Slovak Government Invites Gazprom into the Country

Publication: Eurasia Daily Monitor Volume: 6 Issue: 21

On January 23 in Bratislava, Slovak Prime Minister Robert Fico and Gazprom Vice-President Aleksandr Medvedev announced the intention to create a Slovak-Gazprom joint enterprise. Fico stated specifically that he wanted such an enterprise to compete against SPP (Slovensky plynarensky priemysel–Slovak Gas Industry), the joint company of the Slovak state with Gaz de France (GDF) and the German E.On Ruhrgas. For his part, Medvedev invoked the usual argument of the Russian state monopoly: Gazprom is all in favor of "competition," in this case in Slovakia.

SPP owns that westbound transit pipeline as well as Slovakia’s distribution system. The SPP subsidiary Eustream transports Russian gas to Europe on Slovak territory. The SPP shareholders are the Slovak government with 51 percent, and Gaz de France and the German E.On Ruhrgas with 24.5 percent each. Gazprom was left out when this structure was established in 2002 (see Anita Orban: Power, Energy, and the New Russian Imperialism, Praeger Publishers, 2008, p. 91).

Fico and other left-populist politicians have long complained that SPP short changes Slovak national interests. The SPP privatization turned Slovakia into a "vassal," Fico declared in the joint news conference with Medvedev. The proposed joint venture with Gazprom might possibly include a third partner but would specifically exclude GDF and Ruhrgas, Fico said. The Slovak government insists on controlling any joint ventures from now on, including the one with Gazprom. Both Fico and Medvedev said that the Gazprom-Slovak enterprise would build new underground storage sites for gas in Slovakia. Moreover, the Slovak government wanted control of the existing storage sites now controlled by GDF and Ruhrgas, Fico was cited as saying. Medvedev said that the new joint enterprise would seek a "more intensive use" of existing storage, a remark suggesting that Gazprom would try to muscle in as a partner in those storage sites (SITA, TASR, January 23; SME, January 26).

If Fico imagines that his country’s interests are best served by Gazprom, then he would have to believe that Slovaks could actually control Gazprom in a common enterprise. Medvedev encouraged this belief during the joint press conference. Gazprom had a ready model for such companies, Medvedev said, and the proposed joint enterprise should give Slovak customers an opportunity to choose between SPP and the proposed Gazprom joint venture. According to him, Gazprom will target Slovakia’s large-scale industries as the main market for the new joint venture in Slovakia (SITA, January 23; SME, January 26).

This last remark, along with Medvedev’s allusion to an existing "model," reveals an intention to apply the UkrGazEnergo model in Slovakia. The joint company UkrGazEnergo, controlled informally by Gazprom with local collaborators since 2006, took over Ukraine’s lucrative industrial market for gas, relegating the state company Naftohaz Ukrainy to the unprofitable (indeed often loss-making) business of supplying the "social market" of residential consumers. This arrangement starved Naftohaz Ukrainy of income, precluded investment in modernizing its pipelines, accelerated its slide into insolvency, and opened the door for a hostile takeover by Gazprom. In Slovakia, with Fico and Medvedev declaring their intention to compete against SPP for the industrial market, a similar scenario may be intended.

It was not immediately clear how the SPP partners, E.On Ruhrgas and GDF, would react to Gazprom’s declared intention to cut into their income in Slovakia. Both the German and the French company are eagerly seeking "access" to Russian gas through Gazprom.

Medvedev’s stated intention to increase the use of existing storage sites and build new ones looks like a negotiating tactic with regard to Austria and Hungary. Both countries (and others in the region) harbor hopes that Gazprom will build gas storage sites as joint ventures on their respective territories. Gazprom has played them off against one another with such promises for the last two years and is now adding Slovakia to this bidding game. Given the geographic proximity of Vienna/Baumgarten to Hungary and Slovakia, Gazprom hopes to have them all (along with Serbia and even Romania) compete against each other for the limited, if any, gas volumes that Gazprom could ultimately commit to such storage facilities from Russia’s own available resources.

Slovakia is almost 100 percent dependent on imported Russian gas at an annual rate of some 6 billion cubic meters. Gazprom is the sole supplier. Under a 20-year agreement (2009 to 2028), signed in November 2008 and effective from January 1, 2009, SPP will buy 130 billion cubic meters of gas for Slovakia’s own needs during that entire period (RIA Novosti, Interfax, November 21; Hospodarske Noviny, November 24, 2008). This would work out at an average of 6.5 billion cubic meters per year.

Now, however, Gazprom is proposing to undermine SPP and take over Slovakia’s distribution and storage systems through the joint enterprise under discussion with Fico. As the analyst Alexander Duleba of the Slovak Foreign Policy Association points out (Radio Slovensko, January 27), EU regulatory policy requires that production be separated from transmission, distribution, and storage. Thus, Gazprom’s entry into Slovakia’s market would breach EU rules. Gazprom, however, relies on the Fico government somehow to circumvent that issue, according to Medvedev: "The state can solve this legal problem. That is why we are not talking about a joint venture with a private company but with the state" (SME, January 26).