Poland still needs an active eastern policy because the problems in Ukraine may hamper Kiev’s energy integration and deprive Poles of lucrative gas cooperation – writes Wojciech Jakóbik, BiznesAlert.pl’s editor in chief.
Two conferences in Wrocław
At the upcoming conference titled „The Polish Eastern Policy” between 19 and 21 of October, I will be presenting a report on Poland’s engagement in the energy integration of the Eastern Partnership countries, including Ukraine.
I do not want to give away too much before the event, but I will reveal that I tried to prove that Poland’s engagement in the East is important not only because we need to support our ally – Ukraine in the face of Russia’s rape of the international law. This is also part of a fight against the disintegration of the common energy policy and the questioning of the umbrella of antitrust regulations, which are supposed to protect not only Ukraine, but also Poland against the abuses caused by the controversial Nord Stream 2 project. Such engagement will also attend to Poland’s possible gas re-export profits from the LNG terminal in Świnoujście and the future Baltic Pipe.
On 18 October, the Jan Nowak-Jeziorański College of Eastern Europe (KEW) organized a press event at the premises of the Polish Press Agency to advertise its upcoming conference in Wrocław. During the event I will elaborate on the report I drafted for KEW. Me and the other authors of the document will be defending the proposition that Poland needs an active eastern policy, which is necessary because of real, not idealistic, reasons. These are visible in the gas sector.
A representative of Ukraine’s Energy Ministry and Naftogaz’s CEO will not attend the III Energy Congress where they were supposed to talk to Polish representatives about, among others, the Poland-Ukraine gas pipeline. The problems with the gas reform by the Dnieper river are putting into question the cooperation with Poland.
On Wednesday, 18th of October, the III Energy Congress in Wrocław will be opened. It is organized by the Lower Silesian Institute for Energy Studies (DISE). BiznesAlert.pl is the event’s media partner. Even though initially the organizers announced that the panel on Polish-Ukrainian cooperation would be attended by a representative of the country’s Energy Ministry and Naftogaz’s CEO Andriy Kobolyev neither will come to Poland. This is caused by growing political tensions surrounding the reform of the Ukrainian gas sector.
During his visit to Warsaw on 5 October, Ukraine’s Minister of Energy and Coal Industry argued that the Poland-Ukraine gas pipeline was not delayed, and said he considered the project yet another tool that would free Ukraine from Russian gas deliveries and develop gas transmission to Central and Southern Europe. He also mentioned a „gas hub” that could use Ukraine’s storage facilities whose total capacity is 31 bcm. Additionally, he announced Ukrtransgaz will soon adopt an investment plan.
Despite the problems in Ukraine, Paweł Stańczak Ukrtransgaz’s CEO and former PGNiG employee will take part in the conference in Wrocław. He may reveal new information on the Poland-Ukraine gas pipeline and other cooperation projects between the two countries. The panel that will be devoted to this topic will be also attended by representatives of PGNiG and ERU Trading, a private company that intermediates in the supply of Polish gas to Ukraine. The guests will discuss the perspectives of using the Polish LNG terminal in the region.
According to information acquired by BiznesAlert.pl from a source close to the Ukrainian delegation, at a meeting with Polish representatives it was declared that the fate of the Polish-Ukrainian gas pipeline will be decided by the end of this year. Poland already has a connection with Ukraine in Drozdowycze, it was used to transmit gas to the West, but it has a virtual reverse flow with a capacity of 1.5 bcm a year. It allows PGNiG to transmit gas to Ukraine.
A new gas pipeline with a planned capacity of 5-8 bcm would deliver between 2018 and 2020 larger physical gas supplies and could be used to develop gas trade between the two countries. Poland perceives it as one of the channels for potential re-export of the blue fuel from the Northern Gate, i.e. the expanded LNG terminal in Świnoujście and the Norwegian Corridor – Baltic Pipe, which together will be able to deliver 17.5 – 20 bcm of gas a year as of 2022.
By modernizing the Hermanowice-Strachocina gas pipeline as part of Gaz-System’s national plan to expand the gas transmission network, Poland adapted its infrastructure to open the Poland-Ukraine gas pipeline. Now it is time for Kiev. It needs to build a 100 km-long gas pipeline from the Bilche-Volytsko storage facilities. However, Ukrtransgaz has not made a decision yet. This may be caused by the instability in the gas sector, but also by the lack of sufficient financial means.
A stagnating reform
Ukraine continues reforms required by the International Monetary Fund to keep on receiving financial help. However, the progress is slow, which is why the talks with the IMF did not yield any decisions.
„We have restored economic growth thanks to the fact that have been focusing on reforms for the last three years,” argued Ukraine’s Finance Minister Oleksandr Danyliuk. Despite that, further development is at risk because various interests are at stake when it comes to the implementation of the gas sector reform. The project’s most important element is the ownership unbundling of Naftogaz and the creation of separate companies responsible (in accordance with EU regulations) for extraction, transport and distribution of the raw material. Other problems pertain to reforming the management of the company. This may be caused by the fact that the government is trying to keep full control over the company, which is the biggest tax payer by the Dnieper.
„Another important issue in the current dispute is the fact that the government wants to employ its people at Naftogaz’s most profitable companies, which will enable them to, among others, finance election campaigns, which are exceptionally expensive in Ukraine,” the Centre for Eastern Studies in Warsaw wrote.
Still, the IMF has criticized Ukraine for delaying the gas reform. The Ukrainians also do not want to free gas prices for households, which was one of the prerequisites to continue the financial help. However, this is politically problematic because withdrawing subsidies for the poorest Ukrainians may cause social unrest, which would be unwelcome before the upcoming presidential elections.
According to information acquired by BiznesAlert.pl, the shaky situation surrounding the Naftogaz reforms was why the company’s CEO had to give up his trip to Poland. He supports an ambitious reform, which is why he may be removed from his post, a decision awaited by forces which are against the changes, but have a significant impact on the government. „In September three out of five members of Naftogaz’s supervisory board resigned and accused the government of increasing political encroachment on the company’s activities and of blocking its reform,” the Centre for Eastern Studies pointed out. According to the Centre’s analysts this is the reason why the gas reform in Ukraine has stagnated for a year.
Active eastern policy
Without an active eastern policy, Poland will not be able to impact any trends that may threaten the protective umbrella created by EU gas regulations. Thus, Warsaw will not be able to win the EU dispute over Nord Stream 2 or OPAL and other battles over concessions toward Gazprom. The trends may also put at risk PGNiG’s interests in Ukraine and the idea to re-export gas from the Northern Gateway. Finally, they also pose the risk that Kiev will return into Kremlin’s grip, because if the aid from the West is stopped, Ukraine will be forced to import gas from Russia and bear all political consequences of this turn. These are some of the reasons why Poland cannot afford to not have an active eastern policy. What should it look like? We will be talking about this in Wrocław at the III Energy Congress and at the Polish Eastern Policy conference.