Publication: Eurasia Daily Monitor Volume: 2 Issue: 111

On his visit to Kazakhstan in search for oil supplies, Ukrainian President Viktor Yushchenko held out the prospect of Ukraine’s participation in the Russia-led project of a Single Economic Space (SES, which also includes Belarus and Kazakhstan).

Without mentioning Ukraine’s quest for increasingly closer relations with the European Union, Yushchenko told the press: “The SES with a free-trade zone is quite an ambitious goal, and Ukraine an active participant in it, including the first stage which involves drafting the legal and regulatory documents.” Yushchenko noted that Ukraine had already approved 16 out of 29 founding documents of the SES, and Kyiv will either propose amendments to the remaining documents or just implement them in due course. Ukraine, he went on to say, “Welcomes all initiatives toward the creation of an economic space…To be sure, not everything [in this project] is congenial to Ukraine or Kazakhstan. But this does not mean that we must not participate” (Interfax, May 31).

Yushchenko’s apparent verbal overture to the SES follows in the wake of similar statements by National Security and Defense Council Secretary Petro Poroshenko and Deputy Prime Minister Anatoly Kinakh, who have suggested that the SES could be beneficial to Ukraine and who failed to mention their country’s European choice in this context. Such an omission would seem implicitly to suggest that these officials (who never voiced objections to the European choice) believe the SES and EU options to be mutually compatible. Their discourse, addressed mainly to Russia and to certain economic interest groups in Ukraine, is diverging from that of the Ministry of Foreign Affairs and the office of the Deputy Prime Minister for European Integration, who firmly adhere to the EU option in the knowledge that it is incompatible with participation in the SES.

While in Kazakhstan, Yushchenko apparently believed that he had to send that signal to Moscow regarding the SES after President Nursultan Nazarbayev suggested that Kazakhstani oil deliveries to Ukraine may depend on the latter’s position on the SES and on Russia’s consent to provide transit. Nazarbayev declared that he had to “find out Ukraine’s actual position regarding the SES.” He insisted before the press that “SES membership is advantageous to Ukraine … that the issue of transporting Kazakhstani oil to Ukraine and on to Europe can only be resolved in the framework of SES policy on taxation and transport … and that deliveries — as should clearly be understood — must be decided upon together with Russia. [Kazakhstani] energy supplies are transiting Russia.” (Interfax, May 31).

On that understanding, Nazarbayev declared Kazakhstan’s interest in joining an investment consortium to extend the Odessa-Brody pipeline to Plock and on to Gdansk, thus enabling Kazakhstan to supply its oil to refineries in Belarus, Poland, and the Baltic region. According to Nazarbayev, Kazakhstani oil can reach Pivdenny and Odessa both from Georgia’s port of Supsa and from Russia’s port of Novorossiysk. Furthermore, Nazarbayev announced that Kazakhstan was prepared to offer to purchase Lukoil’s controlling stake in the Odessa oil refinery. For a first specific result, the state companies KazMunaiGaz and Naftohaz Ukrainy decided to create a joint venture with a view to expanding the Pivdenny maritime oil terminal near Odessa for joint Ukrainian-Kazakhstani use, as well as building a 52-kilometer pipeline connecting the terminal with Ukraine’s transit pipeline network. Under another agreement of intent, Naftohaz Ukrainy will invest in developing some oilfields of KazMunaiGaz and will own the oil extracted.

Gas also figured high on the agenda. Kazakhstan aims to become a gas exporter in its own right soon, and Ukraine just as soon to reduce its dependence on Russian gas. However, Nazarbayev remarked that Kazakhstani gas deliveries would depend on the Russian government allocating transit quotas through its pipelines, thus again necessitating agreements with Russia.

Transit options that bypass Russia are therefore becoming increasingly topical. According to Naftohaz Ukrainy chairman Oleksiy Ivchenko, an oil transit route from Aktau via Baku and Supsa to Odessa is now under discussion by the governments of Kazakhstan, Azerbaijan, Georgia, and Ukraine.

On June 3, Prime Ministers Daniyal Akhmetov of Kazakhstan and Zurab Nogaideli of Georgia paid a joint inspection visit to the Georgian oil export maritime terminals of Batumi and Kulevi, the latter under construction near Poti. The two prime ministers also discussed the possibility of building a gas liquefaction plant in Georgia as a Kazakhstani investment project. Consideration of such a project seems to indicate Kazakhstan’s intentions to rapidly increase the processing and export of associated gas from its oilfields. On June 7 in Ankara, Yushchenko and Turkish officials agreed to consider the possibility of reversing the Samsun-Ceyhan oil pipeline with a view to transporting oil northward via the Black Sea to Odessa.

If such projects come to fruition, then Ukraine’s energy supplies and Kazakhstan’s export revenue will no longer depend heavily on Moscow’s decisions, and both countries will exercise considerably wider latitude decision-making on policy toward the SES.

(Interfax, May 31, June 1, 3, 7)