The effects of Ukraine’s turn towards Russia are beginning to be seen in the crucial area of energy security. As the main route of Russian gas into Europe, Ukraine is vital to European and Russian energy security.
While the European Union seeks to secure gas supplies by integrating its eastern neighbor in its energy market, Russia is increasingly seeking to prevent EU-led reforms in Ukraine in order to secure stable gas export incomes and continue exerting power over its “sphere of privileged interest.”
Ukraine’s elite is not interested in reform, but maintaining the status quo is no longer viable. As the country is losing its transit role and the economy is increasingly inefficient, Ukraine is presented with an ever-starker choice between the energy security guarantees of the EU and Russia.
These tensions are coming to a head now.Ukraine has adopted a new lawcovering the gas sector that harmonizes its legislation with EU gas market regulations and norms.
The EUhas indicated that this opens the way forUkraineto join the European Energy Community – established between the EU and a series of third countries to extend the European internal energy market beyond its borders – which would bring competitiveness and transparency to the country’s energy market.
At the same time, the Kremlin has changed its tactics from aggressive supply interruptionsto attempting peaceful takeovers of Ukraine’s key energy assets.
In April, Russian Prime Minister Vladimir Putin proposed a Gazprom-Naftogaz merger in order to invest in the modernization of Ukraine’s gas transit system.
Ukrainian president Viktor Yanukovych rebutted the proposal and suggested instead a tripartite EU-Ukraine-Russia consortium. Despite Yanukovych’s soft “no,” Russia continues to look for other ways to gradually edge its way into the Ukrainian gas market.
Russia does not ask for liberalizing reform.
It is interested in controlling transit routes to Europe and in preserving its source of income from gas export. Europe’s reduced energy consumption due to the financial crisis and the discovery of shale gas fields in Europe and the U.S. are becoming a threat to Russia. Moscowneeds energy inefficient and ineffective Ukraine to remain one of the largest gas consumers in the world and one of Gazprom’s largest clients.
For its part, the EU aspires to make the Ukrainian energy market transparent and competitive. From an energy security perspective, if Ukraine is absorbed by Russia, EU dependence on Russia will only increase and it will lose its soft power in the neighborhood.
From a wider foreign policy perspective, Ukraine’s energy integration with Russia will entail wider economic integration, weakening the EU’s clout over Ukraine and the incentives to reform.
In 2005, the EU and Ukraine signed a memorandum of understanding on energy cooperation. During 2007-2008, the EU allocated 157 million euros to assist energy reform. Additionally, in 2009, the commission pledged its assistance towards the modernization of Ukraine’s gas transit system, subject to reform progress in the energy sector.
But the envisaged reforms have not been implemented. Ukraine’s energy sector remains ineffective, opaque and corrupt. Despite all the efforts and funding, Ukraine appears to be slipping from the EU’s reach. Why does EU policy bear no fruit in Ukraine? First, rent seeking prevails and energy is used as a domestic political weapon.
Energy resources lubricate the wheels of patronage.
Successive governments see no rational motive for change. Second, the EU could use the transformative potential of its accession policy to help Ukraine become an independent and democratic actor, but ithas chosennot to.
While energy is a key policy area in EU-Ukraine relations, the EU’s energy strategy suffers from the same problem as EU policy towards Ukraine in general: it has no strategic end-goal and insufficient incentives to drive it forward.
What can the EU do about it? In the short term, it can insist on the modernization of the gas transit system and promote energy reform in a more responsible way.
Budget aid or loans will yield no results if they continue without strict conditionality and stringent monitoring of reform results.
The solution to this enormously important policy challenge of Ukraine’s energy policy identitymust be political in the broadest sense.The EU’s currentwait-and-see approach can only damage its own energy security.
Natalia Shapovalova is a researcher at FRIDE, a think tank based in Madrid, Spain, http://www.fride.org/. Prior to joining FRIDE, she was a researcher at the International Centre for Policy Studies in Kyiv. This opinion was first published by New Europe, which can be found online at http://www.neurope.eu/articles/102537.php.
