Following completion of negotiations for entry into the Energy Community (EnC), Ukraine is awaiting the final formalities that need to be completed internally by the EU. A memorandum of understanding concluding accession negotiations was signed, on 9 October, by DG TREN Deputy Director-General Fabrizio Barbaso, on behalf of the European Commission, with Ukraine’s Fuel and Energy Minister Yuriy Prodan. As an EnC contracting party ⁽¹⁾, Ukraine would then be set deadlines for implementing some 15 items of EU legislation in the areas of electricity, gas, environment, renewable energy and security of supply.

The Energy Community Treaty entered into force on 1 July 2006. After a first round of negotiations, in November 2008, Energy Commissioner Andris Piebalgs talked of swift negotiations and it being possible to conclude the talks with Ukraine and Moldova “possibly” in 2009. A second round of negotiations, in February 2009, however, led only to progress with Moldova and not Ukraine. The EnC is attractive as it aims to create an integrated energy market allowing for cross-border energy trade in the region that is linked to the EU market. This would not only enhance security of supply for Ukraine and Moldova, but also attract investment in power generation and networks.

“All the presidential candidates in Kiev are very much in favour of European integration. They want to join the Energy Community. The problem is not on the Ukrainian side this time,” said one diplomatic source. This source fears the Russians are using their connections in the EU to get certain member states to hold up the accession. Russia is certainly not happy at the thought of Ukraine imbibing the EU’s energy acquis.

Following the EU-Ukraine ministerial investment conference on the modernisation of Ukraine’s gas transit system, back in March 2009, Russian Energy Minister Sergei Shmatko expressed serious concern at the expansion of the EU energy acquisto Ukraine. Shmatko noted that it would call into question long-term contracts signed between Ukraine and Russia’s state-owned gas company Gazprom. He objected to the deep legal changes that accession to the Energy Community entails.

The Russian conspiracy theory, however, appears to suffer from one major deficiency: the Commission mandate with respect to Ukraine’s accession has yet to be requested. It seems unlikely that Russia could influence specific member states in order to slow down the process in the Council. Only following the Commission request will EU member states form the EU’s decision (as a contracting party to the EnC) on Ukraine’s accession.

Here, usual ‘Brussels lentitude’ appears responsible for delays. The proposal from the Commission - when it comes - will have to be dealt with by the Energy Working Group before going to Coreper. Another official noted that the documents and procedures for issuing a negotiating mandate to the Commission could all be completed allowing for the Energy Community’s Ministerial Council, in December, to decide that Ukraine may join. “However, it could be later. December is not a deadline,” said the official.

Another school of thought attributes the EU’s lentitude to valid concerns as to Ukraine’s commitment to reforming its energy market and increasing transparency in its famously murky sector. Ukraine Prime Minister Yulia Tymoshenko herself has stalled implementation of a key condition for a total of US$1.7 billion in loans from international financial institutions (IFIs) agreed in July. The loans aim to provide Ukraine’s gas giant Naftogaz with working capital for immediate gas storage requirements as well as finance a longer term investment programme in the gas transit system. Amongst the conditions set by IFIs, aside from greater transparency and detailed due diligence, the loans require that Ukraine move towards more cost-reflective gas tariffs. Facing presidential elections starting in January 2010, however, Tymoshenko fears being associated with price hikes.

MOLDOVA ALSO DELAYED

Not only is Ukraine’s accession blocked until member states issue the final negotiating mandate to the Commission. Top officials from the troubled former Soviet republic and from the European Commission, already in April, signed a one-page accession memorandum declaring the negotiating process completed. This memorandum and annex containing a draft decision have been awaiting approval by the current parties to the Energy Community Treaty and the EU member states. The documents set out, as with Ukraine, concrete dates for implementing the EnC’s EU acquis. “There’s a package approach,” explained an official. “We can’t start accepting countries one by one.”

Moldova was one of the countries most severely affected by the cut in gas supplies in January 2009. The EU’s Gas Coordination Group noted that Moldova possessed zero gas reserves and little or no sources of alternative gas or energy supplies. This led, on 12 January, to the Commission activating the Community Mechanism for Civil Protection, at Moldova’s request, with Austria, notably providing large capacity heaters and electrical generators. Joining the EnC will eventually allow Moldova to attune its energy markets to EU norms and structures improving security of supply.

The accession documents are available at www.europolitics.info > Search = 259141

Ukraine’s accession to the Energy Community threatens Russia’s national interests 

Deadlines for Kiev

Article 2 of the draft up for decision by the Ministerial Council of the Energy Community sets out a series of deadlines as to implementation. For Ukraine, this notably means implementing the EU’s 2003 electricity and gas directives and regulations by 1 January 2012. Kiev should also implement, by 1 January 2012, the EU’s Directives 2004/67/EC on security of natural gas supply and 2005/89/EC on measures to safeguard security of electricity supply and infrastructure investment. A range of other acts of the EU acquis, also in the environmental field, must also be implemented. Ukraine also engages to ensure that non-household customers become “eligible,” from 1 January 2012, and all customers, from 1 January 2015.

⁽¹⁾ Albania, Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, Serbia and Kosovo.