Russia’s Game Versus European Rules

millerRussian energy policy towards Ukraine – and increasingly, also towards the EU – is based on pressure and blackmail rather than on economic interests and seeking for consensus. By confusing its partners and trying to make them disagree with each other, the Russian monopoly Gazprom tries to safeguard its status in relations with the EU. In these circumstances, the EU and Ukraine should stand united – as the interest of both of them is the application of European legislation (the Third Energy Package) – so that the limits of a single energy market reach the Russian border.



Russia has been using its gas supplies as political weapons while Ukraine’s position is very simple at this point. Kyiv strongly believes that the price of gas should be formed in a fair and transparent way, according to free market mechanisms. However, the gas price dictated by Gazprom has nothing in common with these rules. The increase of the price of Russian gas was clearly a political decision and “punishment” for the European choice by Ukraine, officially motivated by Russia’s denouncement of bilateral agreements after the annexation of Crimea and the cancellation of the gas discount which was in fact zero export duty, introduced by a special decree of the Russian government. What Gazprom now offers is a manual discount granted by the decision of the Russian government. The Ukrainian position is that such a proposal is unacceptable, as the Russian government may be willing to repeatedly push political demands in order to gain control over decision-making processes in Kyiv.


Another matter of Ukraine’s concern is gas transportation. Currently, the states of the European Union buy gas from Russia on the western border of Ukraine. Although there have been cuts of energy supplies to Ukraine, Europe has not been affected until recently, when the gas flow was reduced by Russia for questionable reasons. Presumably, such manipulations are aimed at destabilizing the gas transit so that Ukraine could be blamed as an unpredictable partner and the reverse supplies from Europe to Ukraine would be put under serious risk.


The government in Kyiv has stated that the gas flow to Europe will continue uninterrupted, but also advocated for Ukraine becoming an integral part of the EU energy space – in terms of gas market operation and commercial gas supplies. “The main idea is that transit could continue with no problems if this gas is bought at our eastern border by European companies,” said a Naftogaz spokesman. This shift would grant more control to Ukraine and make transportation, as well as storing gas in Ukrainian facilities, more effective.


There is also the issue of “gas debt”. Russia has been trying to convince the international public opinion that Ukraine owes money to Gazprom for its gas supplies and thus calls Ukraine to pay Russia back the enormous amounts of debt it owes. However, the exact sum of controversial debt, which depends on the price, has never been publicly confirmed. For this reason, Ukraine (Naftogaz) filed a lawsuit in the Stockholm Arbitration Court against Russia’s Gazprom to demand its gas contract revision. Andriy Kobolyev, Naftogaz’s chief executive officer, said recently that if the court rules that the prices were fair, then Ukraine will pay extra, but if the court makes a different decision, Gazprom will have to review its price.


The European Commission has also been trying to convince Gazprom to offer the average European gas price. But Russia’s reaction to these arguments has been ambiguous. On the one hand, Russian representatives make open statements about their readiness to sell gas at this price. On the other hand, it proceeds with the game of “effective offers” as it just restates the demands. Gazprom’s narration shows that it is not looking for a solution to the issue, but for opportunities to make it sharper.


Russia has been trying to push negotiations back, waiting for the start of winter and pressing hard on EU countries to cut reverse gas flows to Ukraine. It wants to play both the role of negotiator and the role of blackmailer at the same time.


Ukraine is a member of the Energy Community and it is obliged to use European legislation in negotiations with Gazprom and to reach a gas deal which is only on the basis of common European rules. These rules, the Third Energy Package in particular, are clear and understandable. They are not, however, suitable for Russia as its companies are used to a non-competitive position abroad.


Ukraine’s position at this point is that the European Commission should support every country which is willing to use the European law as a role model. Negotiations between Gazprom and Naftogaz should be then conducted in following format: Ukraine and the EU versus Russia. Such a position will clearly show to Gazprom the state of affairs and will curb Gazprom’s monopolistic practices; because satisfying a blackmailer like Gazprom will not bring positive results.


Anton Antonenko is the executive director at DiXi Group analytical centre which also runs web portal.