On June 13, Leonid Kuchma stated at the news conference: “I would like to make decisions in the best interests of Ukraine, rather than purely political ones. We all think of ourselves as of great politicians, but we should care, first of all, about the country’s everyday needs.”

The President maintained that the major project for the Caspian oil transportation was still the Baku-Jeikhan pipeline, and the owners of the Caspian oilfields still had their stakes in it. “You should follow the press. The USA has repeatedly announced that Baku-Jeikhan [pipeline] is the key transportation corridor for supplying oil from the Caspian region,” - Leonid Kuchma said.

According to the President, neither sufficient amounts of Caspian crude oil nor routes for transporting this mythic oil to the Black Sea shore are available today. “How much oil is Kazakhstan currently extracting? And one should not forget it isn’t Kazakhstan’s oil - it belongs to multinational companies. So, do you know how much they are extracting? 47 million tons! Of which 17[million tons] go to meet Kazakhstan’s internal need in oil, although Kazakhstan still buys oil products from Russia. Do you know the capacity of the Baku-Poti pipeline? 5 million tons. Can you tell me where we are going to get oil for the Odessa-Brody pipe? Now tell me this: over all these years has any company offered us oil to pump it through the pipeline? Therefore, it is high time that we stop playing politics and start thinking about Ukraine, lest we wind up with an empty, neglected pipeline that no one needs,” - the head of state argued.

Having denounced the latest speculations by the state officials who “spend public money to advertise their own dreams”, the President underscored that Ukraine should not erect sandcastles, but pursue its true economic interests.

“I say it again, emphatically: we will act in Ukraine’s national interests and in nobody else’s. Neither in the Russian nor in the European ones, but in ours. So all this talking about the oil pumping is worth nothing. Oil is not pumped, has never been. And now new partners come and say: we have oil, as soon as Caspian oil appears, we will cease [the reversed use], this can be laid down in our contract”.

Making money on the Odessa Brody pipeline has proven a far more difficult undertaking than laying it, primarily due to the primordial errors both in the economic feasibility substantiation of the pipeline construction and in the PWC business-plan. Perhaps, this is the reason why the Ukrtransnafta [Ukrainian Oil Transportation] Company managers, when characterizing the pipeline operation, always speak of its political significance and never - of its economic value. These “big politics” games cost Ukrainian people their pensions and wages lost because of the Odessa-Brody pipeline standstill: the pipeline construction was funded from the state budget, i.e. from the money due to Ukrainian teachers, miners, workers, etc.

Constructing a new large oil pipeline without having previously contracted with oil suppliers would be considered an awful extravagance in the international industrial practice. Laying the Odessa-Brody pipeline with no guaranteed steady oil supplies is like building a mineral water bottler-factory in the heart of the Arabian Peninsular. In this respect, the Odessa-Brody is a unique project, implemented in the absence of the requisite trade contracts and in the midst of economic transformational chaos. At the same time, the Odessa-Brody pipeline was constructed under a number of false assumptions made by the authors of the technical and economic feasibility study of this oil transportation route.

If one studies the actual, rather than concocted, facts, one will see how primitive in mind are those who attempt to swap the effective (and beneficial for Ukraine) tactics of using the Odessa-Brody oil pipeline for a bugaboo of “the big brother” invariably exploited by the radical nationalists. It is obvious that by loading the pipeline with oil to be pumped in the reversed direction, from Brody to Odessa, Russia cannot possibly inhibit Ukraine’s advance in its European integration course, and that the matter is not the “political guile” of our eastern neighbour, as the direct use proponents are trying to convince us, but a set of very specific objective reasons.

First, when the Odessa Brody pipe was being laid, analysts of every stripe making money on the project informational support wrongly assessed the situation with the Russian crude oil export. Following the 1998 financial crisis, they presumed, Russia would reduce its oil extraction, thus cutting down its oil export to Europe. This assumption gave rise to an optimistic outlook on the potential market for Caspian oil in Central and Eastern Europe. Yet the gloomy forecasts for Russia did not materialize - the Russian oil production and export went up, and they are still on the rise.

Under the circumstances, the Odessa-Brody pipeline laid to transport Caspian oil, the export amounts of which are insufficient for loading the Ukrainian pipe, is, to a certain degree, redundant as it connects the rapidly growing oil production and consumption markets already provided with the pipeline net constructed in the Soviet times. The Russian companies that have privatized oil refineries and other related facilities in Eastern Europe and Ukraine are interested in supplying them with Russian oil. This was the case with the Slovak Transpetrol sold to the Russian Yukos Concern in February 2002. The same prospects open up to the companies Unipetrol (Czech Republic), INA (Croatia) and Gdansk (Poland) where the Russian oil giants get increasingly more active.

There are some technological factors at play, too. Privatization of oil refineries in the Czech Republic (and the incorporation of a multinational consortium by Shell, Conoco and ENI that followed), investments in the MOL and Slovnaft plants and creation of PKN Orlen were, naturally, conducive to the modernization of Central and Eastern European oil refineries. Substantial funds were invested to introduce new operation technologies, which make the issue of crude oil quality totally irrelevant. Both light Caspian oil and heavy sulphureous Urals mix yield the same output of light oil products at no additional cost whatever.

Of course, there is a chance that Caspian oil will be in demand when it starts being transported further, to Plotsk. However, the construction of the Brody-Plotsk section has been suspended for several financial and environmental reasons. Polish experts estimate that the construction will take at least three years and cost over USD 500 million. Besides, according to the design, the pipe is to run through the territory of the “Polessye” national park. It is one of the 23 reserve areas under a strict protection of the Polish legislation. So the Polish green movement activists are still to voice their attitude to the idea.

When it comes to computations and figures, the language of which the Odessa-Brody downtime apologists refuse to understand, the invalidity of the arguments, used by the few experts ready to support fantasies of the Caspian oil transit fans, is laid bare.

What Ukrtransnafta and potential “European pipe” investors are facing today is not a virtual “reversed use” problem, but two pressing actual ones. First, if used to supply oil to the Central and Eastern European refineries, the pipeline cannot bring the Caspian oil producers net profits commensurable with what they presently earn on the Mediterranean market. Second, it cannot offer the Central and Eastern European refineries a price equivalent to that of the Russian Urals mix.

The analysts with the Presidential Administration that prepared materials for Leonid Kuchma’s meeting with Mr. Brown conclude that the EU has no economic motives to buy Caspian oil supplied via the Odessa-Brody pipeline. This route is not competitive and, thus, not profitable. Moreover, in order to commission it, the country will have to purchase process oil worth USD 100 million to fill the empty pipe. At the same time, according to the Supreme Rada Committee for Fuel and Energy Complex, the Russian TNK [Tiumen Oil Company] that established a joint venture with British Petroleum, is prepared to fill the pipeline with its oil in exchange for the right to pump it in the reversed direction. Another two Russian corporations - Lukoil and Ukos - have also declared their desire to transport their oil from Brody to Odessa.

Ukratransnafta must have these facts and figures at their disposal. Then why would they deceive the public and why would they be so aggressive in doing it? Is it because of their ambitions? Shortsightedness? Corruption? Are they striving to safeguard the American oil industry’s interests? Why would they lay the blame at somebody else’s door?

While some MPs, disguising their lack of argumentation under nationalistic rhetoric and political demagogy, make every effort to incite the parliamentary factions against the reversed use, the majority is determined to make a weighted decision. Thus, Andriy Kliuyev, Chairman of the Supreme Rada Committee for Fuel and Energy Complex, is positive that “we should take a pragmatic approach to the use of the Odessa-Brody pipeline. It will take us two years to extend the pipeline to Plotsk. In the meantime the pipe is going to stay idle. If the reversed use is beneficial for the state, I think we should go for it. I do not see why we should not pump oil in the reversed direction. The more so that the pipeline does not operate anyway. I think we need to commission it in the reversed direction, for the time being, in order to compensate, at least partially, for the losses that we’ve incurred so far.” Borys Andresiuk, member of the Committee for National Security and Defence, is also among the “reversed use” advocates: “When I was visiting the US Senate in Washington, I was informed about the US official position in respect of this matter. Since Ukraine signed with the Transneft Corporation a protocol of intention to transport oil, the USA is no longer interested in this project. That is why we have to agree to the reversed use, otherwise we won’t get anything at all. The USA has officially disclaimed participation in the pipeline operation, now we may drive off Russia too.” According to Vadym Lytvyn, member of the Committee for Fuel and Energy Complex, Ukraine should do what is good for it: “We have to know for how long we will be able to use the pipeline in the reversed direction. Then we should commission it, it should bring profit instead of staying idle.”

These MPs are guided by the country’s economic interests rather than ephemeral political dividends; they do not take part in a noisy political campaign launched in some of the Ukrainian media by foreign ambassadors. This improves Ukraine’s political image of a state able to defend its stand. Volodymyr Demiokhin, Deputy Chairman of the Supreme Rada Committee for Economic Policy, shared his vision of the problem: “The Odessa-Brody oil pipeline is so designed as to allow for the reversed use. Why should it not operate? If there is an opportunity to load oil in Yuzhny port, let us do it. Odessa oil docs are overloaded, so if we pump crude oil through the Kremenchug-Odessa pipeline, we will have to reload it on rail and transport to Yuzhny, which means double loading. It will increase the export cost.

There is another question: how can one get oil to the Black Sea coast? If one counts on Azerbaijani and КТК oil, one is fooling himself. It is an illusion to think that this oil will be transported via the Odessa-Brody pipeline. These countries will not be able to supply enough oil for the next three years, maybe longer. The project of extending the pipeline to Gdansk can be viable, given Caspian oil. But the latter is in short supply. I think we should forget about politics, and commission the pipeline.”

And finally, Oleh Salmin, member of the Committee for Fuel and Energy Complex, considers that such projects as Odessa-Brody are too politicized. Yet economically, the reversed use is a good opportunity to replenish the budget and stimulate the development of Ukrtransnafta. For the pipeline not to stay idle for another two years, we should start using it now in the reversed direction. The Caspian oil transportation has been scheduled for the next two years, while Russians have problems with supplying their crude oil to Europe. We should also calculate the cost of oil transportation by sea. So I think we need a compromise: we should enter into a contract with Russia for the pipeline reversed use till 2005. Ukratransnafta, instead of scaring away all oil suppliers, especially Russian ones, should design a blueprint for the pipeline operation in the reversed direction for the near future, and explain to the Western investors why that is necessary. Regrettably, the Ukrtransnafta managers do not seem to understand it themselves.”

Loud statements to the effect that the reversed use of the Odessa-Brody pipeline is likely to jeopardize Ukraine’s prospects of joining the EU are nothing but political mystification. Upon considering the Ukrainian-European relations in the context of pipeline network development, one can come to the following conclusions.

First, before the “reversed use” issue was raised, Ukraine had been notified that in the near future there would be no place for it in the EU. Thus, in mid March, the Ministry of Foreign Affairs criticized the EU intention to sign a “neighbour agreement” with Ukraine that would not provide for a prospect of Ukraine’s ever acquiring an associated or full membership. It was the key message of the commentary by the Foreign Ministry Spokesman Markiyan Lubkivsky regarding the European Commission long-term proposal entitled “Expanded Europe - Neighbourhood: New Framework for Cooperation with Our Eastern and Southern Neighbours”. As argued by Lubkivsky, the “principal drawback of this document, in our opinion, is that the EU responds with the proposal to conclude the so-called “neighbour agreement” to Ukraine’s expressed desire to become an associated and, later, a fully-fledged member of this organization.” He reminded that the current practice of admitting new members to the EU did not envision any such agreements. “Therefore we are worried lest the formula “neighour-country” should be used to mask a new dividing line in Europe,” - the Foreign Ministry Spokesman underscored. As the comment read, in the era when a unified Europe is emerging, this formula may trigger a tendency Ukraine cannot accept. The Ministry of Foreign Affairs, therefore, was calling on the EU to develop its policy vis-a-vis Ukraine based on the Polish concept of the EU Eastern policy that envisages Ukraine’s future membership in the European Union. However, President Leonid Kuchma supposed earlier that “Ukraine had no chances of joining the EU before 2011”. He stressed: “Until we live as Europeans, our EU membership is out of the question. It applies to both the Russian Federation and Ukraine”. The President believes that “our main task is to achieve the European living standards. Only when we manage to resolve our social problems in the manner they do in Europe, will we be able to claim the EU membership”. In particular, Ukrainians should have “decent incomes”.

Second, Europe, as well as the USA, does not need the Odessa-Brody pipeline. Western oil companies proved it when they gave preference to the Caspian oil transportation via the Baku-Jeikhan pipeline, which was seven times as costly as the Ukrainian one. Moreover, the Western companies are going to invest into the laying of the Bourgas-Alexandrupolis and Konstanza-Omishal pipelines that are antagonists to Odessa-Brody. As for the extension of the latter to Poland, they do not go beyond paying lip service to it. Had the situation been different, Ukraine would not have had to waste five years persuading Europe of the need for the Euro-Asian oil transportation corridor Odessa-Brody-Gdansk.

Third, the pragmatic Europeans are expecting Ukraine to take wise economic steps. Meanwhile the estimated cost of the pipeline construction amounts to USD 465.4 million, and annual maintenance costs - to USD 5 million (totaling to USD 15 million over the three years necessary to start pumping Azerbaijani and Kazakh oil). Members of the Supreme Rada Committee for Fuel and Energy Complex say: “the European union demands that Ukraine draft and adopt a long-term (till 2030) Energy Development Strategy based on a pragmatic approach to the operation and maintenance of the power engineering facilities. So the European Commission officials will not understand why Ukraine suffers losses from the Odessa-Brody pipeline instead of making money, even before it is incorporated into the European oil transportation network”.

Fourth, the European Union, unlike the USA, is not a monolithic structure. And, say, the Brussels diplomats may regard the Odessa-Brody project from one standpoint, while the British oil companies may see it in a different, purely economic, light. It is essential that our country should not turn into a spectator of this political Copperfields’ show. Mykola Rudkovsky, member of the Committee for Fuel and Energy Complex, thinks that the Odessa-Brody is currently under loaded because of the respective EU requirements. Yet the EU has not lived up to its promises concerning the project. It has let us down on several occasions, particularly, on the Chernobyl NPP decommissioning, disarmament and a series of other projects that were never implemented.

- At this stage, the reversed use is an absolutely acceptable option, which we should choose. It is an opportunity to make the pipeline profitable.

The Ukrtransnafta management has not studied all recommendations as to the pipeline use. They have not seriously considered cooperation with Ceska Rafinerska, polish and German oil refineries. All their work was perfunctory. For two years now, they have been giving promises and spending public money, to no avail. They have not been seeking constructive solutions: the pipeline has not even been filled with process oil. The Western companies see it. That is why they are so cautious.

- All questions about the use of the Odessa-Brody pipeline should be addressed to those who made the decision to lay it, in the first place. Our position is formulated in the protocol of intentions, signed together with Ukrtransnafta, Naftogas Ukrainy [Ukrainian Oil and Gas Corporation] and Tiumen Oil Company. The protocol foresees the setting up of a new route for the Russian oil transportation, with loading in Yuzhny port and reversed use of the pipeline. To my knowledge, apart from TNK, a number of companies, including the international ones, are in favour of the reversed use of Odessa-Brody. I think economic efficiency of the project should be separated from its political perception. No one can be forced into a disadvantageous contract. Yet a third party can interfere with negotiations and foil the deal. We are observing such attempts today.