You're reading: Ballyhooed energy deal brings embarrassment

A highly publicized signing ceremony on a landmark energy deal in Kyiv turned into a fiasco after a man with whom Ukraine's government was negotiating turned out to have no connection to the companies involved.

Acclaimed as an agreement with a Spanish energy company to build an onshore $1.1 billion liquefied natural gas terminal, the government even held a signing ceremony on Nov 26 to culminate what officials said were successful yearlong talks with two Spanish companies — Gas Natural Fenosa and Enagas.

“This is a historic moment… We’ve taken the first really big step in
securing Ukraine’s energy independence,” Prime Minister Mykola Azarov
announced proudly in Kyiv after the signing. Energy Minister Yuriy Boyko was on hand.

Instead, journalists
witnessed Jordi Sarda Bonvehi, a Spanish-speaking negotiator with no connection to either Spanish company, sign a non-binding memorandum of understanding with Vladyslav Kaskiv, head of Ukraine’s state investment agency. The Spanish companies quickly denied having signed any agreements with Ukraine. Gas Natural officials stated that they don’t know the negotiator and that he doesn’t work for them or their subsidiaries.

Despite the embarrassment, Ukrainian officials insist they will go ahead with the project.

The intentions were good: The goal was to import gas 20 percent cheaper than what Russia’s Gazprom charges. Under the plan, a Spanish company would be the lead investor bringing in 75 percent of financing for the construction and operation of the liquefied natural gas terminal. Ukraine was to come up with the rest. Moreover, over the course of the year, a subsidiary of Gas Natural had conducted a feasibility study that proposed building the costly land-based terminal.

Ukrainian officials expressed shock over what had transpired.

The Financial Times reported that Azarov’s spokesperson later described the turn of events as disappointing and stressed that the country would pursue the construction of the strategic LNG terminal, with or without Gas Natural or other investors.

Then in an interview with online news portal Ukrainska Pravda, Kaskiv said he will resign “if it helps realize the LNG terminal project.”

What is certain is that Ukraine commenced construction on Nov. 26 in Odesa Oblast on a pipeline that would connect Ukraine’s vast gas transit network with the proposed Black Sea coast LNG terminal, as shown on live video feed.

Another certainty is that Edward Scott from the U.S. Excelerate Energy, a pioneer industry firm, also signed a non-binding cooperation agreement with Kaskiv that wasn’t revealed.

A Kyiv Post phone call and email to Houston-based Excelerate Energy went unanswered by the time this edition went to print.

Ukraine evidently wanted to do this quickly and better, but the outcome was the same as it always is.

As it turns out, the cutting edge American company has a floating terminal unit that it could possibly lease to the Ukrainians and which costs much less than the proposed $1 billion onshore project.

“The most realistic scenario,” said Dmytro Marunych, director of the Energy Studies Institute in Kyiv, “is that over the course of the year, the Ukrainians found that it’s much cheaper to lease the American technology than to go ahead with the Spanish onshore proposal.”

But this doesn’t rule out having one onshore and one offshore terminal, or a combination of both, as long as there are willing investors to move ahead.

“If there are investors that are ready to invest, to possibly put in a second floating terminal or the land-based terminal, we are very interested to talk,” Kaskiv told the Financial Times.

In an earlier interview with Ukrainska Pravda news site, Kaskiv implied Russia had pressured the Spanish company to cancel at the last moment.

Whatever the causes, after the signing ceremony, Ukraine is left without a consortium to finance an LNG terminal project.

“The Spanish could still be on board as investors and suppliers of the gas, but why should they come to (Kyiv) to sign something that wasn’t what it had originally proposed,” said Marunych.

When asked whether Ukraine wanted to upstage Russia, which hasn’t begun constructing its South Stream pipeline to circumvent Ukraine’s gas transit system to Europe, Marunych said: “I wouldn’t speculate, but Ukraine evidently wanted to do this quickly and better, but the outcome was the same as it always is.”

Kyiv Post editor Mark Rachkevych can be reached at [email protected].