Ukraine's persistent energy crisis

Problems of Post-Communism

Volumn 51, Issue 4, 2004, Pages 40-50

  Balmaceda, Margarita M ^a,b  

^a SETON HALL UNIVERSITY   (United States)

^b HARVARD UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 3943058810     PISSN: 10758216     EISSN: None     Source Type: Journal    
DOI: 10.1080/10758216.2004.11052176     Document Type: Review

References (55)

1. Oles M. Smolansky, "Ukraine's Quest for Independence: The Fuel Factor," Europe-Asia Studies 47, no. 1 (1995): 85.
2. Ukrainian Center for Economic and Political Studies, "Concept of the State Energy Policy of Ukraine Through 2020," National Security and Defence, no. 2 (2001): 19.
3. World Bank, Statistical Yearbook for Ukraine; Hans van Zon, The Political Economy of Ukraine (London: Macmillan, 2000), p. 76.
4. World Bank, Statistical Yearbook for Ukraine; Hans van Zon, The Political Economy of Ukraine (London: Macmillan, 2000), p. 76.
5. Ukrainian News - Oil and Gas Report (November 2, 2003), via Institutional Securities Investor.
6. See International Energy Agency, Energy Policies of Ukraine (Paris: International Energy Agency/OECD, 1996).
7. The deal also assumes highly increased gas production in Turkmenistan. See Tatiana Vysotskaia, "Tseni na gas budyt rasti" (Gas Prices Will Rise), Delovaia nedelia (May 8-14, 2003).
8. The company has long been suspected of being a "shelter" for skimming corporate profits to Gazprom's top management. See, for example, Sergei Pravosudov, "Gazprom dumaet o svoikh otnosheniakh s ITEROI'" (Gazprom Reflects on Its Relations with ITERA), Nezavisimaia gazeta (December 10, 2000): 2.
9. See, among others, Oleg Lure, "Sdelka veka - Gazprom i solnsetveskie" (Deal of the Century), Versia (March 23-29, 1999): 11; Sergei Pravosudov, "Gazprom podelitsia monopolnoi roliu s Iteroi" (Gazprom Gains a Monopoly Role with ITERA), NG-Politekonomia (Moscow) (October 10, 2000): 12.
10. See, among others, Oleg Lure, "Sdelka veka - Gazprom i solnsetveskie" (Deal of the Century), Versia (March 23-29, 1999): 11; Sergei Pravosudov, "Gazprom podelitsia monopolnoi roliu s Iteroi" (Gazprom Gains a Monopoly Role with ITERA), NG-Politekonomia (Moscow) (October 10, 2000): 12.
11. Prices higher than those actually paid by consumers were officially declared for state reimbursement and barter manipulation purposes, with the difference split between the various beneficiaries. See Igor Maskalevich, "Minus 'Iterizatsia' Vsei strany" (Minus the ITERization of the Whole Country), Zerkalo nedeli (June 7, 2003): 9.
12. After Rem Viakhirev's removal as head of Gazprom in June 2001, the company tried to recover some of the assets taken by ITERA. In December 2002 Ukraine and Gazprom signed a direct agreement on gas supply that left ITERA out of the Ukrainian deals effective January 1, 2003; Gazprom itself was to transport 36 bcm of Turkmen gas to Ukraine. See Roman Olearchyk, "Gazprom, Naftogaz Ukrainy Replace Itera with New Firm," Kyiv Post (March 6, 2003): 1. After this well-publicized policy change, and despite Russia's new tendency to avoid middlemen in exporting its gas and oil, Gazprom apparently wanted to continue using intermediaries, but now through different companies. Jane's Intelligence Digest, Radio Free Europe/Radio Liberty, and reports in the Russian press in early March 2003 maintained that Gazprom had "replaced" ITERA in the transportation of gas from Turkmenistan with a small firm registered in Hungary, Eural Trans Gas, which would organize the transit and supply to Neftohaz Ukraini of 36 bcm of gas in 2003-2006. The company would pay Gazprom $470 million per year in transit fees for the use of its pipelines, and Ukraine would pay Eural Transgas 13.7 bcm of gas, worth between $600 million (in CIS markets) and $1.5 billon (in West European markets), thus generating between $130 million and $1 billion for the company. See Kommersant (Moscow) (March 14, 2003.) Although such a deal does not benefit Ukraine, it has the potential to benefit well-connected government officials and corporate executives.
13. On gas and Russian foreign policy issues, see Jan S. Adams, "Russia's Gas Diplomacy," Problems of Post-Communism 49, no. 3 (May/June 2002): 14-22.
14. See Ukrainian Center for Economic and Political Studies, "Concept of the State Energy Policy of Ukraine Through 2020," p. 36.
15. Ukrainian Center for Economic and Political Studies, "The EU-Ukraine-Russia 'Gas Triangle,'" National Security and Defense, no. 3 (2002): 31.
16. This should be seen in context: During the Soviet period, oil and gas reserves were exploited in ways that quickly and seemingly inexpensively extracted the gas and oil located in easy-to-reach areas of deposits but made it much more difficult - and expensive - to extract the remaining deposits later on.
17. Ukrainian Center for Economic and Political Studies, "Concept of the State Energy Policy of Ukraine Through 2020," p. 10.
18. A qualification often made to this calculation is that this datum is not completely accurate because it measures only official GNP, ignoring the shadow economy that by 1999 accounted for up to half of economic activity. This view is supported by the fact that one way to measure the shadow economy is by looking at electricity consumption. See Christian von Hirschhausen and Volkhart Vincentz, "Energy Policy and Structural Reform," Eastern European Economics 38, no. 1 (January/February 2000): 64. From this perspective, it could be said that if calculations were made on the basis of the economy as a whole (shadow as well as official), as opposed to just the official economy, the increase in energy intensity would not look so large, because energy consumption has grown together with total (shadow and non-shadow) GDP. At the same time, including the shadow economy in energy-intensity calculations fails to fully disqualify the increase in energy-intensity argument. This is so because "a large part of the shadow economy consists of trade with little energy intensity" and because data on single industries "show a high and increasing energy consumption that cannot be attributed to the shadow economy." Von Hirschhausen and Vincentz, "Energy Policy and Structural Reform," p. 64; see also International Energy Agency, Energy Policies of Ukraine 1996 Survey (Paris: OECD/IEA, 1996), pp. 73-75). On improvements in energy efficiency since 1999, see http://usinfo.usemb.Kyiv.ua/files/pascual_energy-forum_5-21-02_eng.html. I thank an anonymous reviewer for calling my attention to information on energy efficiency improvements.
19. A qualification often made to this calculation is that this datum is not completely accurate because it measures only official GNP, ignoring the shadow economy that by 1999 accounted for up to half of economic activity. This view is supported by the fact that one way to measure the shadow economy is by looking at electricity consumption. See Christian von Hirschhausen and Volkhart Vincentz, "Energy Policy and Structural Reform," Eastern European Economics 38, no. 1 (January/February 2000): 64. From this perspective, it could be said that if calculations were made on the basis of the economy as a whole (shadow as well as official), as opposed to just the official economy, the increase in energy intensity would not look so large, because energy consumption has grown together with total (shadow and non-shadow) GDP. At the same time, including the shadow economy in energy-intensity calculations fails to fully disqualify the increase in energy-intensity argument. This is so because "a large part of the shadow economy consists of trade with little energy intensity" and because data on single industries "show a high and increasing energy consumption that cannot be attributed to the shadow economy." Von Hirschhausen and Vincentz, "Energy Policy and Structural Reform," p. 64; see also International Energy Agency, Energy Policies of Ukraine 1996 Survey (Paris: OECD/IEA, 1996), pp. 73-75). On improvements in energy efficiency since 1999, see http://usinfo.usemb.Kyiv.ua/files/pascual_energy-forum_5-21-02_eng.html. I thank an anonymous reviewer for calling my attention to information on energy efficiency improvements.
20. A qualification often made to this calculation is that this datum is not completely accurate because it measures only official GNP, ignoring the shadow economy that by 1999 accounted for up to half of economic activity. This view is supported by the fact that one way to measure the shadow economy is by looking at electricity consumption. See Christian von Hirschhausen and Volkhart Vincentz, "Energy Policy and Structural Reform," Eastern European Economics 38, no. 1 (January/February 2000): 64. From this perspective, it could be said that if calculations were made on the basis of the economy as a whole (shadow as well as official), as opposed to just the official economy, the increase in energy intensity would not look so large, because energy consumption has grown together with total (shadow and non-shadow) GDP. At the same time, including the shadow economy in energy-intensity calculations fails to fully disqualify the increase in energy-intensity argument. This is so because "a large part of the shadow economy consists of trade with little energy intensity" and because data on single industries "show a high and increasing energy consumption that cannot be attributed to the shadow economy." Von Hirschhausen and Vincentz, "Energy Policy and Structural Reform," p. 64; see also International Energy Agency, Energy Policies of Ukraine 1996 Survey (Paris: OECD/IEA, 1996), pp. 73-75). On improvements in energy efficiency since 1999, see http://usinfo.usemb.Kyiv.ua/files/pascual_energy-forum_5-21-02_eng.html. I thank an anonymous reviewer for calling my attention to information on energy efficiency improvements.
21. A qualification often made to this calculation is that this datum is not completely accurate because it measures only official GNP, ignoring the shadow economy that by 1999 accounted for up to half of economic activity. This view is supported by the fact that one way to measure the shadow economy is by looking at electricity consumption. See Christian von Hirschhausen and Volkhart Vincentz, "Energy Policy and Structural Reform," Eastern European Economics 38, no. 1 (January/February 2000): 64. From this perspective, it could be said that if calculations were made on the basis of the economy as a whole (shadow as well as official), as opposed to just the official economy, the increase in energy intensity would not look so large, because energy consumption has grown together with total (shadow and non-shadow) GDP. At the same time, including the shadow economy in energy-intensity calculations fails to fully disqualify the increase in energy-intensity argument. This is so because "a large part of the shadow economy consists of trade with little energy intensity" and because data on single industries "show a high and increasing energy consumption that cannot be attributed to the shadow economy." Von Hirschhausen and Vincentz, "Energy Policy and Structural Reform," p. 64; see also International Energy Agency, Energy Policies of Ukraine 1996 Survey (Paris: OECD/IEA, 1996), pp. 73-75). On improvements in energy efficiency since 1999, see http://usinfo.usemb.Kyiv.ua/files/pascual_energy-forum_5-21-02_eng.html. I thank an anonymous reviewer for calling my attention to information on energy efficiency improvements.
22. Sergey Tulub, minister of fuel and energy, in Black Sea Regional Energy Center, Black Sea Energy Review: Ukraine (Sofia, July 2000): 9.
23. Hermann Clement, "Economic Aspects of Ukrainian-Russian Relations," in Between Russia and the West: Foreign and Security Policy of Independent Ukraine, ed. Kurt R. Spillman, Andreas Wenger, and Derek Mueller (New York: Peter Lang, 1999), p. 296.
24. Yuri Savka, "Vzaemozalik iak sposib zhittiia" (Mutual-Offset Operations as a Way of Life), Enerhetichna politika Ukraini, no. 6 (June 2000): 30-34.
25. For a detailed, day-by-day commentary on the Lazarenko trial, see "Ukraina i Svit," Radio Svoboda (RFE/RL) program to Ukraine (www.radiosvoboda.org/programs/ukraine_world/uk).
26. For an indirect discussion of barter and payment arrears, see Oles M. Smolansky, "Fuel, Credit and Trade: Ukraine's Economic Dependency on Russia," Problems of Post-Communism 46, no. 2 (March/April 1999): 49-58.
27. A case in point is that of the offshore company Collide Ltd., contracted under unclear circumstances by Ukrtransnafta to operate the Pivdenni oil terminal in Odessa. See Vitaly Knazhanskii, "Tavarisch Revers," Den (Kyiv) (March 12, 2004): 4. According to Knazhanskii, the company charged excessively high fees for handling oil transported through the Pivdenni terminal, "thereby frightening away oil traders and owners who plan to take their oil via the Odessa-Brody pipeline to Europe."
28. See Radio Svoboda program to Ukraine (June 3, 2003), transcript available at www.radiosvoboda.org.
29. An example of this is the 2003 protocol signed by Ukrtransnafta with Russia's Transneft giving Transneft the power to deal directly and sign contracts with oil carriers for transit through Ukraine, something that had previously been done by Ukrtransnafta, that is, giving the Russian company control over areas that were, until then, Naftohaz and Ukrtransnafta's prerogative. See Kniazhanskii, "Tavarisch Revers."
30. On policy freezing, see Sergii Zadorozhnii, "Uves" paket. Na energorinku nastali 'tvorchi' chasi" (The Whole Package. "Creative" Times Have Started in the Energy Market), Den (Kyiv) (March 30, 2004): 5.
31. There have been repeated allegations that energy-related cash flows, conveniently concentrated in specially created companies, were used to finance the 1998 Rada and 1999 presidential elections. See, for instance, Ukrainian Oil and Gas Report (Kyiv) (April 2, 2002). Similarly, it is alleged that the Ukrainian regime created the Enerhetichna Kompani Ukraini, concentrating state shares in the electricity sector in February 2004, as a way to control important money sources for financing the October 2004 presidential election. See Oleksii Haran, cited in Ilona Zaets and Sergeui Kiselev, "Kontrol' vysokovo napriazhenia" (High Voltage Control), Kompanion (Kyiv) (February 6-12, 2004): 8; Aleksandr Gudima, quoted in Infobank Oil and Gas Report (Lviv) (June 25, 2003).
32. There have been repeated allegations that energy-related cash flows, conveniently concentrated in specially created companies, were used to finance the 1998 Rada and 1999 presidential elections. See, for instance, Ukrainian Oil and Gas Report (Kyiv) (April 2, 2002). Similarly, it is alleged that the Ukrainian regime created the Enerhetichna Kompani Ukraini, concentrating state shares in the electricity sector in February 2004, as a way to control important money sources for financing the October 2004 presidential election. See Oleksii Haran, cited in Ilona Zaets and Sergeui Kiselev, "Kontrol' vysokovo napriazhenia" (High Voltage Control), Kompanion (Kyiv) (February 6-12, 2004): 8; Aleksandr Gudima, quoted in Infobank Oil and Gas Report (Lviv) (June 25, 2003).
33. There have been repeated allegations that energy-related cash flows, conveniently concentrated in specially created companies, were used to finance the 1998 Rada and 1999 presidential elections. See, for instance, Ukrainian Oil and Gas Report (Kyiv) (April 2, 2002). Similarly, it is alleged that the Ukrainian regime created the Enerhetichna Kompani Ukraini, concentrating state shares in the electricity sector in February 2004, as a way to control important money sources for financing the October 2004 presidential election. See Oleksii Haran, cited in Ilona Zaets and Sergeui Kiselev, "Kontrol' vysokovo napriazhenia" (High Voltage Control), Kompanion (Kyiv) (February 6-12, 2004): 8; Aleksandr Gudima, quoted in Infobank Oil and Gas Report (Lviv) (June 25, 2003).
34. For the argument that regimes like the one in Ukraine should be considered actual regimes rather than just temporary transitional arrangements, see Steven Levitsky and Lucan A. Way, "The Rise of Competitive Authoritarianism," Journal of Democracy 13, no. 2 (April 2002): 51-63.
35. For a discussion of related issues, see Paul D'Anieri, "Leonid Kuchma and the Personalization of the Ukrainian Presidency," Problems of Post-Communism 50, no. 5 (September/October 2003): 58-65.
36. For transcripts of the Melnichenko tapes, see www.oneworld.org/index_oc/news/ukraine1210101.html.
37. A special issue of Natsionalna bezpeka i oborona (also published in English as National Security and Defence), no. 1 (January 2004), is devoted to the various plans to develop a consortium to operate Ukraine's gas transit system.
38. On U.S.-Ukrainian relations, see Paul Kubicek, "U.S.-Ukrainian Relations: From Engagement to Estrangement," Problems of Post-Communism 50, no. 6 (November/December 2003): 3-12.
39. Margarita M. Balmaceda, "Gas, Oil, and the Linkages Between Domestic and Foreign Policies: The Case of Ukraine," Europe-Asia Studies 50, no. 2 (March 1998): 283.
40. See Paul D'Anieri, Economic Interdependence in Ukrainian-Russian Relations (Albany: SUNY Press, 1999), chap. 4.
41. See Sherman Garnett, Keystone in the Arch: Ukraine in the Emerging Security Environment of Central and Eastern Europe (Washington, DC: Carnegie Endowment for International Peace, 1997); Margarita M. Balmaceda, ed., On the Edge: The Ukrainian-Central European-Russian Security Triangle (Budapest: Central European University Press, 2000).
42. See Sherman Garnett, Keystone in the Arch: Ukraine in the Emerging Security Environment of Central and Eastern Europe (Washington, DC: Carnegie Endowment for International Peace, 1997); Margarita M. Balmaceda, ed., On the Edge: The Ukrainian-Central European-Russian Security Triangle (Budapest: Central European University Press, 2000).
43. In November 2003, Poland and Ukraine finally signed an agreement on their intention to build the extension to Plotsk. A number of observers saw this agreement as purely symbolic or "declarative." See, for example, Elena Demianenko, "Po proektu Odessa-Brody naidion kompromiss" (A Compromise Has Been Found on the Odessa-Brody Project), Delovaia nedelia-FT (Kyiv) (January 28, 2004).
44. See Carlos Pascual, Ditmer Studemann, and Marel Ziukovskii, "Dvukhmyslenii revers: Neft I evroatlanticheskii shans Ukraini" (A Double-Edged Reverse: Oil and Ukraine's Euro-Atlantic Chances), Den (Kyiv) (April 3, 2003): 1.
45. The first discussion of the protocol in the Ukrainian press was in Vitalii Kniazhanskii, "'Protokoli neftegazovykh mudretsov: Pravda? Vymisel?" (The Protocol of the Elders of Neftehaz: True? False?), Den (Kyiv) (May 24, 2002): 1-2.
46. Purportedly for pipeline maintenance purposes.
47. See Ukrainian News - Oil and Gas Week (October 12, 2003).
48. "K Iuzhnomu khochet prichalit Yukos" (Yukos Moves Toward Reaching Its Iuzhnil), Ukrainian Gas and Oil Report (NefteRynok) (June 30, 2003).
49. As famously noted by Zbigniew Brzezinski, "Without Ukraine, Russia cannot really be an empire." See also Garnett, Keystone in the Arch.
50. As famously noted by Zbigniew Brzezinski, "Without Ukraine, Russia cannot really be an empire." See also Garnett, Keystone in the Arch.
51. The Druzhba-Adria project was voted down by the Ukrainian parliament in late 2003. This was widely seen as retaliation for the failure of the Odessa-Brody reverse project. After being stalled on several occasions, the project was finally ratified in February 2004.
52. See Pascual, Studemann, and Ziolkowski, "Dvukhmyslenii revers."
53. See Pavel Miroshnikov, "Neftiannaia zavisimost" (Oil Dependence), Delovaia nedelia (Kyiv) (March 13-19, 2003): 1.
54. Ibid. Less than a week after the signing of the Common Economic Space agreements in September 2003, Russia's ambassador to Ukraine, Viktor Chernomyrdin, declared that the agreement did not mean that Russia would lower the price of the oil and gas it supplied to Ukraine. Interfax Ukraine (September 26, 2003).
55. Ibid. Less than a week after the signing of the Common Economic Space agreements in September 2003, Russia's ambassador to Ukraine, Viktor Chernomyrdin, declared that the agreement did not mean that Russia would lower the price of the oil and gas it supplied to Ukraine. Interfax Ukraine (September 26, 2003).