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INSIGHT - RUSSIA/EU/CA/Caucasus - Energy politics

Released on 2012-03-04 00:00 GMT

Email-ID 220936
Date 2010-08-09 03:36:14
PUBLICATION: background/analysis
SOURCE DESCRIPTION: Ambassador-at-large for energy security, Czech
Republic and chief of CR's nuclear tender for Temelin
SOURCE Reliability : B
The level of distrust between Ukraine and Russia is unbelievable. You know
it's bad when they are using guys like me to communicate with each other.
There is a very, very small number of people who actually know what's
going on in the nat gas negotiations -- Putin, Medvedev, head of Naftogaz,
Miller of Gazprom, Yanukovich and maybe the FM. By trust, I mean, for
example, you, Reva and I have a deal. I sell X amount to you, we settle
on an amount to trim from the top and keep for ourselves, clean the books,
etc. Now, all of a sudden, I am replaced. You don't the person you're
dealing with anymore and if he will uphold his end of the deal. Thoughout
the 1990s things worked fine. Over the past few years, though, ppl kept
getting replaced and nobody could trust each other. This is how we got to
the last cutoff.
Putin's strategy during the last cutoff was the following:
Russia know Ukraine is stealing X amount of gas. Russia will send Z amount
of gas promised to Europe plus the X amount of gas Ukraine was stealing.
The objective was to portray Ukraine as the villain, while Russia could be
seen as the dependable partner. Bulgaria, Slovakia and Serbia were the
only ones who be feeling the shortages.
When I met with Putin and Sechin during this cutoff, I was very blunt with
them. I told them the strategy doesn't work. We in Czech Republic,
Slovakia, etc. will survive without Russian gas. We will process other
fuel, it may be dirty, but who cares. We are also getting offers at a
third of the price from Qatar and others. So, Russia doesn't have that
leverage that it had in 2006. These moves only encourage the Europeans to
find other suppliers. This is a problem for Putin... there are people who
saw the flaws of the strategy but were not able to speak up. It backfired.
You know me, I am an atheist. I don't believe when the Bible says to
turn the other cheek... I say if someone hits you, hit them twice back.
This is about getting even with the Russians. We want Russia to take us
Russia is very much in control of Ukrainian decision-making. Only a very
small number of people are in the know there. The Russians don't need
direct ownership of the energy sector to have the influence they're
looking for right now. They were very well prepared for making their
comeback in Ukraine. It is a well-oiled machine there.
Kyrgyzstan was a message for the Chinese primarily. China's presence in
the 'Stans is the big issue right now, and the Russians need to keep China
within limits. China brings in money and infrastructure, but when you talk
to the regimes of these countries, they don't feel comfortable dealing
with the Chinese like they do with the Russians. THey know the Russians -
Russia is the default language, they know they work, etc. The Chinese come
in on a completely different scale. These regimes are very paranoid.. if
you look at the succession lines of Kazakhstan, Uzbekistan, they are all
daughters. These govts are looking for security, and that is where Russia
holds the upper hand over China.
Russia is bankrupt save for the extractive industries. They having the
oil, gas, mining, etc., but that is not a developed economy. They are not
in good shape and there is serious thought behind the modernization plan.
The big threat for Russia right now is not coming from the West... it
comes from the East (China) and from the South (Islam.) The Russians are
showing some cooperation with US on Iran, but they haven't done anything,
and they dont need to. It's a low-risk strategy. They aren't losing
anything there.
I don't have faith in Turkey's energy deal with Azerbaijan for Shah Deniz.
It is remarkable to what degree Azerbaijan is under Russian influence.
THey are thinking about their survival. The Azerbaijanis cannot agree to a
final deal on Shah Deniz II. When I was in Baku recently, they showed me
a 3-D topographic map of Armenia, AZ, Nagorno. You can see very clearly
that once (and if) the Armenians cross over with Russian backing, it is a
flat path to Baku. The Russians told them during the Georgia war that
Georgia could just be the first stop... pretty direct threat. The
Azerbaijanis are terrified of this. The difference between now and when
BTC came online is that the US was actually there back then with a
strategy. US is nonexistent in this game right now. Even the Europeans are
disconnected. AZ, Georgia, Ukraine don't have others to turn to. All
Russia has to do is pay off enough people or make a move in a certain
enclave of Georgia to shut down BTC. AZ cannot only turn West... again,
it's a matter of survival.
Belarus will cave into Russian demands. Lukashenko knows he has no choice.
That's 50 percent of his revenue gone otherwise, and he knows that. He is
a nuisance for the Russians, but he isn't getting help form elsewhere.
Even the Europeans have reproached him.
The Russians are very paranoid about Europe's energy plans. Sechin keeps
asking me what is the secret plan, what are the Europeans plotting, etc. I
tell them there is no secret plan. I wish there were one, but there really
is not.
The decision on building South Stream won't come until 2013-2014, after
Nord Stream is completed. So far, Nord Stream is on track for completion,
but it goes against Russia's energy strategy of avoiding transit states.
The Russians are not happy with my appointment for the nuclear tender.
They think I am anti-Russian. The bid is between Rosatom, Areva and
Westinghouse (Source met with Westinghouse day before our mtg). No two
companies can enter jointly.. that would be breaking the rules of the
tender at this stage. If Rosatom and Westinghouse try to do that for sake
of US-Russia cooperation, then Areva would win by default.