Now Or Never For Ukraine's Gas Transit Pipelines

BRUSSELS, Belgium -- The Nord Stream gas pipeline, which aims to bring Siberian gas directly to Germany under the Baltic Sea bypassing Ukraine, makes Kiev uneasy.

German Chancellor Angela Merkel and Ukrainian President Viktor Yanukovych pledged to work together to modernize transit gas pipelines in the former Soviet republic, a move that could make other future bypasses like South Stream and Nabucco unnecessary and ensure uninterrupted Russian gas supplies to the EU.

Yanukovych told the German Chancellor that Ukraine felt compelled to ensure stable gas deliveries to Europe. In turn, Merkel said Germany could help restructure the Ukrainian gas market. Viacheslav Kniazhnytskyi, Ambassador-at-large for Energy Security at the Ministry for Foreign Affairs of Ukraine, told New Europe by phone on 2 September the involvement of a particular country is not the issue.

“We need companies from countries and we started inviting interested companies from any country – Russia, United States, Japan, Canada, Germany, Holland – anyone who would be able to compete in the bids. It’s not a political issue; it is the capability of a particular company to offer the best options for the modernization,” he said.

The European Commission said it could not comment on media reports at the occasion of Yanukovych recent visit to Berlin. “But we do take note that European companies are apparently ready to invest in the modernization of Ukraine's gas transit systems.

This is perfectly in line with the EU approach and very much welcome, bearing in mind that it will be for each company to decide according to its own company interests,” the Commission said in an e-mailed response to a question from New Europe on 2 September.

In March 2009, the Commission jointly hosted with Ukraine an international conference on the modernization of the Ukrainian Gas Transit System at which a joint declaration was signed in the presence of European Commission President Jose Manuel Barroso and, Moscow’s nemesis, then-Ukrainian President Viktor Yushchenko.

The election of Yanukovych to Ukraine’s presidential post in February 2010 has greatly improved relations between Moscow and Kiev and Russia has also warmed up to the idea of upgrading the Ukrainian transit pipelines.

In the March 2009 declaration the International Financial Institutions committed to providing loans to upgrade Ukraine’s pipes. The Commission noted, however, that the success of this initiative ultimately lies in Ukraine's readiness to implement the agreed gas sector reform conditions.

The EBRD, EIB and World Bank are seeking to mobilize up to €2 billion for investment in the gas transit structure of Ukraine. Kniazhnytskyi said the process is on the right track. International financial organizations are working with Ukrainian entities and they are preparing feasibility studies, he said, adding that the selected projects to be prepared for tenders could be announced by the end of 2010.

Moreover, Ukraine now has European legislation in gas. Yanukovych in July 2010 signed a law on principles of the functioning of the natural gas market, which had been adopted by Ukraine’s parliament earlier that month.

The law is in compliance with EU Directive 55 and its primary goal is the liberalization of the Ukrainian natural gas market. “Another gate opened for modernization and for investments to come. This opens us the way to the Energy Community Treaty,” Kniazhnytskyi said.

Source: New Europe