June 2014, Vol. 241, No. 6

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Ukraine open to Western involvement in pipeline

KIEV, Ukraine (AP) — Ukraine on Thursday suggested bringing in European and U.S. companies to help operate the strategic pipeline that carries Russian natural gas across the country to Europe.

The move is part of an effort to revamp the pipeline, which is among Kiev’s most valuable assets, and ensure Ukraine remains a key transit country for gas to Europe. Analysts say it’s also an attempt to defuse potential claims that Ukraine might be siphoning gas intended for European customers.

Focus on the pipeline has intensified since Russia on Monday halted gas supplies to Ukraine after talks over past debts failed. Russia continues to send gas on to Europe through Ukraine’s pipelines but there are fears over whether the flow of gas will continue uninterrupted if Kiev and Moscow remain at loggerheads.

Prime Minister Arseniy Yatsenyuk told parliament that Ukraine intends to set up a company to manage the pipeline. Ukraine would own 51 percent of the venture, but is ready to invite Western companies as shareholders for the remaining 49 percent. Ukraine would not sell the pipeline as such, he insisted.

Russia has for years sought unsuccessfully to buy Ukraine’s pipeline, which is owned by a state company.

Moscow on Thursday said it wants to be consulted on any decisions affecting the pipeline’s management. But it has no powers to stop Ukraine from selling the pipeline or bringing in foreign companies to manage it.

Yatsenyuk said that foreign investment in the Ukrainian gas transport system would undermine support for South Stream, a pipeline system backed by Russia that could ship gas to Europe by avoiding Ukraine.

“This will make it possible to stop the construction of South Stream and send the entire volume through the Ukrainian gas transport system, since the EU member countries will, first of all, have an interest in this,” Yatsenyuk was quoted as saying by the Interfax news agency.

Alexei Kokin, an oil and gas analyst at the Moscow-based UralSib bank, called Yatsenyuk’s offer “a sensible idea” that could bring much-needed investment to revamp the pipeline as well as oversight of the gas flow.

Gazprom, which has complained about the shabby state of the Ukrainian pipeline, should be pleased, Kokin said, “unless it gets paranoid and suspects that the operating company helps Ukraine to siphon off the gas, which no respectable organization will do.”

There would be risks for a company to get involved financially in a country that is torn by a militant uprising and political divisions. Whether Ukraine will be able to entice an outside company will depend on the terms it offers, such as a share in the gas transit fees that Ukraine gets from Russia, Kokin said.

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