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Rada upholds state ownership of gas pipeline

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Feb. 8, 2007, 6:55 p.m. |
Russian gas giant Gazprom has long sought ownership or management rights over the gas pipelines of its major transit countries like Ukraine eb. 7 passed a bill safeguarding state stewardship of the country’s prized gas pipeline transportation system.

The bill, passed on Feb. 6, erects a major barrier to Moscow’s proposal to jointly manage the pipeline system, which pumps a majority of Russian and Central Asian supplies to Europe.

Russian gas giant Gazprom has long sought ownership or management rights over the gas pipelines of its major transit countries like Ukraine and Belarus.

Moscow has in recent years managed to spread its influence by gaining interests in gas and oil production and transportation infrastructure in other regions. But Ukraine’s pipeline system, considered the second largest in the world after Russia’s, is viewed as the biggest prize.

Passage of the bill was spearheaded by Ukraine’s fiery opposition leader Yulia Tymoshenko. The bill’s critics argue it merely repeats previously passed legislation which prevents privatization or sale of the pipeline. Yet Tymoshenko’s camp has said the new legislation is necessary to prevent legal loopholes through which the pipelines could be transferred to foreign entities, including concession and management rights.

The bill was passed amid growing fears that the governing coalition led by Prime Minister Viktor Yanukovych had offered Moscow a stake in the pipeline in return for oil and gas production assets in Russia. It was passed less than a week after Russian President Vladimir Putin raised eyebrows by telling journalists that Ukraine’s leaders had offered his country to help manage the pipeline.

At a three-hour press conference on Feb. 1, Putin said Ukrainian officials had made a “revolutionary” proposal offering a stake in their pipeline in return for hydrocarbon production rights on energy-rich Russian turf.

In response, members of Ukraine’s oppositionist camps accused Yanukovych’s government of conducting closet deals that threaten to put a strategic state asset into the hands of Moscow.

Yanukovych waffled when questioned about the proposal unveiled by Putin.

“I think it has a future. If we speak about combining assets, this should be done on equal terms,” he said last week.

Then, earlier this week, after Tymoshenko had turned the issue into a public and parliamentary debate, Yanukovych addressed its political ramifications.

“We should look forward and stand for friendly relations with our strategic partners instead of playing political games and hurting the state and the people.”

He pledged that the pipeline would remain state controlled.

Yanukovych’s words appeared to contradict that of other high-ranking members of his government, such as First Deputy Prime Minister Mykola Azarov, who has steadfastly defended the benefits of yielding Russia a stake in the gas pipeline in return for lower gas prices.

Deputy Prime Minister Andriy Kluyev, a dedicated Yanukovych ally, told journalists on Feb. 5 that “a draft of the declaration on Ukraine-Russia cooperation in the energy sphere” was being worked out by the administration of President Viktor Yushchenko. But Yushchenko’s administration distanced itself from the alleged asset swap, saying no plans existed to yield an interest in the pipeline to a foreign entity.

Disgruntled lawmakers backing Yanukovych’s coalition government eventually supported the bill after Tymoshenko’s faction and the Our Ukraine bloc loyal to Yushchenko threatened to blockade parliament sessions.

Passage of the legislation is likely to further strain relations between Ukraine and Russia.

Relations have been less than rosy since the Orange Revolution lifted Yushchenko to power but cooled after last summer’s remarkable return of Yanukovych to the prime minister post, a job he held during former Ukrainian President Leonid Kuchma’s last years.

Kluyev said talks with Russian officials are intended to establish “closer” cooperation in energy, adding that there are no current plans to acquiesce control over the pipeline.

Volodymyr Omelchenko, energy analyst at Kyiv’s Razumkov think tank, said such an asset swap deal might actually prove beneficial for Ukraine.

“[It could] lower Ukraine’s energy resources risks, while Russia would diminish its transit risks. This would benefit both countries,” he said.

But he questioned whether Ukraine would be able to develop hydrocarbons in Russia, considering that the Kremlin-controlled gas company Gazprom, controlled export of gas out of Ukraine.

In addition, implementation of such a deal is unlikely due to numerous legal and political obstacles.

Omelchenko blamed Ukraine’s ever-feuding leadership for sending mixed messages, saying they lack “consolidation and are unable to secure the country’s national interests.”

With political tempers flaring in Kyiv, the future of a gas pipeline deal with Moscow remains uncertain for now, but even some Ukrainian officials have defended its potential benefits.

Konstantin Borodin, a spokesperson at Ukraine’s state oil and gas company Naftogaz Ukrainy, which manages the pipeline, told the Post on Feb. 5 that preliminary work on the asset swap project has already been started between the governments of Ukraine and Russia.

Referring to Putin’s preliminary interest in the project, Borodin said: “A green light to this project was given on the very top political level.”

“It is very important for Ukraine to carry out exploration and development of Russia’s hydrocarbon deposits,” he added.
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