SEVASTOPOL PAID IN GAS? (Sevastopoli pagata in metano?)

The presidents of Ukraine and Russia agreed Wednesday to extend the stay of Russia's Black Sea Fleet in the Ukrainian port of Sevastopol after the lease expires in 2017.

The move is among the strongest signs since Ukrainian President Viktor Yanukovych took power in February that he will steer away from his pro-Western predecessor's drive to shed Russia's influence.

It also is likely to boost Yanukovych's standing at home by taking some pressure off Ukraine's beleaguered economy. The agreement includes Russia giving Ukraine steep discounts for the natural gas on which its industries depend.

Ukraine has been hit harder by the global downturn than many other European countries, and it has been eager to get discounts for Russian gas.

For years, Ukraine bought Russian gas at well below market prices, but after Yushchenko took office and pledged to bring the country into NATO and the European Union, Russia repeatedly raised prices. Price disputes led to Russian gas cutoffs; the most severe, in early 2009, lasted two weeks and severely curtailed Russia's gas exports to Western Europe, most of which transit Ukraine.

Russian President Dmitry Medvedev said the base's lease would receive a 25-year extension. Russia pays $90 million per year for the base. There was no word on any change under the new deal.

Ukrainian opposition figures quickly criticized the deal, saying the lease extension violated the constitution.

Ukraine's previous president, Viktor Yushchenko, had fought to kick the fleet out when its lease expired, calling it a hostile presence in Ukraine.
(Dallas News)

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The smiles on the two president’s faces belied the hard work that had gone into making the deal happen. According to the Kommersant daily the negotiating teams, headed by Prime Ministers Vladimir Putin and Nikolai Azarov, and including on the Russian side Foreign Minister Sergei Lavrov and Defense Minister Anatoly Serdyukov, had been up all night finalizing the details of the agreement. Russian President Dmitry Medvedev and Ukrainian President Viktor Yanukovich were just going through the formalities.

But there is a good reason for the smiles and the attention to detail. The deal addresses three of the most sensitive issues in Russian-Ukrainian relations: the future of the Russian Baltic Fleet, gas supplies, and potential Ukrainian membership in NATO.

The Black Sea fleet will get to stay in Sevastopol, its historic and only really viable base, until 2042; that saves Russia money on building new naval facilities on its own Black Sea coast, but it also gives it a “political-strategic” victory, said Volodymyr Fesenko, the head of the Penta Center for Applied Political Studies in Kiev. “Russia not only preserves a military presence in the Black Sea basin and on Ukrainian territory, but also has a factor of influence on external security policy and internal affairs in Ukraine,” he said.

According to some commentators, including the Kommersant daily, the jewel in the crown of that influence is that since NATO membership rules forbid the presence of non-alliance military bases on members’ territory, the agreement effectively puts a 30-year freeze on Ukraine’s aspirations to join the North Atlantic Alliance. NATO membership was a key policy of Yanukovich’s predecessor, former President Vitor Yushchenko, and the source of much of the ill feeling between his administration and Moscow.

The quid-pro-quo is a 30 percent discount on Russian gas deliveries, which, according to the deal, Ukraine will count as additional rent payments on the Sevastopol port. For Ukraine, that basically means a saving of $100 per 1,000 cubic meters of gas (for the record, the discount will be $100 per 1,000 cubic meters when prices are over $330, and 30 percent for lower prices. Current prices are around $334. The discount will apply to 30 billion cubic meters in 2010, and 40 billion from 2011 onwards).

At yesterday’s press conference Yanukovich said that Ukraine would receive from Russia “a real investment of resources, specifically gas,” amounting to “around $40 billion dollars” over the next ten years. “And this bears the hallmarks of an economic victory for Ukraine,” said Fesenko.

It’s so far difficult to tell whether an economic win for Ukraine means a loss for Russia. In a note released Thursday morning Alfa Bank briefly pointed out that the gas discount would come at the expense of the Russian government, rather than Gazprom, but a spokesman for the bank refused to comment further, saying that the company’s Kiev and Moscow analysts were still working out the long-term implications.

Sergei Markov, a political scientist and State Duma Deputy for the United Russia faction, insisted the $40 billion cited by Yanukovich in yesterday’s press conference was an investment on which Russia expects a return. “Russia is likely to get a lot of profit from joint Russian-Ukrainian economic projects,” he said. “It’s a popular but crude mistake to suppose that Russia is paying for the Black Sea Fleet with gas.” (Markov also contests the widely held assumption that the deal will preclude NATO membership, pointing out that when the George W. Bush administration was cheerleading Yushchenko’s membership bid, U.S. officials had said the Russian base ought not to be a barrier).

According to Markov, the deal around the Black Sea Fleet is actually much simpler. “Russia saves hundreds of millions of dollars that it would otherwise have to spend building new naval bases in Novorossiysk and elsewhere,” he said. “The deal is, Ukraine lets us stay in Sevastopol, and we share the savings.”

Not everyone is so convinced by either the supposed Chinese wall between the two agreements, or the benefits of the deal. Russian opposition leader and one-time advisor to former Ukrainian president Yushchenko Boris Nemtsov told the Kommersant daily that “we could have demanded more for that money,” and warned darkly of the “Lukashenko factor,” – a reference to Belarusian President Alexander Lukashenko, who has gained a reputation for taking Russian aid without reciprocation. (Others have also raised the Lukashenko parallel, but not always negatively. Victor Ozerov, the chairman of the Federation Council’s defense committee, told Kommersant that though the price was high, it was no less than Russia grants Belarus, “and Lukashenko threatens worse relations.” And Markov even suggested that improved relations with Kiev might strengthen Moscow’s hand in its troubled relations with Minsk).

Meanwhile, in Ukraine, the deal is proving even more divisive. The presence of the Black Sea Fleet in Sevastopol is a subject that polarizes Ukrainian society, and it has unified the fractious opposition for the first time since the presidential elections, said Fesenko. “Two days ago Yushchenko, [former Prime Minister Yulia] Tymoshenko, [Arseniy] Yatsenyuk, [Vyacheslav] Kiriyenko, were all criticizing each other. Now they’re united in criticizing the agreement about the Black Sea Fleet,” he said. On Thursday afternoon it was reported that the Ukrainian Constitutional Court had approved the deal, but that doesn’t mean it will pass into law. “In the coming days we may see a parliamentary crisis as the opposition attempts to block ratification of the deal,” said Fesenko.
(Russia Profile)

NORD STREAM TIME. (L'ora del Nord Stream)

Construction of the controversial Nord Stream pipeline from Russia to western Europe under the Baltic Sea has been officially launched.

Gazprom holds 51% of Nord Stream, which will run from the Russian port of Vyborg to Germany's Greifswald.

Russian President Dmitry Medvedev and German Chancellor Angela Merkel attended the ceremony near Vyborg.

The project was given the go-ahead only in February amid fears that the pipeline could damage the Baltic Sea.

President Medvedev said at the ceremony that the pipeline "for the first time - which may be one of its main achievements - will ensure direct supplies of Russian gas to western Europe, bypassing transit territories".

The existing pipelines run from Russia to EU countries via Ukraine, Belarus and Moldova.

Russia provides up to 30% of the gas consumed in Europe, and many European countries have been keen to secure alternative energy supplies.

Critics have argued that European countries do not need more gas from Russia and that the project is too expensive.

But Gazprom deputy chief executive Alexander Medvedev said there was plenty of demand for the gas.

"All the gas volumes have either been contracted, or have been formalized in binding obligations," he told journalists.

Gas supplies from Russia to Europe have been threatened or disrupted in the past due to political and financial disputes between Moscow and its neighbours.

But Russian President Dmitry Medvedev said at the ceremony: "This country [Russia] has been cooperating with European neighbours in the gas sector for over 40 years.

"This cooperation has stood the test of time to the full extent."

The ceremony was also attended by Nord Stream board chairman and former German Chancellor Gerhard Schroeder, Dutch Prime Minister Jan Peter Balkenende and European Commissioner for Energy
Russian gas monopoly Gazprom said on Wednesday that the first pipe had been laid under the sea.

The pipeline will be passing through Russian, Finnish, Swedish and German waters.

Last month, Nord Stream secured a 3.9bn-euro ($5.4bn; £3.5bn) fund to complete the first phase of the pipeline.

"Debt financing will cover 70% of the project costs while the remaining 30% will be provided by the project shareholders," said Paul Corcoran, financial director of Nord Stream AG.

German companies BASF-Wintershall and E.On Ruhrgas each own 20% of Nord Stream, while Gasunie of the Netherlands holds 9%.

Alexey Bulgakov from Troika Dialog investment bank pointed out that "Gazprom and its partners seem to have managed to raise funds at rather low interest rates."

The overall cost of the project, due for completion in 2012, is expected to reach 7.4bn euros.

Russia hopes to pump up to 55bn cubic metres of gas a year to EU countries through the pipeline.
Supporters of the project say that it will secure gas supplies from Russia to Europe.
But environmentalists argue that building the pipeline could lead to toxins lying on the sea bed being stirred up, as the Baltic sea is one of the most polluted in the world.

Finland had refused to give the green light to construct the pipeline, but finally agreed to it in February under the condition that ships laying the pipeline do not lay anchor in Finland's economic zone.

The final hurdle was overcome after Russian Prime Minister Vladimir Putin assured Baltic leaders that the project was safe, as extensive research had been carried out into any environmental impact of the pipeline construction.

Apart from the Nord Stream, Russia has been planning another pipeline, the South Stream, which will run from southern Russia to Bulgaria under the Black Sea.

Meanwhile, Turkey, Romania, Bulgaria, Hungary and Austria last July signed an agreement to construct the long-planned 3,300km Nabucco natural gas pipeline.

It is expected to pump up to 31bn cubic metres of gas annually from the Caspian and the Middle East across Turkey and into Europe.
(BBC)