Russia Includes Europeans in Ukraine Energy Pact



Ukrainian Prime Minister Nikolai Azarov (R) and Russian Prime Minister Vladimir Putin toast during a document signing ceremony in Kiev on Oct. 27

Russian Prime Minister Vladimir Putin and his Ukrainian counterpart, Nikolai Azarov, held talks in Kiev on Oct. 27. The two countries signed several bilateral agreements, mainly focusing on energy. An oil transit agreement, shale gas exploration deal and pact on a joint nuclear venture were among the agreements signed. But STRATFOR sources in Moscow have said a more significant agreement concerning Ukraine’s natural gas system was not publicized to the media.

STRATFOR has documented Russia’s growing influence in Ukraine since the pro-Russian President Viktor Yanukovich took office. This has included landmark deals including a lease extension for Russia’s naval base in Sevastopol in exchange for a significant reduction in the price that Russia charges Ukraine for natural gas. But Moscow has been looking to increase its control of Kiev’s most prized asset: Ukrainian state energy firm Naftogaz, which controls Ukraine’s pipeline and energy transit infrastructure. At first, Moscow and Kiev discussed merging Naftogaz with Russia’s natural gas giant Gazprom. However, internal politics in Ukraine and vehement opposition from the European Union stalled those talks. When Putin announced his trip to Kiev, it seemed those discussions could restart. Instead, STRATFOR sources in Moscow have said, the merger is off the table for now and another major deal was struck in Kiev — a private agreement between the European Union and Russia on how to run Ukraine’s energy infrastructure. An EU delegation just happened to be in Kiev on Oct. 27, and sources say the delegates were in on part of the Putin-Azarov talks.

Moscow decided that in order to make the Europeans feel more confident in Russia’s energy supplies, it would strike a deal with Brussels and not Kiev on the Ukrainian system. This accomplishes three things for Moscow. First, it assures the Europeans that though Ukraine is back in the Russian fold, Russia still has the incentive to involve the Europeans in energy matters concerning Ukraine. Second, it keeps any European discussion of Ukraine’s energy system between Moscow and Brussels instead of involving Kiev. Third, it reminds Kiev that from now on, the future of its energy transit system and any negotiations regarding the infrastructure will depend on Moscow.
Russia is planning to launch a large privatization program in the coming months. The plan is meant to attract foreign capital and technology; the Kremlin expects to raise $50 billion from the privatization effort. However, the plan depends on many variables and could fall apart before Moscow realizes its goal of securing strength for the state and economy for years to come.

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