GAS BYPASS PIPELINE PROJECT AFFECTS KYIV-MOSCOW RELATIONS.

Visiting Russia’s Tyumen Oblast–the principal source of Russian oil and gas–on February 11-13, Ukrainian President Leonid Kuchma spoke up repeatedly against the proposals to lay a gas export pipeline to Europe bypassing Ukraine. On February 13 in the Kremlin, Ukraine’s presidential administration chief Volodymyr Litvin was equally outspoken in making that same case to Russian President Vladimir Putin, in the course of a conference of business leaders of the two countries. The Kremlin’s communique on the meeting passed over the gas pipeline controversy in silence.

Back home, the Ukrainian leaders are constantly criticizing the bypass project as “politically motivated.” Their critique is itself mainly political, in the absence of conclusive economic and technical feasibility studies by the Russian side. It would appear that the Kremlin, the Russian government and Gazprom rushed into the bypass project as a means to reduce Ukraine’s role as a transit country and to increase Russia’s clout, not only earnings, in Western Europe. Those are largely political motivations. Similarly, Putin used mainly political arguments–and exploited a political opportunity–last month in persuading Poland to drop its earlier objections to the bypass pipeline. Polish Solidarity and like-minded groups, to whom partnership with Ukraine is a policy imperative, lost the elections to left-wing parties that do not share that perspective. For his part, Polish President Aleksandr Kwasniewski moved with the political tide, abandoning his earlier resistance to the bypass pipeline. Kwasniewski, moreover, came under some pressure from Berlin, Paris and Brussels, where interest in the pipeline project was high, and concern for Ukraine less evident.

The proposed pipeline represents the second of two trunk lines linking the Yamal Peninsula (northern Tyumen Oblast) with Europe. The first line, running from Russia via Belarus and Poland to Germany, was commissioned last year and has not yet reached full capacity. The second line would circumvent Ukraine’s territory, running north-south from Kobrin (Belarus) across Poland to Velke Kapusani (Slovakia). The pipeline consortium was formed last year by Russia’s Gazprom, Germany’s Ruhrgas and Wintershall, Gaz de France, Italy’s Snam and Polish partners. The projected throughput capacity is projected at 30-32 billion cubic meters annually.

All along, Moscow–or, for that matter, its ambassador in Kyiv, former Gazprom chief Viktor Chernomyrdin–declined to brief Kyiv on the project’s potential impact on Ukraine. Kuchma and other officials publicly and repeatedly complained on that score–most recently this week while in Tyumen and Moscow. From Ukraine’s standpoint, it is crucial to know if the availability of the bypass would cut into the volumes of Russian gas transit through Ukraine. After some conjecture, and some confusing signals from Brussels, it became clear that those 30 billion cubic meters would for the most part come out of the volumes hitherto routed through Ukraine.

In recent years, the volume of Russian gas handled by Ukraine’s transit system has stabilized at 120-125 billion cubic meters annually. The system’s initially projected capacity is 175 billion cubic meters annually, which could only be attained through costly overhaul. Russia’s energy strategy for 2000-2020–for whatever such long-term projections are worth in Russia—envisages construction of several gas pipelines that would circumvent Ukraine in order to diversify Russia’s access routes to various European markets. When those bypass pipelines come on stream, Ukraine stands to lose 76 billion cubic meters annually in Russian gas transit.

When the bypass plan was first mooted, Gazprom portrayed it as a response to three Ukrainian practices: siphoning gas from the transit pipeline bound for third countries, falling behind on current payments for the gas it imported and refusing to recognize some of the arrears from past years. These problems were, however, effectively addressed by the government of Viktor Yushchenko and Yuliya Tymoshenko in 2000-2001. The siphoning stopped in May 2000 and has not been reported since. Meanwhile, Ukraine stayed current on payments for gas consumed and has recognized some US$1.9 billion worth of arrears, a figure almost matching Gazprom’s claims. Hence it was no longer possible for the Russian government and Gazprom to use the initial justifications for laying the bypass pipeline.

On February 4, 5 and 6, reports from Moscow provided conflicting accounts of a meeting of Gazprom’s board of directors. The reports variously indicated that the bypass project has been cancelled due to lack of investment funds, or postponed in deference to higher priorities, or that only the examination of the blueprints by the board has been postponed. In the wake of these reports, Kuchma and Prime Minister Anatoly Kinakh take the position that laying the bypass would only reduce the investment funds available for overhauling the existing transit system through Ukraine. This system needs repairs with increasing urgency, not just to bring it up to its projected capacity, but to keep it from falling into deeper disrepair (UNIAN, Interfax, ORT, February 4-6, 11-13).

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