of Ukraine, Articles 7, 9, 13, 14, 22 and 25 would seem to have been violated.  Also Chapters 3 and 6 of the Ukrainian law on “Protection from unfair competition” – not to mention the law of “Protection of economic competition”, Articles 18, 19, 22, 24 and 25, and sections IV, VII and VIII, also seem to have been impinged.

Yes I know, if that route were taken and used to break or annul the 2009 contract on legalities, in signing it that would make Ms Tymoshenko guilty of breaking and steamrollering over numerous Ukrainian laws – and so perhaps her abuse of office conviction would sit more readily with a wider audience as an umbrella conviction for any or all of what appear to be breaches due to the wording of the signed contract she signed.

If so, then so be it.

However, in the interests or impartiality, under the Criminal Code of Ukraine, the current PGO and current Anti-monopoly Committee would be guilty of negligence Articles 368 and 369 by not exploring these apparent breaches of such an asymmetrical and clearly monopolising 2009 contract as was signed as outlined in the laws, articles and chapters mentioned above.

Now I may not have mentioned 50 ways, but there is certainly room to look at 16 parts of  3 different Ukrainian legislative acts that were current in 2009 when the contract was signed, that would seem break the law and thus provide a method to legally break the contract with Gazprom.

As I do not believe for a moment that these apparent breaches have not been discovered by the current administration, one can only assume that there are those who privately benefit from leaving it as it is, despite publicly decrying it.  Why else have they not been explored and at the very least suspended the Gazprom contract during investigations?


Ukraine – An energy hub – Be careful what you wish for

May 7, 2013

On Friday 3rd May, whilst I was enjoying my time off in the Odessa sunshine and taking in the beach life, Ukrainian Energy Minister Eduard Stavytsky had a meeting with the EU Energy Commissioner Gunther Oettinger (as well as Royal Dutch Shell and Exxon Mobil amongst others) in Brussels.

What became immediately apparent, if it wasn’t already clear before, is that Ukraine has decided that it can become a gas hub for the European continent and intends to pursue that strategy, making the most of its gas transport system and more particularly its vast underground gas storage facilities (50 billion cubic meters).

The infrastructure, whilst somewhat decrepit and thus in need of some serious investment, does at least exist already.

Very good – and an obvious goal to pursue given the soviet legacy Ukraine inherited.

But then there is the widely talked about “resource curse” to consider should Ukraine actually achieve its aim of both Black Sea Shelf and fracking production, transit and storage.  It may very well turn into an oil and (mostly) gas State.

Quite possibly a very good thing for the Ukrainian economy, GNI and indeed citizen income as well.

But at what social cost?

Of all 23 nations on the planet where 60% or more of GDP is derived from oil and gas – not a single one can be classed as a democracy.

Further all are very corrupt, almost completely unresponsive to the demands of their populations and have extremely low accountability amongst the political elite.

Looking at the Human Development Index which is a key identifier when it comes to identifying liberal consolidated democracies, almost all oil and gas States with 60% of GDP coming from those sources have extremely low HDI scores regardless of citizen wealth and GNI per capita.

That is not to say a low HDI score prevents democracy, of the bottom 46 ranking nations in HDI, 13 can be deemed a democracy of sorts and 2 of those, as liberal democracies.

Looking at the top 25 HDI scoring nations, only Singapore is not a democracy – and from the top 40 HDI scoring nations they are all democracies less Singapore and a few small oil and gas States (Qatar, UAE etc.)

Thus becoming an energy producing exporter and hub may well have dire consequences for an already “feckless” (per academic definition) political system in Ukraine.

One of the best ways to identify an effective and consolidated democracy seems to be to take the Freedom House score and multiply it by the World Bank anti-corruption score, and more often than not it closely mirrors the HDI position in the HDI league table – Spooky!

In fact, discounting the Islamic world, there is a very strong correlation between democracy, freedoms and any HDI score a nation has.

So becoming an energy producer and energy hub as planned will destine Ukraine to the usual fate of oil and gas dominant GDP nations with regards to democracy?

Well, not necessarily.

“Feckless” as the Ukrainian politics are and have been historically, there is nothing to prevent the current “feckless democracy” of Ukraine moving to a consolidated effective and possibly liberal democracy prior to the full  realisation of the energy producing/energy hub plan.  Should that movement to an effective and consolidated democracy occur prior to, or even simultaneously with the “energy plan”, then all may bode very well for democracy in Ukraine.

A very smart scholar named Przeworski has proven that (again removing the Islamic world from the equation) should the personal purchasing power of a nation reach a certain monetary figure (currently about $10,000, but a figure that needs to be index linked to remain relevant), then no democracy has ever crumbled.

In effect with a diversified economy and the average purchasing power per capita of $10,ooo or more, democracy is not only consolidated but invincible to the challenges of other governance models due to the middle class/ independent bourgeoisie.

Ergo, empirical evidence and academic works from the likes of Lipset, Prezeworski, Welzel and Ingehart etc, would all point towards the necessity of moving Ukraine’s currently “feckless politics” to an effective democracy whilst simultaneously trying to reach $X personal purchasing power and climbing the HDI league table if democracy is to survive any significant oil and gas increased share of the Ukrainian GDP.

The question is can the feckless political system stop being feckless before it leads Ukraine into the black hole of the resource cursed nations?  Looking at the entire Ukrainian political landscape and personalities within, that seems very unlikely without consistent external pressure and guidance.

All in all, an obvious and achievable plan for Ukraine – with very scary possible outcomes should it succeed.


Combined Heating and Power plant privitisation – Ukraine

October 24, 2012

This year, the combined heating and power plants (CHP’s) for Odessa, Kharkiv, Dnepropetrovsk and Kherson are all due to be privatised.

None of which seems likely between now and the end of the year due to the tender process and the clauses within the tenders.

Amongst the clauses are the conversion of the plants from being gas fired to coal fueled.   There are also requirements to increase output, in some cases quite considerably, within 3 years, as well as to overhaul and modernise the plants.

Not withstanding that, any purchaser must also repay all overdue debts within 6 months of acquisition.

Any purchaser must produce a feasibility study, and build, new heating networks relating to the region in  some cases.

If that was not enough, any entity taking part in the tenders must have a license for subsoil production in Ukraine which holds a minimum of 1 billion cubic meters of gas reserves – insuring (and committing to) sufficient gas reserves pending conversion to coal.

If that has not put off or disqualified most interested parties, there is then the tender costs to consider with the initial bid cost at UAH 3.5 million and a starting full purchase price for each CHP of about UAH 330 million – discounting the hidden costs of putting together feasibility studies and tenders themselves etc – which is very expensive in and of itself.

Immediately one tends to think of Dmitry Firtash as the most likely to go for this, but it appears he doesn’t really know what’s what – yet.

“I didn’t know that CHPs would be sold. Therefore, I can’t say anything now. If there was a sale, we would definitely take part. But it should be understood what will be tendered and what will be sold. There’s no sense in only buying. You have to know what it is.”

If what he says is true, and he doesn’t know what’s what – then it is a foregone conclusion nobody else will.  Thus I have serious doubts any CHPs will manage to be privatised before the end of 2012.


Russian Defence Ministry formally complains to Ukraine of UESU debt

September 11, 2012

Well it was bound to happen eventually and really there is no surprise it is happening now.

Ms Tymoshenko’s activities and those of her former company, United Energy Systems of Ukraine, will now come under further scrutiny as the Russian Defence Ministry has now lodged a formal complaint with Kyiv over an outstanding debt which it is owed by UESU.  The debt claimed is UAH 3,239,450,000 – yes that’s just over  UAH 3.2 billion.

Add to this an additional $18 million being sought from Ms Tymoshenko by a US registered company through the US courts at the moment over other irregularities with UESU and the timing of this does not bode well for Ms Tymoshenko, and by association the United Opposition, during the official electioneering period prior to the parliamentary elections in October.

Possibly worse still, is that after many years of denying there was a debt to Russia, a month or so prior to her jailing for alleged misuse of office, Ms Tymoshenko made a statement on television that there was indeed a debt to said Russian Ministry but disputed the size.  No doubt somebody somewhere in both Russia and Ukraine have that televised statement ready to deploy once her Ukrainian court case over tax evasion and various other nefarious shenanigans when running UESU begins very shortly.

That is of course, if Ms Tymoshenko is well enough to appear at court.  She has already refused to give video evidence to a US court over the UESU related $18 million and also refused to give video evidence to any Ukrainian courts.

How that affects the US proceedings I have no idea, but the Ukrainian proceedings will be forever delayed until she makes some form of appearance, either physically or virtually.

To compound matters further, very soon we will discover what the US will do with Pavlo Lazarenko, Ms Tymoshenko’s UESU partner, as his release date after a 10 year sentence for money laundering is imminent.  Will he be allowed to remain in the USA or will he be sent back to Ukraine where he is wanted on an international arrest warrant and has been for the best part of 10 years.

Could the US send him back to Ukraine whilst having been so vocal about the flaws of the Ukrainian justice system when stating their concerns over Ms Tymoshenko and others in recent hearings?

Returning to the Russian move, the question has to be asked, why now?

Has somebody there looked at the Ukrainian opinion polls prior to the elections, done the math relating to proportional representation and single candidate seats and come to the conclusion, as I have, that Party Regions will retain power (even before they cheat) – therefore why not do the current majority a favour and give them additional ammunition for both court case and electioneering?

A favour to be returned in due course no doubt.

Is it a case that they see the United Opposition (and thus Ms Tymoshenko) losing, and therefore they can safely afford to burn their bridges with her as she will not be in a position of any power for a good number of years to come – if ever in power again?

Is it more simple than that?  Is it just Russia proving that it has the ability to interfere, directly or indirectly, in the electoral process of Ukraine by choosing to put additional bad public relations pressure on Ms Tymoshenko and by inference the United Opposition, and yet simultaneously also require the current government to action the formal complaint despite the fact in doing so, it will make the current government even more unpopular with the EU?

Whatever the reasons, the timing for Ms Tymoshenko with her USEU trial immanent is not good.  The timing for the United Opposition by association to Ms Tymoshenko is also not particularly good either.  Especially so as all recent polls have them trailing Party Regions by far more than the margin of error in the survey methodology.

It will be interesting to see how this is used – or not – during the remaining 6 weeks of electioneering.

Yet another question also raises it’s head.  The US case relating to Ms Tymoshenko and UESU is aimed at exactly that – Ms Tymoshenko and her now defunct UESU company.  No claims against the Ukrainian State.  Why then is the Russian claim being seen, or at least reported as, an issue against Ms Tymoshenko and UESU that should ultimately be underwritten by the Ukrainian nation?

Surely the entire purpose of the nefarious UESU was to sit in between the nations of Russia and Ukraine and spin off profits and excess gas as a private company allowing the official distancing of both States relating to the nefarious profits that no doubt where shared amongst a certain set of thieves.

One could of course conclude, or at least see an avenue, whereby should the Ukrainian State repay the debts of Ms Tymoshenko and UESU to settle the Russian Defence Ministry claim, whilst unquestionably further damning the reputation of Ms Tymoshenko in the process, a nefarious little deal to split that repayment into personal off-shore accounts (via smoke and mirrors naturally) could be reached and the sum simply written off by the Russian Defence Ministry.

Let’s sit back and watch how this all plays out – although it is unlikely to play out well for Ms Tymoshenko.  Whether the EU and EPP would back her amongst allegations of tax avoidance, money laundering and an official complaint from Russia must also be in question.  After all, the EU has a very public stance against tax avoidance, money laundering and those that partake in such shenanigans.


Ukrainian Gas Transport System – Trilateral JV

October 7, 2011

A quick post today as I have one more day dealing with the Odessa buildings inspectorate before the first of many signatures and stamps are collected for the documentation I need.

It seems that Russia has changed its position over a strictly bilateral agreement with Ukraine if it was to invest in and upgrade the Ukrainian GTS and agreed with Ukraine that any JV should be a 3-way affair with an EU partner as well.

Common sense one would say, given that Ukraine is the link in the chain between Russian production and EU consumption.

One assumes that this will put the South Stream pipeline on hold for now although it is far too late to halt the Nord Stream project that will go directly from Russia to Germany.

Why the change of heart from Russia?

Who is the EU partner?

Now I’m off to do battle with bureaucracy.


Enter the EU…..not the European Union but the Eurasia Union?

October 6, 2011

With Ukraine having rebuffed the Russian led Customs Union in favour of the DCFTA with the EU what other ways are there to keep pressure on Ukraine and the EU from a Russian perspective?

It seems the answer is another EU.  This EU being the Eurasia Union and Mr Putin’s latest announcement.

For those of you who cannot read Russian, basically the Eurasia Union will consist of those actively engaged in the Customs Union, namely Russia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan,  with open invitation to all other ex-Soviet commonwealth nations, namely Armenia, Azerbaijan, Georgia, Moldova, Turkmenistan, Ukraine and Uzbekistan, many of which are actively being chased by the European Union via the EaP.

So, does the Eurasia Union sound like the acceptable new name for recreating the Soviet Union?

Some would say no more than the European Union which is a similar supra-structure that has benefited Germany more than most other members without the need for the Third Reich and all the unpleasantness of war.

In effect this EU would be a direct rival to the existing EU for those who have not yet joined the western-European project.

Thus far, of those targeted by the EaP, Ukraine is the furthest along the road to agreements on associations and deep and comprehensive free trade areas.  In fact no other nation has even started formally discussing such matters yet.  They are all, therefore, fair game and up for grabs.

It would be foolish to state that these nations could not either be sucked back into the Russian influence or happily head there of their own will.  A look at the recent election in Latvia shows the pro-Russian party won.  Latvia has been a European Union member since 2004 so even an ex-Soviet and now EU nation is turning its head back towards Russia by public sentiment.

Is it conceivable that Ukraine would about turn and look seriously at the Euroasian Union rather than the European Union?  What about Georgia who got a blooded nose from Russia a few years ago?

There is a considerably strong pro-Russia sentiment amongst the populations in both Ukraine and Gerogia and of a size that whilst possibly a minority, is a sizable minority.

What about Moldova, a nation where Russian troops are still stationed?

Ukraine is probably too far down the line to abruptly about face, Moldova has closer ethnic ties to Romania (an EU nation) than Russia but neither are guarantees that the EU will have won this geopolitical battle yet.  Signatures on dotted lines and ratifications of agreements are still to take place whilst issues like the Tymoshenko trial irk the EU and no guarantee of EU membership in the future (despite Article 49 guarantees) in the Association Agreement between the EU and Ukraine are causing some annoyance in Kyiv.

There is still the potential for huge amounts of political energy to disappear in a puff of smoke as far as Ukraine and the EU is concerned.  This is especially so if ratification of the agreements drags on and on amongst EU capitals whilst the open arms and arm twisting of and by Russia await.

The geopolitical tug-o-war which the EU looked likely to win is now back on.


European Energy Security and Ukraine

October 5, 2011

A few days ago I mentioned the EU Supergrid opportunities for Ukraine.  A project that I would hope Ukraine gets involved in as much as possible, not only as a transit route but also as a producer and exporter in its owns right.

Anyway, if you click on “Maps” and then on “Map 6” from this fairly informative EU website, you will see a pink and also a yellow ellipse which include Ukraine.

It will come as no surprise to most that the pink ellipse indicating oil and gas including Ukraine also covers the majority of former Soviet and Warsaw Pact nations.  The old GTS system in effect.

It is also well documented that Ukraine exports electricity to Poland, so the yellow ellipse creatively named “Central and South-Eastern Electricity Connections” has no surprises relating to inclusion of those two nations…..but the amount of nations and the sheer size of that ellipse (not to mention demand for electricity within) perfectly displays the opportunity presenting itself to Ukraine.

Now as long as the boffins and engineers produce an energy grid where energy can flow in both directions, thus meaning any part of the grid can bail out another in times of calamity or disaster, this particular EU project has some merit.

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