12:09 17.05.2014

Yuriy Boyko: Ukraine must continue the policy of maximum diversification of energy supplies

An exclusive interview with former Vice Prime Minister of Ukraine, Yuriy Boyko

Question: What is your attitude towards referendums held in the Donetsk and Lugansk regions? What are the possible consequences?

Answer: Taking into account the fact that really a great many people took part in the referendum – and I have reports from the Lugansk and Donetsk regions – this indicates that people want changes; they want Kiev to change its attitude towards them. Of course, the tragedy in Odessa was the key point. After this tragedy the people’s distrust towards the authorities increased significantly.

Question: What steps can you advise to the current authorities to reduce the conflict in the same Donetsk and Lugansk regions?

Answer: I think that the current authorities will remain only for one-one and a half months. They’ve disgraced themselves greatly in the eyes of people in the Eastern Ukraine. It is very unlikely that they will be able to do anything to calm down the situation.

As for the government which is still to come, certainly they will have to help everybody to implement maximum decentralization. I don’t mean federalization because in case of weak central authority this will bring to division of the country, however decentralization must take place. There also must be such things which are now very much discussed: electivity of governors, budgeting from below. The current authorities speak much about it, but no legislative steps were made, and everything is still only in the stage of proposals and talks.

I think all those issues will be discussed after the presidential election. The current authorities, as well as the Parliament in its today state, can hardly make appropriate decisions.

Question: What do you think, will the presidential election be followed by parliamentary elections?

Answer: It’s hard to say; everything depends on the development of the situation in the country in general, both economic and political situation. It’s difficult to forecast today, but I’m sure that after the presidential election the structure of the authorities will be reshaped.

Question: What will be your actions after the presidential election? Will you reestablish the Ukrainian Republican Party or create a new political force with which you will participate in the parliamentary elections?

Answer: I don’t have plans for reestablishment of the political party. Time will tell, but right now I’m focused on my presidential campaign, I try to be useful for the country in today’s difficult situation.

Question: Won’t the legitimacy of the future presidential election be doubtful?

Answer: There is a problem of possible massive nonvoting in the Donetsk and Lugansk regions; however, the presidential election is surely a must, because in today’s situation we practically have no central authority.

Question: What steps need to be taken to calm the situation after the election?

Answer: I would divide them in three groups: political, military, and economic steps. The political group is what we’ve already discussed: decentralization, adoption of laws providing more rights to the regions.

The military aspect includes disarmament of all armed formations. Here we need international mediation of Europe and the USA from the one side and Russia from the other side.

In the economic group steps need to be taken which are required in a crisis situation: reduction of taxes, reduction of credit rates, reestablishment of economic relationships with Russia within industrial cooperation. Several our factories have already stopped because of breaking these ties.

Question: What steps need to be taken to reestablish relationships with the Russian Federation? Do we speak about complete reestablishment of cooperation which existed before or partial, with consideration of the western vector?

Answer: As soon as the confrontation in the country stops, the economic problems will come first. Drop of production in Ukraine is very serious and we need a pragmatic approach to this situation. We need to stop this confrontation and shift to economic cooperation which will allow loading of our production companies and, at least, saving the workplaces. Take the same France for example. Despite all talks about sanctions against Russia, all orders for military machines, helicopters, and ships are being fulfilled.

Question: Which industries suffer the most from problems in cooperation between Russia and Ukraine? Where is the biggest drop in volume of orders and level of cooperation?

Answer: There is still response delay, however, railway car building, power engineering, transformers, locomotive industries, space programs are greatly connected with Russian companies.

Question: Today the aggravation between Gazprom and Naftogaz came to the boil point; there is a possibility of applying to the Stockholm arbitration. What is your opinion, will the claim be submitted and what are the possible outcomes for the Ukrainian party?

Answer: Arbitration will take at least one-two years, and we need to live within this period. I think that we need to agree in any case, because we will still be responsible for transit, and they will sell the gas. It is very important to have no debts before the arbitration starts, otherwise it is a dead end.

Question: One can now trace the possibility of repeating the scenery of the end of 2008 where Ukraine tries to pump the maximum amount of gas to the UGSF and get some time for bargaining and reaching some beneficial agreements with Gazprom. In the worst scenario, if the parties fail to agree, how long can Ukraine dispense without the Russian gas?

Answer: It is possible only if we pump in sufficient amount of gas – nearly 23-24 billion cubic meters and reverse some part of it. In fact, it is a very dangerous game, because any cataclysm is a big problem for people and you cannot play games with it in winter time. This is why we never reached such risky undertakings, and I hope that this time the current authorities will not repeat the mistakes of 2009. The year of 2009 showed how sensitive and harmful it is for us as the transiting party, for Russia as the supplier, and for Europe which suffered from cold that year. We can’t allow it and need to agree in civilized and calm manner.

Question: The position of the current authorities is to overview the prices in the gas contract of 2009. Can such agreement be reached without applying to the Stockholm arbitration or do we speak only about another discount?

Answer: It is difficult to do it in today’s situation of military rhetoric. This issue can be solved only in complex with all other problems which now exist in relationships between Ukraine and Russia. We need to mend our relationships and reestablish mutual trust.

We need to differentiate to the maximum extent the sources of supplies, that is what we started two years ago and kept on doing so until we agreed the reduction of prices for the gas. Then it will be easier to hold negotiations. For this reason during negotiation with the Russian colleagues we adopted the course of replacing the gas with coal, started the reverse in 2012, agreed on renting a platform for LNG terminal. Those were the moments that helped us and the Russian party to agree on the price reduction, because they understood that they were losing the market and we could leave.

Question: In other words, given that we reached no significant diversification, it is impossible to revise the contract.

Answer: Why impossible? We’ve reached an agreement and we had the price of $268.5. Unfortunately, due to this indebtedness, the Russian colleagues got an opportunity to cancel this deal.

Anyway, we need to reduce consumption of imported gas and replace it with local energy supplies. We were quite successful in it by reducing this consumption by 15% each year. Our task was to walk away from this contract and this is what we did. We bought 2 billion cubic meters in Europe, replaced gas with coal, metallurgical companies shifted to pulverized coal injection, public utilities also reduced consumption. In 2013 Naftogaz of Ukraine purchased only 13 billion cubic meters of Russian gas, that is we reduced the procurements under the contract from 40 billion cubic meters.

Question: How real is it to let the market go in free floating so that industrial companies – metallurgical, chemical, and other – could agree directly with Gazprom?

Answer: The market is in free floating. When we entered the European Energy Community, we changed the Law and now anyone can buy gas. Chemical factories bought, DTEK bought in Hungary. The market was open, but then, when Gazprom reduced the price to $268, it was cheaper to buy from Naftogaz of Ukraine. That was pure economics.

Question: What must the position of Ukraine be in relation to offshore fields? Maybe we should start some legal proceedings?

Answer: I’m not an expert in international law but I’m sure that the Ministry of Justice must prepare an appropriate position. We did lose our fields with Crimea; it was our main base and hope for increase of gas production. However, we shouldn’t forget that Ukraine still has fields near the Snake Island, so we need to relocate our base there.

There are many ways for differentiation left – construction of LNG terminal, contract for coal gasification which we signed with China. These are real ways for reduction of purchase of gas and increase of our own energy independence.

Question: To what level do we need to adjust the payments between Crimea and continental Ukraine concerning electricity and water supplies? Do they need to be averaged to the European rates?

Answer:If we want to continue dialogue with Crimea and its people, our co-citizens, we must keep the rates at the same level as for the customers in Ukraine. Then no one can speculate on the fact that we push with our prices on our own people who as early as yesterday were our citizens.