Some objectives have already been reached. In the very vast field of EU-Russia relations, where positive and encouraging developments are not in short supply (see this column yesterday), the energy sector is still the most crucial sector and is in perpetual evolution. Vladimir Putin's three main objectives are clear: a) to obtain what he calls reciprocity in the opening of the markets and in investment; b) to control the enormous national resources, while not forgetting that his country needs Europe as an outlet and provider of technology and capital; c) to keep as much control on EU supply routes for gas and oil as possible, not only for those from Russian reserves but also for the whole of the former USSR zone.
The EU and member states (whose interests are not always the same) are striving to work out a global strategy that aims to guarantee gas and oil supplies from Russia and still diversify the sources, to multiply the supply networks so that Russian territory is not the only transport area for supplies, and also to make instruments available that will facilitate control and restrictions on Russia's share in transport networks in the Community.
Russia has already largely reached a number of its objectives. Vladimir Putin successfully took over the majority of the colossal energy resources of his country by renegotiating (after evoking environmental or tax reasons) the former agreements with the western consortiums which he found unsatisfactory. Kazakhstan is currently following his example: it is renegotiating the conditions for cooperation with a Euro-US consortium. It is possible that the former agreements had in some cases effectively been unfair and that one or other of the western companies had not respected all its commitments. Some European governments intervened more or less explicitly in the re-negotiations, confirming the political or strategic nature of the energy arena and subsequently revealing the sham of total autonomy of private sector negotiators.
Vladimir Putin also succeeded (to a large, if not total, extent) with his thesis on reciprocity, according to which, western firms had the opportunity to have a stake in the management and extraction of Russian hydrocarbon resources but, in exchange, Gazprom had the right to sell and directly distribute its gas to European end-users. Agreements in this direction have been concluded, and others will follow.
Difficult negotiations. In this turbulent context, there have been many developments and in two important cases, the initiative has come from the EU and its member states. The first of them involves the goal of controlling unlimited Russian expansion in the distribution networks on Community territory by preventing Russian companies from enjoying more rights than European companies themselves in the future. The EU is currently examining the European Commission proposal to introduce the legal separation between prospecting and extraction activities, and distribution (unbundling). It would be absurd to allow giant foreign companies not to be subject to the same discipline and sanctions as EU companies; producers should not at the same time be able to control the distribution networks. Everyone immediately thought about Gazprom; the legal debate underpins a very precise case in point. Vladimir Putin responded in his ironic and cutting style: restrictions would be ridiculous because European investment in Russia is in the range of €30 billion whilst Russian investment in the EU is ten times less (€3 billion). Any talk of a Russian invasion is therefore, in his opinion, ridiculous. Statistics from Brussels are a little more nuanced but confirm that European investment in Russia exceeded €31bn, while Russian investment in the EU would have reached €9bn (it's well known that statistics can be interpreted differently).
There is, however, an imbalance, but it is not this that counts. It is in fact the Russians themselves calling for foreign investment. They are in vital need of it if they are to exploit their lucrative energy resources in the appropriate time-frame by benefiting from cutting edge technology and preventing waste. The EU, however, is not seeking to limit the volume of Russian investment but wants to monitor it and submit it to the same rules applied to its own companies. Russia objected and the question was tackled within the context of the “permanent energy dialogue” on 16 October, in discussions between European Commissioner Andris Piebalgs and Russian Minister for Energy Viktor Kristenko, who acknowledged that “two different approaches” exist and said that he wanted to make a contribution to these reflections.
This is a negotiation that begins with, and is located in, the general framework of the debate on how to prevent “sovereign funds” (or public companies) in some third countries from taking control of strategic sectors of the European economy.
These sovereign funds, which depend directly upon the state, sometimes have massive financial resources and are docile instruments in the hands of their governments. Who doesn't know that Gazprom is one of the essential tools of Vladimir Putin's foreign policy? Russia, China and other countries that have the liquidity to embark on no matter what kind of adventure know only too well how to close off access to what they consider their inalienable national crown jewels. In his recent visit to Moscow, Nicolas Sarkozy asked Mr Putin to open up Gazprom to foreign investors in accordance with the laws of the market. E.ON Ruhrgas and ENI already have shares in Gazprom but are subject to restrictions decided by Moscow. The EU also has to be able to protect itself, even if the ways of doing so are different (the USA is already doing this).
Poland and the three Baltic countries want to reduce their dependency. The second major development in EU-Russia relations in the energy arena is outside the official framework of consultations and negotiations between the two parties: it is EU-specific and more precisely, pertains to a group of member states in liaison with certain countries of the former USSR. I am referring to the initiatives from the three Baltic countries and Poland to diversify their sources and energy supply modalities by reducing their dependency on Russia. This involves three different strategies: establishing a direct link with the oil wells of Azerbaijan and Kazakhstan and bypassing Russian territory; getting the project for a nuclear power station up and running in Lithuania that benefits all four countries; building electricity links between the countries and with Finland - one of the stages towards the creation of a common European energy market. These projects were already known about. What's new about them is their very significant step towards being put into practice at the “Vilnius conference” on energy security on 10-11 October. Our special correspondent, who was sent to the conference, provided a comprehensive report on what happened there in EUROPE 9521 and 9522 and to which I will be returning for the details later.
It was at this event that the agreement was signed between Poland, Lithuania, Ukraine, Georgia and Azerbaijan creating the Sarmatia consortium in charge of completing (it already partly exists between Odessa and the Polish border) the pipeline linking the Caspian and the Black Sea to the Baltic Sea. Kazakhstan was already a supplier of some of the oil for the Polish oil refinery in Plotsk and for Gdansk, as well as the Lithuanian refinery, Mazikiu Nafta, which will supply the three Baltic countries.
Problems to solve. Obviously, there are important aspects that need resolving, particularly financial issues and it will take time before the installations decided on will be up and running. The pipeline will not be operational until 2011; the new nuclear plant will not provide electricity until 2015 at the earliest (whilst the old Ignalina plant to replace it should already be closed by 2010); the electric powerbridge between Poland and Lithuania is still awaiting the signature for the definitive agreement on its construction and will not, in any case, be operational until 2010; the Estonian-Finnish electric powerbridge is ready but links with other Baltic countries and between Finland and Sweden are still at the projects stage. A lot still needs to be done but political and technical progress last month was crucial.
Vladimir Putin will certainly not remain a passive bystander but the Russian-German gas pipeline under the Baltic Sea (which is still being objected to on environmental grounds by Scandinavian countries and Poland) is expected to reassure him by opening up access not just to German markets but also to those in the United Kingdom, Netherlands and other countries. Divergences and negotiations on energy dossiers do not, in my opinion, contradict the overall positive assessment of developments in EU-Russia relations, which are based on many different factors. Added to those cited yesterday (improvements in prospects involving negotiations for the new global partnership and Russian accession to the WTO) is the agreement on the early warning system in the event of difficulties involving the supply of hydrocarbons; the new agreement on electric interconnection; agreement on steel; progress towards the improved transit for lorries to the Russian border; the “memorandum of understanding” on drug trafficking; and the strengthening of cultural cooperation.
A basis for future political cooperation. It is true that the progress cited is economic, while the main controversial political questions are still pending: peace in the Middle East, Iran, status of Kosovo, installation of the US anti-missile shield in some member states. I do not believe, however, that the current EU-Russia cooperation methods are efficient in these areas: the EU still has to consolidate its instruments and “awareness” about its common foreign policy. Concrete cooperation in economic areas, which has also, in some cases, an obvious strategic significance, represents a useful basis for future political cooperation. (F.R.)