Russia’s conceptual approach to energy sector cooperation

The Russian government is preparing for a Russia-EU summit in Khabarovsk next month. It may be Russia’s last chance to overcome an unfavorable trend in EU energy policy, where Europe’s intentions are clearly opposed to proposals presented by Russia.

The Russia-EU Council met in Luxembourg on April 28, adopting an agenda for the May 21-23 Russia-EU summit in Khabarovsk. “We delivered Russia’s proposals for specific issues on the agenda,” said Foreign Minister Sergei Lavrov, who headed the Russian delegation.

Vladimir Voronkov, head of the Foreign Ministry’s European cooperation department, told us: “Our proposals cover three areas: developing joint efforts to overcome the crisis, working on a new cooperation agreement between Russia and the European Union, and discussing the Euro-Atlantic security treaty proposed by President Dmitri Medvedev.” According to European Commission sources, Brussels “has no objections in principle” to Moscow’s proposed summit agenda.

The Khabarovsk summit may be Russia’s last chance to overcome an unfavorable trend that is coming through particularly clearly in the European Union’s energy policy-making. The major source of irritation for Moscow is a declaration on modernizing Ukraine’s gas transport system, signed by the EU and Ukraine in March. Russia’s participation is not mentioned in the declaration. Moreover, the declaration states that the gas transport system will be reconstructed with a view to ensuring transit transparency and equal access to the pipeline; this would deprive Gazprom of its monopoly on gas deliveries across Ukrainian territory. And this, in turn, could pave the way for implementing the White Stream project: a gas pipeline from Central Asia along the Black Sea floor, bypassing Russia and Turkey. After the EU and Ukraine signed this declaration, Prime Minister Vladimir Putin theatened to “review relations with our European partners” – hinting at the possibility of nationalizing Russian energy assets owned by European companies.

Moscow has launched a counter-play, presenting a document entitled “A conceptual approach to a new legislative foundation for international cooperation in the energy sector (goals and principles).” In this document, Russia proposes revising the principles of the Energy Charter treaty and confirming a provision on predictable energy sales – which would enable Gazprom to retain a high proportion of the EU gas market regardless of developments in market conditions. These proposals were announced by President Medvedev on April 20, and Prime Minister Putin was supposed to present them in detail at the gas summit in Bulgaria on April 24-25. But Putin’s visit to Bulgaria was suddenly cancelled.

Experts interpreted this sudden change of plans as Russia acknowledging that its ideas were unlikely to get support at the gas summit. The summit results proved these forecasts correct. The South Stream gas pipeline project, which Russia has been openly lobbying for, wasn’t rejected; but EU representatives didn’t say a word about including it on the list of EU priority energy projects, as Moscow had insisted. In contrast, all summit participants expressed strong support for the competing project: the Nabucco gas pipeline, bypassing Russia. Richard Morningstar, US presidential envoy for Caspian affairs, promised Washington’s political support for this project and even stated publicly that Iran might provide resources for the Nabucco pipeline.

Russia’s last hopes were dashed earlier this week, when Bulgarian Prime Minister Sergei Stanishev visited Moscow. In exchange for Bulgaria’s support for South Stream, Stanishev demanded a new agreement for Russian gas deliveries to Bulgaria – on unfavorable terms for Gazprom. After talks with Stanishev on April 28, Prime Minister Putin even said that he no longer sees any point in Russia remaining a signatory to the Energy Charter.

Under the circumstances, Russia intends to use the Khabarovsk summit to promote its “conceputal approach” and move into counterattack. According to our sources, Moscow has long held some more detailed proposals ready: they were delivered to the EU by Deputy Prime Minister Igor Sechin in February, when a European Commission delegation headed by Jose Manuel Barroso visited Moscow.

But Russia will get an answer to its proposals even before the Khabarovsk summit. A European Union delegation headed by Energy Commissioner Andris Piebalgs is arriving in Moscow today; the Commissioner will meet with Energy Minister Sergei Shmatko on April 30. According to our sources, Piebalgs will deliver the EU’s reply to Moscow’s proposals. A federal government source told us: “We expect this to be an answer to Deputy Prime Minister Sechin’s February proposals and to Medvedev’s conceptual approach.”

When approached on April 28, EU officials declined to comment on the content of the reply; but experts predict that the EU’s answer will be negative.

RusEnergy partner Mikhail Krutikhin says: “There will be many polite words, but Russia’s approach will be rejected, since the EU considers it absolutely unacceptable. Moscow is essentially demanding unilateral preferences for Gazprom in access to the EU gas market and European energy assets – without offering any clear commitments in exchange on demonopolizing the Russian gas sector or creating civilied conditions for foreign investment in Russia’s fuel and energy sector.”

The EU’s latest actions are more eloquent than any written reply. The day after Russia released its “conceptual approach,” the European Parliament approved a third package of energy market deregulation measures. These will deal a substantial blow to Gazprom’s positions in Europe and its plans to acquire distribution networks in the EU, reaching end consumers. This shows that Brussels is heading in the opposite direction from what is described in Russia’s “conceptual approach.” Thus, Russia has probably lost the energy-related part of discussions at the Khabarovsk summit already.