Continuing the integration with Ukraine’s power infrastructure is a win-win scenario for Europe. Artur Lorkowski, the Director of the Secretariat of the Energy Community, explains how Russia wants to change this vision into a lose-lose situation by attacking the energy sector by the Dnieper.
BiznesAlert.pl: How do you explain to a European how the Energy Community works?
Artur Lorkowski: We can clarify this by using the example of Ukraine and its cooperation with the Community. In December 2021, I signed a decision to certify Ukrenergo, the operator of the power transmission system in Ukraine, which ended the long process of adapting Ukrainian law to EU standards. A market was created in Ukraine, which showed great resilience during the war. We went through the same process in Ukraine’s gas sector when it came to the separation of ownership in Naftogaz. This is also an example of how, with the help of the Energy Community, Ukraine was able to carry out the reform of the gas market, which today had made the country resistant to the crisis caused by the war. I am glad that, in response to the outbreak of the war and Russian blackmail, Moldova is heading in the same direction. In the past, Russians used gas blackmail to force Moldova to sign a gas deal. However, the success of a wide-ranging reform in the gas market has led to an improvement in Moldova’s position. Chisinau proved to be quite resilient to blackmail, showing great ability to maneuver in terms of gas supplies. This was possible not only thanks to introducing a new law in cooperation with the Community, but also thanks to developing trading competences, and establishing Energocom – an independent entity that leads gas diversification efforts in Moldova. Gas supplies from the south of Europe to the north have started. A virtual reverse was also launched, which made it possible to store Moldovan gas in Ukrainian facilities. This is how the Energy Community works. It expands the capacity of energy players through deeper integration of markets and their internal liberalization.
Can it be said that this is a form of European integration through the Energy Community without joining the Union in the energy and gas sectors?
The European Union is a party to the Community. There are ten members, and the EU is one of them. The remaining nine are countries in the EU’s neighbourhood. This is therefore a form of market integration within the Community, but also integration between the Union and non-EU markets. Next week we will take a decision on market coupling of the electricity market, which will mean the full integration of the electricity markets of the Community members with the European Union on the basis of full reciprocity. This will also be important for the gas market. The joint purchases, on which the Council of the European Union made a decision on 24 November, are open to the member states of the community. Also next week we will implement them at the Ministerial Council of the Community, which is an annual meeting. A decision will be taken on adding the Community members to the joint gas purchase programme of the EU member states. The same goes for storage. In this context, the two countries with gas storage facilities, namely Ukraine and Serbia, have set targets for filling them in this and the next gas season. This means that the community is not only a form of market integration alongside the European Union, but also operates on the principles of reciprocity between third countries and the EU. This is a new value that the energy crisis has revealed, because these actions are aimed at increasing the resilience of the EU neighbourhood, through the Community, to the difficult situation that we currently have on the energy markets.
The missile attacks on Ukraine’s energy infrastructure, which have threatened the country’s energy security are part of this crisis. The Energy Community has taken actions to help Ukraine maintain security of energy and gas supplies. For this purpose, a specific fund was created. What is the idea behind it?
An hour before the Russian attack on Ukraine on February 24, the electricity system of Ukraine was technically disconnected from the systems of Russia and Belarus. At that time, the previously planned process of the so-called isolated functioning of Ukraine began. The goal was to allow Kyiv to prove that it was capable of stabilizing its power system, so that in 2024 it could be fully synchronized with the EU’s. Russia then launched an attack on Ukraine’s grid, knowing that it would not destabilize its own system. It’s very important.
Is it possible that the Russians waited to attack after the desynchronization?
We don’t know that. We started to wonder what to do about it. ENTSO-E decided to accelerate emergency synchronization, which happened on March 16. This means that Russian attacks on Ukrainian infrastructure can also lead to destabilization of the electricity system in the European Union, which required the introduction of appropriate security measures. Apart from technical measures, for example, trade between Ukraine and the countries of the Community, specifically Ukraine and Moldova, was not initially allowed and trade is currently only possible within certain limits.
In the first stage of the war, there was no significant damage to the energy system of Ukraine, but in turn, it itself significantly reduced energy consumption. Consumption losses were estimated at about 30 percent in the first stage of the war, that is, until about October 15 of this year. This made it possible to start discussions on trade, that is, the sale of the surplus to the European market, which did hapen. We talked extensively about how to give the opportunity to sell energy to Ukrainians. We wanted to bring about a win-win situation in which, on the one hand, Ukraine supplies energy to the European Union and, on the other hand, receives income. Ukrainian electricity had the potential to replace 5-6 billion cubic meters of Russian gas. This was clearly communicated by the Ukrainian side. There is also a third win, that is, the sale of electricity to Moldova launched in June. This was a response to the blackmail that the Russians had used against Chisinau. We would have had a win-win situation. Ukraine would make money, the European Union would reduce its demand for Russian gas, and Moldova would have diversified electricity supplies at relatively good prices.
Russia’s deliberate attacks on Ukraine’s energy infrastructure turned the tide. Today, Ukraine does not make money because it has no production and transmission capacity; the European Union needs to find these 5-6 billion cubic meters of gas, and Moldova needs to diversify, looking for energy in the EU markets, where the price is much higher. We are all in a situation that is undesirable. Now, instead of a win-win-win, we have a lose-lose-lose situation. It’s no good. So we can try to quickly rebuild what has been destroyed by Russia. It is about energy generation and transmission infrastructure. This, of course, is of internal importance considering the humanitarian situation in Ukraine, but it is also pertinent to the country’s external situation and its ability to operate as an energy provider in the region. Despite the war, this country offered energy security, by providing gas storage facilities and sending energy to Moldova, which is worth remembering.
What can be done today?
Today, first of all, we are preventing the deterioration of the humanitarian situation, because millions of people remain without electricity, without gas and without heat. We also see the regional context and we are involved in the process in two ways. In March, a Ukrainian ministry asked us to coordinate the supply of equipment that is donated to Ukraine by private companies from outside the EU strategic resources. Private companies have a reservoir that could be used, but it is necessary to distinguish Polish entities from, for example, Spanish or Dutch ones. When someone from a distant part of Europe is supposed to deliver a dozen tons of equipment to war-torn Ukraine, they may feel lost. Working in tandem with the Emergency Response Coordination Centre, the Community Secretariat offers European companies support in the donation process, including transport costs. On the one hand, together with the Ministry of Energy of Ukraine we are updating the list of needs, which comes from more than a hundred energy companies in Ukraine. The Community handles this list, translates it into a language understandable to potential suppliers, and informs on what Ukrainians need. We try to talk widely about the need for help, looking for donors. When someone is found, the proposal is verified against the list, and then information about the place of collection in Europe is provided. Then the involved logistics operator transports it for free to the hub in Ukraine. The receipt is confirmed, and we receive information on how the equipment was used.
What are the effects?
Since March, it has been possible to create a system that is accessible to European companies. This means the Energy Community has taken responsibility for the entire subsidy process from the moment the need is verified, then aligned with the offer up to when all customs and tax formalities, as well as bureaucratic procedures are handled. So we have created a service for the European industry. At the same time, we received offers of financial assistance, because many governments did not have strategic reserves, for example, due to other technical standards, but they wanted to give money. Therefore, a second branch was created, for those who can offer money. We also provide them with a service where we collect money and continue to buy equipment. This began to develop after the coordinated attacks after October 10. The awareness about Ukrainian needs has increased. It was then recognized that this was a serious problem. Last Friday, the first conference was held with potential companies that could supply equipment for this money. The challenge is to make an order that meets Ukrainian needs and can be implemented quickly. That is the difficulty today. The idea is to come up with a list that can be quickly completed with the money from the fund. Since the beginning of the war, the task force of the Energy Community Secretariat has coordinated 39 deliveries of 800 tons. 52 deliveries are now being prepared. The most recent ones include 248 transformers from Lithuania and 100 power generators from France, which have already reached or will soon reach the Dnieper. The legal framework of the support fund allows governments and financial institutions to provide emergency support to the energy sector in Ukraine. The funds are used to carry out deliveries that cannot be financed by subsidies. So far, the fund has collected more than 32 million euros in contributions, and we are expecting a significant increase in donations in the near future, in line with Ukrainian needs.
What is the outlook for short- and long-term cooperation? Short-term meaning related to the war, and long-term related to the prospect of further cooperation with the Energy Community.
We are not thinking about what will happen after the war. Our goal is to help Ukraine survive until March, enabling Ukraine to survive the winter. The time will come. We do have some thoughts about this, but we are not taking action at the moment. I think that would be far premature. This decision needs to be based in an awareness about resources and needs. We are focusing on the necessary things that will help Ukrainians to survive the winter and hope to restore the capacity to export energy in the spring, because without the flow of money into the Ukrainian energy system, the accumulated financial problems will significantly impede post-war reconstruction. After the victory time will come to develop cooperation and new initiatives.
Interview by Wojciech Jakóbik