This article is based on a presentation, which was done in October 2008 at the Round Table in Luxemburg arranged jointly by the EU Parliament and Federation Council of the Russian Parliament. A recent crisis on Ukrainian gas transit provided further arguments to the topic.
EU-RF Energy Relationships.
There is a long history of stable growth of mutual dependence, trade and investments in energy sphere. It started in
Another difficult times came in
These agreements reflected that time balance of interests and state of market development in
- EU need for external energy supply
- RF availability of delivery stable oil and increasing gas exports
- Opportunities on both sides to increase cooperation sphere far beyond energy trade (technology, innovations, energy savings, greenhouse gases, investments, equipment supply…).
2. Complications of
Notwithstanding an importance of energy issues in
It resulted in an excessive political pressure from EU to RF on an urgent ECT ratification. Meanwhile ECT since end of
it reflected some principles of the energy markets’ functioning which EU tried to overcome for the EU internal markets since mid of
90-es. For instance, ECT emphasizes that it does not assume a mandatory Third Party Access to the energy infrastructure (for the ECT purposes — transit infrastructure)
it was signed and ratified by every EU member state (as well as by the European Communities) and therefore its transit provisions were applied for energy products flows which intersect both borders of a single EU member state while at the end of
90-esthe term «transit» was excluded from the internal EU legislation as being in controversy to the «single market» principle.
On the RF side the ambiguous attitude to the ECT was formed on various reasons, and main concerns were expressed by Gazprom who were worried that an open transit of Central Asian gas via Russian and Ukrainian gas systems could damage its positions on the European market. Though ECT is dubious in this respect but some EU politicians (and former Charter Secretariat officials) in practice supported these concerns by their proclamations. As transit provisions were of particular importance for RF interests, Russian State Duma linked a perspective of the RF ratification of the ECT with the success of the Transit Protocol negotiations which had started in 1999.
We have to stress that the excessive politisation of this sphere (incl. «dangers» of excessive EU dependence on external energy supplies) had not 3 helped to reach progress. Sometimes in the last years it was an impression that politicians even overestimate the energy issues role in the
The new and most complicated issue on the substance in these relations is the transition state of energy markets status, market and industry regulation — on both sides! In EU we can state an ideologisation of this transition phase — as a result of liberalization dogma which prevailed until very recently. In this environment there are real difficulties of reaching a comprehensive and mutually satisfactory agreement.
It is a little premature to finalize lessons of recent Ukrainian gas transit crisis but it is important to mention that again transit issues and security of transit flows became in the focus of the problems. And again the ECT was put into the centre of discussions.
3. Some Other Uncertainties.
In the very last time new series of uncertainties started to have an impact on the energy perspective, including:
- Climate change challenges
- «Extreme» views on its implications on world energy supply.
- The tendency to rely in energy scenarios on yet industrially
non-testedtechnologies or on available energy resources?
Self-independenceat any cost (including huge budgetary subsidies
4. Where we are and where we can go?
As now, after delays on the EU side, negotiations on new EU-RF Partnership and Cooperation Agreement (PCA), which Russian side would prefer to call a Strategic Partnership Agreement (SPA), started where energy aspects should play an important role, we can see from some experts on both sides extreme expectations of easy progress which can be reached. Our concern is that it might be not so easy in view of several arguments. In a concentrated form the main problem seems to be an attempt to find detailed agreement «from the scratch» regarding both sides energy markets and energy sectors interactions. In a situation when these markets are in a transition and their final configuration is not yet determined, it would be extremely difficult. So a more balanced approach would be more realistic. In this context a recent appeal of the RF President D. Medvedev to form a legislative basis for new
- Energy Charter Treaty
- Its Transit Protocol (TP)
- New PCA (or SPA).
Energy Charter Treaty.
As it is now widely understood by energy experts of both Russia and EU it is not a perfect document from legal point of view as it contains a number of «ambiguities» with a potential adverse impact on energy sector — so there is a need for contemporary interpretation and clarification.
As RF leaders emphasized while Ukrainian crisis and after it, an ECT has limited capacity to act in the crisis circumstances. Charter Secretariat as the only permanent body established by the ECT does not have clearly expressed authority to act, even to warn the parties on the potentially dangers for energy security issues.
While the Ukrainian crisis it became clear that new means as international observers would be of help in the crisis times. No such provisions are in the current ECT.
New agenda in the energy sphere of this decade posed a number of topics which are not reflected in the ECT — as we told above ECT is a document of
On the Russian side there were as well a number of complaints that the ECT in some points is not symmetric and more reflects interests of consumers than producers.
And we are well aware that on the EU side there are «fundamentalists of liberalization» who consider ECT as a sort of potential obstacles to reaching their goals.
Bearing all this in mind let mark that in case of latest gas crisis the ECT was the only international treaty which was relevant, and both RF leaders and corporate lawyers appealed to its provisions (mostly transit and dispute resolution clauses) in attempts to persuade partners and/or to appeal to legal protection. Within last couple years Russian experts made an analysis of potential ways to modernize ECT provisions and to exclude legal ambiguities in its current text. Experts of ministries and leading energy corporations made their comments to these proposals.
ECT contains provisions for its periodic (once in 5 years) review on adequacy to new circumstances and challenges. The year 2009 is the next year of such review. Russian official representatives had in the end of 2007 expressed an initiative to deepen this work and the ECT Conference formed special Strategy Group for this activity. Within 2008 this work made a significant progress.
On the EU side (i.e. by the European Commission) a number of signals of skepticism in this regard were seen but many individual countries — both EU Members and
A latest very positive signal came from the Charter General Secretary Mr. A. Mernier who, based on the lessons of the latest crisis expressed in his Statement (see at www.encharter.com) a strong support to an adaptation and modernization of the ECT and made several suggestions in this regard.
We think that a mutual understanding of the RF and EU on the ways to reach progress in this multilateral process would be very desirable and fruitful step 5 towards achieving of the goal to build contemporary international energy legislation. It can be a productive initiative to extend this dialog beyond Eurasian scene where current ECT jurisdiction is. This can be done through such forms as
One party can’t guarantee the success of these attempts. But the analysis shows that more and more parties consider this approach as realistic.
The RF ratification of the ECT would be a part of this process assuming it is successful.
This document is directed to reduce any risks of further energy transit disruptions, to stabilize basis for continental wide energy transit and exclude impact of price and contract disputes on energy delivery. It clarifies such important items as ban on an unauthorized energy materials and products (EMP) withdrawal while their transit or principles of transit fees establishment. Its draft text contains important provisions on the stability of transit arrangements and increase of transit capacity. Some important ambiguities of the ECT transit provisions were successfully clarified at the expert level due the TP consultations and mutually satisfactory wording was reached.
After long negotiations TP terms are practically agreed on expert level. Last and major point still under discussion — a TP applicability on the EU territory («REIO Clause»).
On the EU side we could hear reasons that current EU legislation itself provides sufficient guaranties for EMP transportation on the EU territory (don’t forget that the EC is against the meaning «transit» within the EU). This argument does not work as the EU legislation on energy markets is not yet finalized and its current status definitely creates risks for supplier and in no way covers all aspects of the TP.
The other reason from the EU end is that TP will establish parallel (to Aqui) legislative base which will cause difficulties in implementation. But our comments are that the ECT being in force at the EU territory and being ratified by every single EU member state already causes same problems.
It is clear that the TP could be acceptable for the RF only if it is applied for the EU as well. REIO problem is a crucial part of the compromise and there is nothing impossible to resolve it at the political level. We can remind that at the mid2006 both parties — RF and EU — were very close to resolve this issue — even draft text of corresponding formulas was on the negotiation table. The drawback was then from the EU side, and if the clear picture of the whole deal is presented the issue will be settled.
Strategic Partnership — what it could be in the energy sphere?Russian side expressed its interest in forming the new PCA as the «Strategic Partnership| Agreement», i.e. as a document leading to deep forms of co-operation and partnership. What it could be in the energy sphere? Some ideas in this regard:
- Determination of mutual long term goals (integrated economic and energy space?).
- «Road maps» for achieving them.
- Possibly instruments of a «Commitology» as the EC normally uses it. This can be done in many ways including an increased role of the 6
EU-RFEnergy Dialog and/or better determined role of external bodies in the Agency to be established by new EU Gas Directive. The role of business has to be thought through as well.
- Mutual measures to reduce risks.
- Forms of dispute resolution.
- More projects of mutual interest and more cooperation on their funding and implementation.
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