Monday, June 10, 2013

Rocky Road to Yamal 2

Polish Prime Minister Donald Tusk has asserted his control over Polish infrastructure projects, by firing state officials who signed a memorandum with Gazprom without his knowledge.  The Yamal - Europe 2 gas pipeline has been on the planning books for twenty years, and and had been almost forgotten.  In the midst of Russia's latest quarrel with Ukraine over transit rights, however, Russian President Vladmir Putin revived the dormant proposal on April 3.  Putin requested Gazprom CEO Alexei Miller to take another look at the proposal, despite no additional gas supplies available to fill the pipeline.

Miller quoted a market analysis that Gazprom could transport 15 billion cubic meters of gas to Hungary and Slovakia.  He proposed construction could begin in 2018-19 after the completion of the South Stream project.  Polish Treasury Minister Mikolaj Budzanowski dismissed the possibility out of hand.  "I approach media speculation regarding a second branch of the Yamal gas pipeline with great caution, because the consent for such a project should depend on the price of the raw materials and its suppliers," he said.  "The European Union does not need more supplies of natural gas from Russia," he told Polish radio.  A separate report quotes Budzanowski in even stronger terms.  "No one, except for the Polish company and the Polish government is entitled to make decisions about transit via the Polish territory.  That's why we would like to tactfully remind that we are not going to build a new gas transportation network to Poland or the European Union on instructions from anyone, especially from Gazprom."

Polish Minister of the Economy Janusz Piechocinski recognized that the new pipeline's sole purpose was to divert gas from the pipeline that transits Ukraine, putting more pressure on that state to accept Russian demands to pay more for gas.  He said Poland should be "very careful" about getting involved in the spat over the gas price.  These cautions were echoed by Polish Prime Minister Donald Tusk.  "Poland won't participate in these political contests.  For us, gas isn't a tool to conduct politics and we very much want, in agreement with European Union laws, to keep gas issues free of politics."

With the major Polish officials all opposed to the new pipeline, it came as a shock to all when Gazprom announced that it had signed a memorandum of understanding with Miroslaw Dobrut, CEO of Polish pipeline operator Europol Gaz.  "The document envisages the implementation of the Yamal-Europe 2 project through  Poland," the Russian company stated in a press release.  It envisioned the completion of a feasibility study in six months.

The Prime Minister was furious that such an agreement could be signed without his approval.  Grazyna Piotrowska-Oliwa, head of PGNIG SA (part owner of Europol Gaz) immediately tried to backtrack.  She said Gazprom was exaggerating the significance of the memorandum, which was merely an agreement to evaluate the project.  "Nobody knows what the result of the analysis will be, whether it's going to be profitable at all," she said in a television interview.  "The memorandum does not include a decision to build the pipeline and is not a legally binding agreement or pledge to conclude any agreements or contracts."

The dominoes quickly fell.  On Friday, April 19, Prime Minister Tusk fired Economics Minister Budzanowski for failing to monitor the activities of the state-owned PGNIG.  "In my view, the oversight function was not fully implemented," he said.  Budzanowski was replaced by Wlodzimierz Karpinski, whom the Prime Minister warned about needed personnel changes in the gas  company. Ten days later, PGNIG's board let go CEO Piotrowska-Oliwa and her deputy, Radowslaw Dudzinski.

In the face of such insubordination, the Polish government was not satisfied with the personnel changes.  In June, the Treasury introduced a proposal to change the statutes under which PGNIG operates.  Under the new plan, PGNIG's management board would be required to report on any agreements with foreign entities.

The Yamal - Europe 1 pipeline was originally conceived in 1994, and began operating in 1999.  It is the main pipeline for Gazprom's Eastern European clients (Western Europe gets its gas from the Ukrainian pipeline and, more recently, Nord Stream.)  It stretches over 2,000 kilometers over Belarus and Poland.  In Poland, the pipeline is owned by Europol Gaz, which in turn is owned jointly by Gazprom and by the Polish state-controlled gas company PGNIG SA (48% each.)   Yamal - Europe 2 was proposed in 2008, but in 20009 the Russian then-president Dmitry Medvedev postponed the project, citing inadequacy of supply to meet all the Gazprom agreements with the EU.  If completed, Yamal 2 will have a 15 bcm capacity.

While Prime Minister Tusk may not have been happy with the way Yamal 2 was resurrected, there are signs that planning for the project is continuing.  Russian Ambassador to Belarus Alexander Surikov has confirmed that the feasibility study proposed in the memorandum of understanding is continuing, and will be completed by November 2013.  "Poland has confirmed its willingness to have an additional 15 billion cubic meters of gas," he said. "All these issues will be November."