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Slovakia: Natural Gas Agreement With Russia Criticized

Presov, Slovakia; 22 May 1997 (RFE/RL) -- Russian Prime Minister Viktor Chernomyrdin last month paid a three-day visit to Bratislava during which the two sides signed 16 agreements.

Three of these deals concern the purchase and transport of Russian natural gas by Slovakia's gas monopoly, the Slovak Gas Industry (SPP), the country's largest profit-maker. SPP earned the equivalent of over $400 million in profits in 1995 and again in 1996 (13.8 billion SK).

Alexander Duleba, analyst of Slovak relations with Russia and Ukraine in the Presov-based independent Research Center of the Slovak Society for Foreign Policy, says the gas deal is of questionable benefit to Slovakia.

"The agreement on creating a joint venture between the Slovak Gas Industry and Gazprom is a very critical contract, which can have very unpleasant consequences for Slovakia," Duleba told RFE/RL.

The contract assures Gazprom, Russia's natural gas monopoly, of being the sole supplier of natural gas to Slovakia for the next ten years.

Duleba notes that earlier this year Russian President Boris Yeltsin's Council for Defense and Security Policy issued a report on Russia's interests in Central and Eastern Europe. The report said that Russia's main interest in the foreseeable future will be to come closer to the European Union. Duleba says the report predicts that by the year 2010, EU consumption of natural gas compared with 1995 will rise by 75 percent.

The analyst says that Gazprom currently controls about one third of the European gas market. He says that Russia and Gazprom are currently focused on controlling the transit of natural gas abroad as well as on building underground natural gas storage sites to facilitate trade as demand grows.

Duleba notes no official information exists about how much Gazprom pays Slovakia for transiting natural gas westwards.

"I am convinced that the gas trade in which the present Slovak government is engaging in does not correspond to the real economic interests of the Slovak Republic, that it is disadvantageous for Slovakia and is being done by a narrow group of people following their own interests," Duleba told RFE/RL, adding that "in view of the fact that Gazprom is setting up a joint venture on Slovak territory, it (Gazprom) will in effect be negotiating prices with a company, half of which it owns."

Duleba predicts the result will be a huge outflow of funds from Slovakia.

"There is no advantage for Slovakia in having made such an agreement if it has to split the profits from the transit" of natural gas across its territory, he says.

Duleba insists that two other countries that purchase and transit Russian natural gas, Ukraine and the Czech Republic, have more advantageous contracts with Gazprom than has Slovakia. Moreover, he says, Prague unlike Bratislava has played a tougher negotiating game with Moscow and as a result Russia has made considerably better offers to supply the Czech Republic with military know-how for upgrading its fleet of military aircraft, than Russia ever made to Slovakia.

SPP general manager Jan Ducky announced just prior to Chernomyrdin's arrival in Bratislava that only preliminary accords will be signed during the Russian Prime Minister's visit because the actual contracts were not yet ready for signing. But when Chernomyrdin, a former head of Gazprom, arrived in Bratislava he rejected any suggestion of postponing the final signing and Meciar told reporters the two sides had to work a day and a full night to get the documents ready.

Meciar had resisted Gazprom's overtures for the last two years to form a joint venture arguing that Slovakia would lose half its income from transit fees. SPP has traditionally allowed Gazprom a 25 percent share of the revenue from transit fees.

Ducky subsequently said that the version that the signed agreement is more advantageous to Slovakia than earlier versions by making the joint venture apply to trade with gas in excess of existing "capacities" rather than in excess of "existing contracts."

But as the independent analytical news weekly "Domino" based in Kosice notes, it is not clear whether by "excess capacities" the contract is referring to a new fifth transit pipeline currently being completed or to an increase in the capacity of the existing four pipelines following a general replacement of their compressor stations. Moreover, the paper notes, the two sides have refused to divulge the price agreed on for the gas.

Once the fifth pipeline is complete, SPP expects to have the capacity by the year 2000 to transport 90,000 million cubic meters of gas, up from 80,000 million cubic meters last year. What share of the profits will remain in Slovakia and what share will go to Gazprom is likely to remain a mystery for some time to come.

This is part three of a three-part series on Slovakia. See Slovakia: A Status Report.