Foreign Policy Research Institute

+38 (044) 287 52 58

Foreign Policy Research Institute

tel. +38 (044) 287 52 58

Why did the trilateral talks in Brussels have stalled?

On January 21, 2019, in Brussels hosted trilateral talks in the format Ukraine-EU-Russia on gas transit through Ukraine after the expiration of the transit contract between Naftogaz of Ukraine and Gazprom in 2019. The parties outlined their positions on the mechanisms for implementing the transit of Russian gas.[1]

Ukraine at the end of the trilateral talks with representatives of the European Commission and the Russian Federation on gas issues received a proposal on the possible volumes and terms of the gas transit contract after 2019. The reports with reference to Interfax-Ukraine, the CEO of NJSC "Naftogaz of Ukraine" Andriy Kobolyev said in Brussels on Monday. "We are grateful for the proposal proposal made by the team of Maros Sheffovich at the end of these talks. This is a certain starting point, which we will definitely consider. We heard it for the first time, we got it for the first time. I hope that the next two months we will have time to discuss it both in Naftogaz and with the shareholder," he said.[2]

Following the talks, Pavlo Klimkin said that the Russian side is ready to extend the existing contracts. "Mr. Miller said three times that they are ready to extend the existing contracts and perhaps, they are pleased with these contracts," the Ukrainian minister said. According to Mr. Klimkin, Gazprom refuses to recognize the decisions of the Stockholm arbitration court and does not recognize the new gas legislation of Ukraine, on the basis of which it is proposed to sign a new contract. It is believed in Kyiv that by such actions Moscow wants to delay gas talks until spring-summer 2019 because of the presidential election.

At the talks Ukraine stated about its readiness to sign the Transit Agreement only according to the European rules, which the state will implement in the legislation. After the talks, the Russian side confirmed the desire to extend the contracts and focused on increased risks of Russian gas transit through Ukraine. "It is obvious that the risks of the reliability of Russian gas transit through Ukraine and gas supply to Ukrainian consumers this year are higher than in the past," - quotes Mr. Miller Russian News & Information Agency "RIA Novosti". According to him, the volume of gas that Ukraine receives on the reverse are sharply reduce, as well as gas reserves in Ukrainian storages.

But after the talks the European side were more optimistic. European Commissioner Sherifovich said that the EU wants Ukraine and Russia to sign a new gas contract for more than ten years. It should include such volumes that would be commercially interesting to attract a European investor with a high reputation to the Ukrainian gas transportation system (GTS). At these talks, the European side handed over its proposals on new conditions for the supply of Russian gas to the EU from 2020. "I hope that we will have a contract by the end of the year, and long-term transit through Ukraine will be provided," the European Commissioner said. The next gas consultations in the trilateral format are scheduled for May this year. Before that, the Ukrainian side will consider the proposals of the European Commission and will hold additional talks on this issue.[3]

Back in the summer of 2018, Ukraine and Russia agreed to meet every half or two months to agree on new gas contracts. However, the next meeting meeting was held only now - six months later. The representatives of Russia didn't arrive on technical consultations last week and disrupted the negotiations. Now they were late for half an hour, so the talks dragged on. The Ukrainian delegation left dissatisfied. "These consultations were surreal - the Russian delegation did not hide what is expected in the elections - that we have to move from "agreements" to normal European contracts, including that the Russian side does not recognize the decisions of the Stockholm arbitration court", said the Minister of Foreign Affairs of Ukraine Pavlo Klimkin. It should be reminded that in the Stockholm arbitration court the conditions imposed by Russia on gas supplies to Ukraine and its transit to the EU are recognized as unjust. The court ordered Gazprom to pay considerable compensation to Ukraine. However, Moscow is not going to implement the decisions. The Russian Minister also said: it is not worth waiting for an agreement now, because the court's decision is unjust.

"In the near future we expect consideration of the decision by the appeal instances in the Swedish court. This is a very important point, so we need to restore the balance of interests, first of all, in order to move further on the discussion of specific parameters," said Alexander Novak, Minister of Energy of Russia. Instead, Russian Minister offered to extend the existing contracts several times during the meeting. And they do not comply with the new Ukrainian legislation, which is adapted to European directives. The Vice-President of the European Commission, who acted as a mediator at the meeting, offered to solve the situation. "I put forward a proposal to the parties, which includes three main parameters of the future agreement: duration, volumes and duties. As well as such important parameters as investment, legislative and technical requirements. Without going into detail, in order to ensure a successful result, I am convinced that this is an honest proposal, which is based on our in-depth analysis," said Maroš Šef?ovi?, the Vice-President of the European Commission. Ukraine is satisfied with such proposal, but the Russians not at all. They stand on their own - it is necessary to wait for court decisions and moreover the change of power in Ukraine and in the EU. The next talks are scheduled for May.[4]

It should be noted that the transit of Russian gas through Ukraine’s gas transit system is one of the largest items of Ukrainian exports and brings Ukraine several billion dollars annually. In particular, in 2018, revenues from the transit of Russian gas exceeded the Ukrainian $ 1.7 billion import costs for gas. Loss of transit by Ukraine will mean a loss of a significant part of foreign exchange earnings.[5]

Thus, the parties failed to reach a general consensus. The talks ended inconclusively. The lack of a clear position of Naftogaz on talks with Gazprom served such course of events. The conditions that were proposed by the Russian Federation were unacceptable for Ukraine and the EU, in addition, the contract proposed by the Russians does not comply with European rules.

It is necessary to make two conclusions from this situation: firstly, Russia can not accept the defeat in the Stockholm arbitration court, because Russia always used to feel like a winner, and therefore does not intend to comply with any court verdicts issued against Russia. Secondly, Russia cannot allow gas agreements with Ukraine to be concluded according to European rules. Russia prefers to see Ukraine as its own territory to which only Russian rules should apply, that is: to act from a position of force, to treat Ukraine as its own colony and to impose on Ukraine the exploitative terms of the contract. That is why Russia will delay these trilateral talks, hoping to cancel the decision of the Stockholm arbitration court in the appeal instances and to bring the Pro-Russian President to power in Ukraine and turn him/her into its own puppet.