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Russia: Plans For Energy Routes Gaining Momentum

Russia's plans for a massive shift in energy routes to Western Europe appear to be gaining momentum this week with new signals from Poland that it may cooperate if Ukraine can share in the benefits. Our correspondent, Michael Lelyveld, reports that there are also concerns that Gazprom's central role in the plan may once again increase pressure to put off reforms.

Boston, 25 October 2000 (RFE/RL) -- Russian President Vladimir Putin seems to have answered several questions at once this week by ordering Deputy Prime Minister Viktor Khristenko to promote new energy routes to Western Europe.

The Russian newspaper Vedomosti said 23 October that Khristenko has been given the job of opening talks with Poland on a new pipeline that would bypass Ukraine, allowing more Russian gas to reach Germany, Italy, and France.

Since the bypass plan was first aired in July, Poland has resisted the project that could cause hardship for Ukraine, which Warsaw sees as its "strategic partner" in the region. But on 24 October, Polish President Aleksander Kwasniewski indicated in an interview that Warsaw could change its position if Ukraine can share in the benefits through a joint venture or some other mechanism.

Ukrainian transit lines now account for about 80 percent of the Russian gas that reaches Western Europe, allowing Kyiv to collect much of the gas it uses through transit fees. But Moscow has been pushing for the new Polish route for at least three reasons. The first is the continuing dispute over Ukrainian debts to Russia's Gazprom of at least $1.4 billion. The second is the diversion of gas from the transit lines, which has been going on for years. The third is the new plan of Western European countries to double their gas purchases from Russia and perhaps to invest in the Polish route.

So far, Moscow has handled Poland's reluctance to cooperate with a combination of calm statements and steady pressure, noting that Warsaw signed a 1993 agreement to allow a second pipeline from Russia's Yamal Peninsula gas fields. The first line has already been built. Some analysts have predicted that Poland will relent, rather than stand in the way of gas for the European Union, which it hopes soon to join.

Meanwhile, Putin was quoted yesterday as saying that relations with Ukraine will be the subject of a Russian Security Council meeting this week. Russia's pending deal with the EU on energy and investment over the next 20 years could be one of the biggest since the Soviet breakup.

While Ukrainian President Leonid Kuchma downplayed the impact of the proposed pipeline last week, saying it could take years to build, Prime Minister Viktor Yushchenko voiced concern. Yushchenko said he would open talks in an effort to convince Russia that increasing gas transit through Ukraine would be more practical.

But with so many interests at stake, Khristenko's comments may already have given some major clues to Putin's plans for dealing with control issues in both Russia and Ukraine.

Khristenko made clear that Russia will not accept a Ukrainian alternate plan that would have given Gazprom a minority share in the country's transit lines through a joint venture. Vedomosti quoted Khristenko as saying, "Currently, our position is that joint management is only possible if 51 percent of a consortium controlling Ukraine's gas transport system is in the hands of Gazprom." It is unclear that Moscow will drop its plan for a Polish route even if it gains control of the Ukrainian lines. The Kremlin may well want both.

Khristenko's statement also shows that the Kremlin is ready to exert its control through Gazprom, of which the Russian government owns 38 percent. That approach may answer continuing questions about the extent of reform that is planned for Russia's "natural monopolies," including Gazprom, the EES electricity system, and the Railway Ministry.

On 21 October, Prime Minister Mikhail Kasyanov said the government will unveil plans starting next month for overhauling the rail and electricity networks, but it will leave the question of Gazprom until sometime next year.

The delay in reforming Gazprom is the latest of many since Putin took office. Last February, government officials put off the questions about Russia's largest taxpayer until after the presidential elections in March. The State Duma's Audit Chamber has responded to complaints about the monopoly's lack of transparency by launching a full-scale examination of Gazprom's accounts. But now it is unclear that the results, which were expected in December, will affect Putin's plans.

Russia's pipeline initiative, which now involves at least six other countries, relies on Gazprom to continue in its role as a tool of government strategy. Khristenko's comments also make it clear that the Kremlin will pursue Gazprom's interests as those of the Russian state.

That policy was already in evidence last week following a meeting between Putin and Kuchma is the Black Sea resort of Sochi. At the meeting, Kuchma pledged that Ukraine would treat any future gas bills as sovereign debts of Kyiv. Although it was unstated, the implication of the agreement is that Putin also regards any debt to Gazprom as a debt to the Russian state.

The use of Gazprom as an instrument of state policy is hardly new. On the contrary, it is a continuation of past practice that is unlikely to increase the chances for reforms and restructuring that have been urged by global lenders like the International Monetary Fund. Gazprom may simply be too important to Kremlin strategies to risk major change, raising the temptation in the Putin government to confuse control with reform.

But Gazprom's role may be central to an EU energy deal could affect relations in the region for decades. By postponing reforms at Gazprom until next year, Putin may be assuring that change will take much longer than that.