Summit talks need a bit more energy

Date: 30/10/03

Energy cooperation is a priority area for EU-Russia relations. But translating this into legally binding commitments has been difficult, as Ria Kemper explains

FOR the last three years, negotiations have been under way among 51 governments on a multilateral agreement on energy transit. This agreement - the Energy Charter Transit Protocol - will set new rules under international law governing the cross-border transit of oil, gas and electricity.

The undertaking is of major significance for the European Union's security of energy supply. The EU will, in future, become increasingly reliant on external supplies of energy, especially gas. Consequently, the EU has a strategic interest in the stability of oiland gas exports from Russia and other Commonwealth of Independent States (CIS) producers.

Clear rules on cross-border energy transit are essential for this. Without such rules, industry will be reluctant to invest in new oil and gas fields in Russia and the CIS, for which enormous capital needs to be mobilized. The Transit Protocol will help reduce political risks associated with such investments, and its adoption is thus in the mutual interests of the EU and Russia.

Liberalization moves East

However, at present, the Transit Protocol remains uncompleted, precisely because of ongoing disputes between these two parties over its final text. The Energy Charter's other member states would be ready to adopt the protocol as it stands, but have so far decided not to press ahead until the EU and Russia are on board. Given the importance of Russia as an energy producer and transit country, and also the fact that the EU is presently the main consumer market for energy exports from the CIS it is obviously in everyone's interests that both parties sign up to the protocol along with other members of the Energy Charter.

The Transit Protocol will establish legally binding rules on how access to pipelines and grids is granted to third parties, and how transit tariffs are calculated. The protocol can thus be seen as a limited but important step towards extending the Union's own approach of liberalized energy markets to the east.

If signed, it would undoubtedly bring us closer to a truly competitive energy market throughout Europe by setting a minimum standard of rules governing energy-transit flows across the continent. It would also help integrate Russia into the world trading system, which is in line both with the EU's strategic objectives and with Russia's own goal of acceding to the World Trade Organization (WTO).

However, Moscow has yet to commit itself to the protocol. Three issues in the text remain unresolved between Russia and the EU - the Russian proposal for a “right of first refusal”.for incumbent transit shippers (under which energy exporters with long-term supply contracts, whose transit rights through third countries are covered only by short-term transit agreements, would have the first opportunity to renew these latter agreements upon their expiry), the EU's proposal for a clause on regional economic integration organizations, and the precise formulation concerning transit tariffs.

Political Linkage

Those negotiating on behalf of the EU and Russia have already come very close to final solutions on these points. But a clear political decision still needs to be taken to accept the compromises proposed at working levels. In Russia's case, suspicions remain that the gas monopoly Gazprom is seeking to block the deal, fearing that the Transit Protocol's adoption would jeapordize its dominance over gas exports to Europe.

Gazprom has consistently taken a negative stance regarding the Energy Charter, but its concerns are unfounded in legal terms. Moreover, if the Russian government is truly committed to reforming its natural monopolies and creating a competitive domestic gas sector, then the protocol should be fully in line with their strategy.

The EU has raised the issue of the Transit Protocol at successive EU-Russia summits recently. But, given the recent clashes between Russia and the EU in negotiations over Russia's WTO accession (where the EU's energy-related demands have been strongly rejected by Moscow), and also the upcoming parliamentary and presidential elections in Russia, it is uncertain whether the deal presently on the table can be finalized at the Energy Charter Conference on 10 December. Even if agreement is reached, Russia would still need to ratify the protocol, raising fears that the situation regarding the charter's founding document, the Energy Charter Treaty, might be repeated (Russia signed in 1994 but is still to ratify it, largely due to Gazprom opposition).

In Moscow, completion of the protocol and ratification of the treaty are politically linked. It has yet to be seen whether Russia is now finally ready to move forward on both fronts.

But that will only happen if the EU continues to use every opportunity to emphasize the importance of multilateral rules like those of the charter, in addition to its bilateral energy dialogue with Russia.

• Dr Ria Kemper is secretary-general of the Energy Charter Secretariat

Article considers energy co-operation in the area of European Union-Russia relations. Fifty one governments have been negotiating since 1999 on a multilateral agreement on energy transit, the Energy Charter Transit Protocol, which will set new rules under international law governing the cross-border transit of oil, gas and electricity. Russia has yet to commit itself to the Protocol.

http://www.eeas.europa.eu/russia/index_en.htm http://www.eeas.europa.eu/russia/index_en.htm

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