EU has no objections to Gazprom-Naftogaz takeover

The European Commission has no objections to Russia's proposed takeover of Ukraine's national gas company, despite warnings that it would harm EU interests.

"The decision has to come between Kiev and Moscow and not in Brussels," EU energy commissioner Gunther Oettinger told journalists in Brussels on Thursday (6 April) after meeting Ukrainian energy minister Yuriy Boyko.

"We should wait and see. A deal has conditions, paragraphs, articles. It has intentions. And so we have, as in every development, to consider afterwards whether this new construction would be in line with our regulations or not ... Today there is no reason for any activity of the European Commission."

Russian Prime Minister Vladimir Putin proposed the move in a surprise statement last Friday.

Given the vast difference in size between Russia's giant state-owned firm Gazprom and Ukraine's Naftogaz, a "merger" between the two companies would amount to Russia gobbling up Ukraine's transit pipeline network, which is responsible for supplying some 20 percent of EU gas consumption.

The move has the potential to cause political instability inside Ukraine. Russia-wary opposition parties and many people in the western half of the country see Naftogaz as a symbol of national sovereignty. A deal last month to let the Russian navy stay in Crimea led to fist-fights in parliament and talk of the country splitting in two.

In practical terms, the takeover would take away Ukrainian President Viktor Yanukovych's ability to exert influence at home by rewarding political allies with lucrative Naftogaz posts.

It would also make it easier for the Kremlin to switch off gas deliveries to Ukrainian consumers or to people in former Communist EU states if their governments went against Russian interests.

"It would be quite frightening for the EU," Susan Nies, a Brussels-based expert for the French Institute for International Relations (IFRI), told EUobserver. "Gazprom is not just a big player, like General Motors. It's the principal political weapon of the Russian state."

"The EU has to become bly engaged in this process. It should have a clear strategy. But this has come at a difficult time. Fuele is sort of in charge [of EU-Ukraine relations]. But he's a newcomer. You have Fuele, Ashton and Oettinger hanging around. It's a mess," she added, referring to the EU's new set-up, with enlargement commissioner Stefan Fuele and EU foreign relations chief Catherine Ashton sharing the Ukraine portfolio with Mr Oettinger.

Bohdan Sokolovsky, an energy and foreign policy aide to former president Viktor Yushchenko, said: "I don't understand why the commission is saying this is an issue for Ukraine and Russia. This is a big mistake."

"If Gazprom controls the Ukrainian gas sector, the next step will be to extend control in Slovakia, the Czech Republic, Hungary. This merger is an instrument for Gazprom to extend its powers inside the EU."

At a technical level, the takeover would make it harder for the EU to make good on its plan, rolled out in March 2009, to transform Naftogaz into a normal company by EU standards, with regular financial audits, reducing the risk of supply disruption due to murky deals between Russian and Ukrainian officials and oligarchs.

"Naftogaz needs financial aid. So the EU says: 'Give us transparency and we'll give you aid.' You can't do that if you are dealing with Gazprom," Tom Mayne, an analyst at UK-based anti-corruption NGO Global Witness, said.

For his part, Mr Boyko sounded lukewarm on the Putin proposal, saying in Brussels on Thursday that Kiev would have to consider national interests and EU interests before going ahead. He also said he is "pushing" for parliament to ratify a new pro-EU gas law on market liberalisation in the "next weeks."

But if Ukraine slides further toward the risk of a Greek-type national bankruptcy or if Naftogaz risks going bust, Mr Yanukovych may have no choice, experts pointed out. "Ukraine may be open to this if it meant improving its economic situation," the IFRI's Ms Nies said.

[Source: By Andrew Rettman, Euobserver, Brussels, 06May10]

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