Ukraine: politics harms economy

MOSCOW, November 26. /TASS/. Energy security matters instantly fade into the background in Kiev’s eyes whenever it comes to relations with Russia. Ukraine prefers to be guided by political considerations, and not economic ones, which merely has a backlash effect, analysts believe.

In the latest move along these lines Ukraine’s Cabinet of Ministers prohibited the Naftogaz company from importing Russian gas. Alongside this an unofficial ban on Russian coal supplies to Ukraine has come into force in retaliation for the energy blockade of the Crimean Peninsula.

Ukrainian Prime Minister Arseniy Yatsenyuk on Wednesday declared Ukraine was ending the purchases of Russian gas. He argued that the European partners were offering better prices, while gas consumption in the country was already down by 20%. However, experts say it is a highly debatable question whose gas is cheaper. In any case, without Russian gas Ukraine will be unable to live through the winter season, because the Europeans surely do not have enough gas to sell to Kiev. All this is fraught with the risk Ukraine may begin to siphon off Russian gas flowing to Europe.

Gazprom CEO Alexey Miller says Kiev’s refusal to purchase Russian gas poses serious risks to reliable gas transit to Europe and to providing enough gas for Ukrainian consumers throughout the coming winter.

"If the winter season is colder than usual, the available amount of gas may be not enough," the daily Izvestia quotes the deputy director of the National Energy Security Fund, Alexey Grivach, as saying. "It may so happen that Ukraine may need our gas. Under the effective contract we are prepared to provide 115 million cubic meters of gas a day. If there is no prepayment, Ukraine will have no option left other than to steal gas it is transiting to Europe. This may prove a delayed action mine in the second half of the heating season."

In the meantime, the Russian authorities have warned Kiev with retaliation for the power blackout of the Crimean Peninsula by banning the export of Russian coal. Ukraine’s four high-voltage power lines in Ukraine that provided 80% of the amount of electricity Crimea needs went dead just recently when several pylons in Ukrainian territory were blown up. Ukraine is in no hurry to repair the pylons and resume power supplies.

Although no official ban has been declared yet, sources have confirmed to TASS that coal for Ukraine stopped crossing the border on Wednesday. Supplies of anthracite coal as many as half of Ukraine’s thermoelectric power plants depend on from the self-proclaimed Donetsk and Lugansk republics have now been stalled for some time. The amounts of this fuel in store still available will last three weeks at the most, provided there are no harsh frosts.

In Kiev’s actions one can see a whole lot more politics than economic feasibility, the leading expert of the Development Centre at the Higher School of Economics, Sergey Pukhov, told TASS. "They prefer to purchase coal and gas from other countries, although it is far more expensive. This is a matter of politics. Likewise, if they had really wished to repair the power supply lines, they would have done that long ago. "Ukraine sees Russia as an aggressor-country and it invariably hails any measures aimed against Moscow. In this particular case energy security matters are brushed aside in defiance of economic logic."

As far as future energy supplies are concerned, Kiev apparently tends to count on good fortune. "We’ll get through the cold winter, if we are lucky enough. They have slashed gas consumption considerably, because the economy this year slumped, possibly, by 10%-15%. Now they are taking gas from underground storages, as there is no money to buy more gas. Whether Western partners will agree to give more money remains unclear. Respectively, Kiev is determined to make it through the winter somehow with reliance on its own reserves. Whether these are big enough or not big enough is a matter of guessing. The outcome may prove really bad."

Professor Ivan Rodionov, of the Higher School of Economics, believes it is too early to speculate the Ukrainian energy industry is doomed to collapse.

"Ukraine has problems with its industries. The demand for traditional export items is low, so the consumption of gas and coal is to fall accordingly," he told TASS. "Besides, the International Monetary Fund does provide some kind of support. This is a bad situation, of course, but they will most certainly manage to carry on somehow. Clearly, incomes and people’s living standards will plummet."

"They indulge in political gambling. A situation where no investigation is being conducted into the explosions that disabled the power supply lines is really strange. Clearly, the reasons behind their actions are other than economic," Rodionov said.

TASS may not share the opinions of its contributors