The first was the commitment issued in the new Ukrainian Government’s Coalition Agreement to work towards instituting a statutory cap of 30% of national energy mix per provider and the second was Russian Government’s confirmation that the South Stream project would be terminated.
In the first case, this will force Ukraine to move away from its dependence on Russian gas to keep the lights on – a factor which has significantly impeded successive governments from pursuing internal reforms without first obtaining “permission” from Moscow. Russian gas will remain an important component of the country’s energy mix – but not the only component. In the latter, the cancellation of South Stream will ensure that the Kremlin is unable to mask an aggressive attempt to expand political influence in Eastern in the form of pipelines. The short term, negative impacts upon Bulgaria and Serbia – the two states who had counted upon receiving economic benefits from the scheme – would easily have been negated by the consummate loss of sovereignty and economic latitude incurred by the presence of hundreds of kilometres of expensive, a Russian-owned infrastructure on their territory.
With the Ukrainian and South Stream developments in mind, my mind was drawn to the positive case of the new Liquid Natural Gas (LNG) terminal that stated operating in Lithuania in October. As news reports explain, the terminal gives the country the ability to import “up to four billion cubic metres of gas per year from sources like Norway’s Statoil – well above the 2.7 billion cubic metres it bought from Russia last year… [leaving] extra capacity for its Baltic neighbours Latvia or Estonia”.
In effect, this development has broken Russia’s stranglehold on energy provision to the entire Baltic region and ensured stability of supply going forward.
While the Baltic states have now been EU members for a decade and possess the financial resources to make such a policy a reality, this is not the case elsewhere. In Ukraine, Prime Minister Yatsenyuk has already expressly outlined his desire to see the construction of a similar facility in the Black Sea port of Odessa that could provide for 10 billion cubic meters of gas annually (roughly a third of Ukraine’s current imports from Russia). BP, Total and Kogas have already expressed their willingness to send supplies to such a terminal but, despite talks between Ukraine’s Government and Spain’s Enagas, the funding for the project has yet to be signed off.
The time has now come to consider how crucial infrastructure projects such as the Lithuanian LNG terminal, as well as the physical pipeline infrastructure required to bring gas to business and domestic customers, can be financed. It is clear that the national exchequers – whether in Sofia and Kyiv – will not have the means to provide this.
The United States and Western Europe need to be both serious and realistic about energy supply issues. That requires a financial commitment.
As such, it is crucial that the United States and Western European countries concerned with securing the geopolitical reorientation of fragile states such as Ukraine pool financial resources in order to provide low-cost loans or securitisation guarantees for strategically-important energy projects – the Odessa LNG terminal being one such example.
Rather than allow funds to be lost in an inefficient black hole of poorly-defined and weakly-administered European Union funds, it would be my proposal that a specially ring-fenced fund be independently and expertly administered by the European Bank of Reconstruction and Development (EBRD). The EBRD could have a role in both providing loans for the actual construction of infrastructure or, in cases where the private sector was able to offer loans at a more preferable rate, securitisation guarantees to give lenders peace of mind. Loans could additionally be matched with contributions from national treasuries or the private sector.
Part of the appeal for many states of Gazprom’s proposed South Stream projects was the infrastructure benefits they would bring. A new form of EBRD loan that offers the prospect of infrastructure gains without Moscow’s political preconditions would be a tangible and attractive solution that guaranteed the continuation of the region’s democratic pro-western reorientation.