On July 14, exactly as planned, a meeting of actual and potential implementers of the Euro-Asian Oil Transportation Corridor Project was held in Gdansk (Poland) under the aegis of the European Commission, within the INOGATE Programme framework.

The slogan of the meeting “Odessa-Brody: Northern Dimension for Caspian Oil” predetermined the agenda and the circle of interested attendees. This meeting, of course, deserves a separate in-depth analytical article, but summarizing the discussion in Gdansk of the prospects of extending the Odessa-Brody oil pipeline to Polish territory in order to create a European oil transportation corridor, one would be right to conclude that the European Commission as well as the Ukrainian and Polish governments have committed themselves to supporting the “Odessa-Brody-Plotsk” Project. A conception of the Project business-plan developed by PricewaterhouseСoopers and confirming the availability of markets for the oil pumped along the pipeline to Europe is regarded as evidence of the commercial feasibility of the Project. Oil refineries in the Czech Republic, Austria and Germany have already declared their interest in buying oil transported via this pipeline. UKRTRANSNAFTA Chair of the Board Olexandr Todiychuk, in charge of the Euro-Asian Oil Transportation Corridor Project issues, reported that UKRTRANSNAFTA would start implementing this business plan in December 2003-January 2004.

According to this business plan, oil is to be transported via this pipeline and a system of other currently operating and designed oil pipelines to oil refineries in the Czech Republic, Austria and Germany. The business plan is to be fulfilled in three stages. At the first stage, 7 million tons of oil are to be transported by the pipeline, with a gradual increase in its capacity to 11 million tons by the second and 19 million tons by the third stage.

In May, the European Commission, may I remind you, awarded a 2-million Euro grant for the technical support of the Odessa-Brody pipeline extension to Plotsk.

The Gdansk meeting participants wanted to know Ukraine’s stance in respect of the oil pipeline’s future use. The Europeans made it clear that their commercial interest in the project would be conditional on the direction in which Ukraine is going to pump oil along the pipeline. Head of the Ukrainian delegation, Minister for Fuel and Energy Serhiy Yermilov assured those in attendance that, given equal terms (presumably, price terms, first and foremost) offered to Ukraine by the proponents of the different options, the European direction would be chosen, and that the reversed use was not on the agenda at the moment. The Commission established by the Ukrainian President to study the issue has not made its final decision yet, it is true, but it has not accepted the overly insistent offers of the Russian oil companies either.

By odd (or natural?) coincidence, it is exactly at the time when the pressure for and interest in the European direction for oil transportation along the Odessa-Brody is growing that a statement of the CERA Company expert Mathew J. Sagers appears in the media. He qualifies the Odessa-Brody extension to Gdansk as a useless exercise. Everyone is entitled to his or her own opinion on the matter, is no doubt, but why should this opinion be publicized as the official position of an expert organization? The more so that Ukraine’s government has never authorized or asked CERA (Cambridge Energy Research Association) to comment on the situation. If you had the chance to read the “research paper” prepared by the Association, you would easily infer from the idea of the reversed use of the Odessa-Brody oil pipeline that some of the Russian oil importers are pressing aggressively on Ukraine. As for a thorough analysis of the economic feasibility of various options, the authors of this paper did not bother with such trivia. So we can only guess on the motives of the above expert to advertise the “research findings”. Well, never mind, we have heard so much about the Ukrainian Project. The closer its inception phase approaches, the louder the voices of its adversaries become. There is nothing to be done about it - we have a classic conflict of interests on our hands.

On the very next day after the Gdansk conference, i.e. on 15 July, President Leonid Kuchma of Ukraine publicly appreciated the mounting interest oil-producing companies operating in the Caspian region have shown in the use of the Odessa-Brody pipeline for the transportation of oil to Europe. At the same time the head of state underlined that it was up to the government to make a decision on the transportation of oil either to Europe or in the reverse direction. Besides, Leonid Kuchma used this occasion to reprove the Vice Prime Minister for Energy Complex Vitaliy Haiduk and Minister Serhit Yermilov for the energy industry of being poorly prepared for the upcoming winter. This should be taken as “a last warning” to these officials, although, on the face of it, it has nothing to do with the Odessa-Brody Project. Nevertheless, it is no secret that Leonid Kuchma is also under pressure, not only from the Russian oil producers and exporters but also from Russian government members, to give a green light to reverse oil pumping. For example, Russian Vice Prime Minister Khristenko unambiguously linked the signing of the long-term Russian-Ukrainian agreement on transit oil transportation via Ukraine’s oil pipeline network with a favourable decision. Yet he was slightly overdoing it… So having approved, on 16 July, the 15-year-long agreement with Russia on transit oil transportation, which will enable the Russian companies to pump 79.5 million tons of oil per year, the Cabinet of Ministers of Ukraine did not include the Odessa-Brody network into this agreement. It was reported by Minister Serhiy Yermilov who, either to please the Russians or actually having this prospect in mind, stated that at a later stage the agreement could cover the new pipeline as well. “Could” does not necessarily mean “will cover”, but let us wait and see.

Next, the Cabinet of Ministers suspended its final decision on the reverse use of the Odessa-Brody pipeline, having resolved to hold a tender for an independent expert in the field to pronounce his/her unbiased judgment of the reverse use option, as it was also done for the pipeline planned use in the European direction.

The process was gaining speed day by day. On 18 July, Russian Prime Minister Mikhail Kasyanov argued that the agreement on transporting Russian oil via Ukraine’s territory could not be signed until the issue of pumping Russian oil along the Odessa-Brody pipeline had been finally settled. He said he would like to see it resolved very soon. Of course, the Russian Federation was prepared to assist Ukraine in the undertaking. “We hope this issue will finally be handled within a month and the Odessa-Brody oil pipeline will be used to pump Russian oil. As soon as all technological specifics have been studied and agreed on together with the economic ones, we will be ready to enter into this agreement”, - Mikhail Kasyanov maintained.

A brilliant example of friendly and mutually beneficial relations, is it not? Now who can claim that the Euro-Asian Oil Transportation Corridor Project, and the entire project of extending and using the Odessa-Brody pipeline, for that matter, is a purely economic issue? Every party spares neither efforts nor means to promote its interests. So does UKRTRANSNAFTA being universally and incessantly blamed for that.

Nonetheless, in spite of all pressure and hullabaloo, the Public Joint-stock Company UKRTRANSNAFTA, manager of all oil-transporting facilities in Ukraine, releases a statement that upon negotiating with the Caspian oil producers and its consumers in Europe the company has a package of offers conducive to starting oil transportation to Europe in late 2003-early 2004.

The UKRTRANSNAFTA statement reads: “We plan to increase the amount of transported Russian and Caspian oil working towards the harmonization of Russian and Kazakh interests, not towards their conflict”. At the same time, the Ukrainian oil-transporting company acknowledges that the Russian party’s offers are often confusing and “lacking in business logic”. The UKRTRANSNAFTA experts and managers still believe that the reverse use of the Odessa-Brody pipeline could be detrimental to the implementation of the “Druzhba-Adria” Project and is likely to add to an overloading of the Bosporus.

At this juncture, the Russian TNK [Tiumen Oil Concern] came to the fore claiming its support of the Ukrainian government’s effort to organize a serious discussion of the reverse use option. At least, this was what Alexander Gorodetsky, President of the TNK-Ukraine firm, said at a news conference in Kyiv on 17 July. He also emphasized that the reverse use of the pipeline relies on Russian oil exporting companies’ actual offers. In his opinion, the Ukrainian party made a mistake in having excluded the Odessa-Brody oil pipeline from a draft agreement with the Russian Federation on oil transportation via Ukraine’s territory while its Russian partners insisted on the opposite. As we have said before, everyone has a right to their own opinion…

The US Ambassador to Ukraine Carlos Pascual expressed his in a recent interview to the press. Having followed the developments around the Euro-Asian Oil Transportation Corridor Project and, wider, the Odessa-Brody pipeline for some time now, he once again made a case for the European dimension of the pipeline project. Ambassador Pascual argued for the necessity of making the whole project more attractive for investors. In his view, pumping Caspian oil to Europe will open up new long-term prospects for the Ukrainian economy.

UKRTRANSNAFTA also accepts these prospects. Company experts assert that the oil transporting system is profitable for this country, even with a shrinking export of Russian oil. They provide tables of data, which testify that over the first five months of 2003 (from 1 January to1 June) the company paid to the state budget UAH 167.376 million in taxes (11% more than over the same period last year).

However, many seem less optimistic than the UKRTRANSNAFTA experts and managers, scolding the company for being populist. Why didn’t the company start pumping oil in the reverse direction long ago, the critics asked, the profits would have been much higher. One should take those remarks with a pinch of salt, I think. Very soon now, the government will dot all the I’s in this matter, so that the topic of the UKRTRANSNAFTA Project and the Odessa-Brody operation options will cease being an endless talking point for the politicians, economists, media and general public alike.