Bulgarian-Russian games in the energy sector: an outcome is getting closer. OSW Commentary No. 61, 2011-10-5

Bulgaria and Russia are entering the final phase of setting the conditions of their co-operation in the energy sector. A new gas contract is being negotiated because the currently applicable agreements will have expired by the end of 2012. The fate of two major energy projects – whose implementation depends on good co-operation between Sofia and Moscow: the Burgas– –Alexandroupolis oil pipeline and the construction of a Bulgarian nuclear power plant in Belene with Russian participation – is currently being decided. Another issue ever-present on the agenda is the future of the South Stream gas pipeline promoted by Russia, which is to run through Bulgarian territory. The outcome of all the aforementioned discussions and negotiations will determine for years the model of Bulgarian-Russian relations and may strongly affect the shape of the oil, gas and electricity markets in South-Eastern Europe.

Russia's best ally: The situation of the Russian oil sector and forecast for its future. OSW Study 39/2012

Oil is a strategic raw material for Russia and one of fundamental significance for the functioning of the state and its future. Taxes on oil production and exports are the most important source of state budget revenues which guarantee Russia maintains its political and economic stability. Russia is building its international position on the basis of its vast raw material and energy potential. While a great number of various publications have been devoted to Russian gas and Gazprom, surprisingly little research has been done into the present condition and possible future developments of the Russian oil sector, despite the fact that oil has and will have a much greater impact than gas on the functioning and the future of Russia. The main objective of this text is to describe the present situation of the Russian oil sector, its problems and the challenges it is posing, as well as the government’s policy towards this key branch of the Russian economy. This will be an introduction to an attempt to answer to the questions about the possible future production and the export levels of Russian oil, also broken down into the European and Asian directions.

Russian sanctions against Moldova. Minor effects, major potential. OSW COMMENTARY No. 152, 2014-11-06

Russia has been Moldova’s main trade partner and Russian capital has accounted for a large part of its foreign investments, dominating in the energy and the banking sectors. Moreover, Russia has been a key job market for Moldovan expatriate workers. In the economic sphere, this is making Moldova unilaterally dependent on Russia. Moscow has been attempting to exploit this situation to put pressure on the authorities in Chișinău for quite some time. In recent months Russia has increasingly used instruments for exerting economic pressure on Moldova, as a means of responding to the current authorities’ pro-Western policy. A key element of this policy was Moldova’s signing on 27 June 2014 of the Association Agreement with the EU (which came into force on 1 September 2014). Over the last year, Russia has implemented a number of import restrictions on Moldovan goods. The aim of the Russian actions is to fuel social disappointment, and ultimately – to prevent the pro-European coalition currently in power from winning the parliamentary elections scheduled for 30 November 2014. Another aim might be to convince the Moldovan authorities to suspend the implementation of the Association Agreement – a plan openly put forward by Vladimir Putin during the CIS summit in Minsk on 10 October 2014. So far, however, the Russian economic sanctions have failed to produce the expected results. Support for the pro-European parties has been high, and there is little chance that the pro-Russian groups might achieve a parliamentary majority. It is not inconceivable, then, that in the upcoming months Moscow might decide to resort to other, more potent instruments of economic pressure such as speculation on the financial market, carried out as part of its de facto control over the banking sector. Another possibility is further tightening of trade restrictions, issuing expatriate workers from Russia or using Moldova’s dependence on Russian energy.

Big business in the Russian economy and politics under Putin's rule; The Russian power industry shortly before reforms; Ukrainian metallurgy: the economic link in the oligarchical system. OSW Study 5/2002

Big business in Russia: The pace of ownership transfer in the Russian economy has speeded up considerably over the last year. There has been a significant rise in the number of acquisitions of whole enterprises, and large blocks of shares in individual firms and plants. Similarly the number of mergers, bankruptcies and take-overs of failing firms by their strongest competitors has grown. The Russian power industry: This study is an overview of the current condition and principles on which the Russian power sector has been functioning so far. This analysis has been carried out against the background of the changes that have been taking place in the sector since the beginning of the 1990s. This text also contains a description of guidelines and progress made so far in implementing the reform of the Russian power industry, the draft of which was adopted by the government of the Russian Federation in summer 2001. However, the purpose of this study is not an economic analysis of the draft, but an attempt to present the political conditions and possible consequences of the transformations carried out in the Russian power sector. The final part attempts to evaluate the possibilities and threats related to the implementation of the reform in its present shape. Ukrainian metallurgy: The metallurgic sector, like the east-west transit of energy raw materials, is a strategic source of revenue for Ukraine. Over the last ten years, this sector has become Kiev's most important source of foreign currency inflows, accounting for over 40 per cent of its total export revenues. The growth of metallurgic production, which has continued almost without interruption since the mid-1990s, has contributed considerably to the increase in GDP which Ukraine showed in 2000, for the first time in its independent history.

Gazprom's position on the Russian gas market weakening. OSW Commentary No. 70, 2012-02-23

As the difficulties Gazprom has faced in recent years on the European market have multiplied1, so more and more symptoms have appeared which may suggest that the company’s dominant position is deteriorating. The decision made by the Russian government in June 2011 to double the tax Gazprom has to pay on the extraction of gas, which was later approved by parliament, was the first time in many years when the company’s fiscal privileges were withdrawn. The process of Gazprom’s assets being taken over by private companies and business partners from within Vladimir Putin’s closest circle is underway. More and more frequently attempts are being made to challenge the company’s monopoly in areas of key importance for the functioning of the entire gas sector, such as Gazprom’s exclusive right to dispose of the Russian gas transportation system and its exports monopoly. Competition from independent gas producers on the domestic market is growing, and Gazprom is gradually being pushed out of some of that market’s most profitable segments (industrial clients). The emerging tendencies in the Russian gas sector derive from a number of factors – from the situation on the European gas market, through difficulties hampering the development of the sector in Russia itself, to the private interests of the current ruling class and its business partners. The plans for a structural reform of the monopoly (including isolating gas transportation system from Gazprom), presented since 2000 by the Ministry for Economic Development and since 2003 by the Russian Association of Industrialists and Entrepreneurs (RSPP), suggest a direction for the changes necessary to stimulate the sector’s development and improve the efficiency of Gazprom itself. However, the monopolist’s current business model gives the government full control over this strategic enterprise, which is a core of Putin’s concept for developing Russia as a global energy power. Despite Putin’s recent statement that he “does not rule out privatising Gazprom in the future” (made at a meeting with political scientists in Moscow on 6 February this year), any structural reform of Gazprom (and consequently, a weakening of the state’s control over it) seems unlikely in the foreseeable future. Still, the developments on the domestic market – growing pressure from other gas companies (oil corporations and independent producers) and changes on the European market2 – may result in the weakening of Gazprom’s monopoly privileges and a gradual deterioration of its special status within Russia.

Natural resources on the Russian continental shelf: Foreign investors sought... on Russian terms. OSW Commentary No. 76, 2012-05-09

In recent weeks, Rosneft, a Russian state-owned oil company, has signed co-operation agreements with three Western corporations: America’s ExxonMobil, Italy’s Eni, and Norway’s Statoil. In exchange for access to Russian oil fields on the continental shelf as minority shareholders, these Western investors will finance and carry out exploration there. They will also offer to Rosnieft technology transfer, staff exchange and the purchase of shares in their assets outside Russia (for example in the North Sea or in South America). Rosneft’s deals with Western energy companies prove that the Russian government is resuming the policy of a controlled opening-up of the Russian energy sectors to foreign investors which it initiated in 2006. So far, investors have been given access to the Russian electric energy sector and some onshore gas fields. The agreements which have been signed so far also allow them to work on the Russian continental shelf. This process is being closely supervised by the Russian government, which has enabled the Kremlin to maintain full control of this sector. The primary goal of this policy is to attract modern technologies and capital to Russia and to gain access to foreign assets since this will help Russian corporations to reinforce their positions in international markets. The signing of the above agreements does not guarantee that production will commence. These are a high-risk projects. It remains uncertain whether crude can be extracted from those fields and whether its development will be cost-effective. According to estimates, the Russian Arctic shelf holds approximately 113 billion tonnes of hydrocarbons. The development of these fields, including building any necessary infrastructure, may consume over US$500 billion within 30 years. Furthermore, the legal regulations currently in force in Russia do not guarantee that foreign investors will have a share in the output from these fields. Without foreign support, Russian companies are unlikely to cope with such technologically complicated and extremely expensive investments. In the most optimistic scenario, the oil production in the Russian Arctic may commence in fifteen to twenty years at the earliest.

Turbulence ahead: disputes within the Russian ruling elite are gathering force. OSW Commentary No. 91, 2012-09-27

The last month has seen a public confrontation between Igor Sechin, the president of Rosneft, and Arkady Dvorkovich, the deputy prime minister, concerning the consolidation of the energy sector. This is the latest in a series of disputes between the Kremlin & businessmen from Putin’s inner circle on one side, and the government & Prime Minister Medvedev on the other. These disputes have been wide-ranging in nature, concerning economic policy, the scope of competency of individual members of the elite, but also the ‘tough line’ adopted by the Kremlin since Vladimir Putin’s return to the presidency. The Kremlin, which is still the main decision-making centre in Russia, has been effectively forcing its opinions through in its short-term disputes with the government. However, a new element in the ongoing conflicts, which is unfavourable to President Putin, is their exceptional strength, their much more public nature, and their wide range (which has included criticism of the president himself) and ever-changing context, especially the worsening socio-economic situation. These conflicts have been overlapping with signs of dissent among Putin’s business supporters, and their declining political willingness to support the leader unconditionally. The Kremlin’s response to the unrest consists of intensifying efforts to discipline the elite and weakening those groups in which Vladimir Putin has limited confidence. The elite’s support is crucial to the stability of his government; to maintain this support, the Kremlin is ready to introduce restrictive and repressive actions against both parliamentarians and government officials. In the short term, such a policy will force the Kremlin’s supporters back into obedience, but fears of a further increase in repression are also starting to be expressed on the sidelines.

The Iasi-Ungheni pipeline: a means of achieving energy independence from Russia? Moldova's attempts at gas supply diversification. OSW Commentary No. 118, 2013-10-08

Since taking power in 2009, the Alliance for European Integration (AIE) has been trying to end Moldova’s dependence on Russian gas. Currently, natural gas accounts for about 50% of the country’s energy balance (excluding Transnistria), and Gazprom has a monopoly on the supply of gas to the republic. The key element of Chișinău’s diversification project is the construction of the Iasi-Ungheni pipeline, which is designed to link the Moldovan and Romanian gas transmission networks, and consequently make it possible for Moldova to purchase gas from countries other than Russia. Despite significant delays, construction work on the interconnector began in August 2013. The Moldovan government sees ensuring energy independence from Russia as its top priority. The significance and urgency of the project reflect Chișinău’s frustration at Moscow’s continued attempts to use its monopoly of Moldova’s energy sector to exert political pressure on the republic. Nonetheless, despite numerous declarations by Moldovan and Romanian politicians, the Iasi- -Ungheni pipeline will not end Moldova’s dependence on Russian gas before the end of the current decade. This timeframe is unrealistic for two reasons: first, because an additional gas pipeline from Ungheni to Chisinau and a compression station must be constructed, which will take at least five years and will require significant investment; and second, because of the unrelenting opposition to the project coming from Gazprom, which currently controls Moldova’s pipelines and will likely try to torpedo any energy diversification attempts. Independence from Russian gas will only be possible after the the Gazprom-controlled Moldova-GAZ, the operator of the Moldovan transmission network and the country’s importer of natural gas, is divided. The division of the company has in fact been envisaged in the EU’s Third Energy Package, which is meant to be implemented by Moldova in 2020.

EU-Russia energy diplomacy: The need for an active strategic partnership. EU Diplomacy Paper 4/2012, July 2012

This paper explains the conflictive and cooperative elements of energy diplomacy between the European Union (EU) and Russia. It argues that interdependence forms the underlying principle of this relationship and creates both sensitivity and vulnerability for the interdependent parties, thus carrying the sperms of both conflict and cooperation. Both sides would be negatively affected by the other side’s noncooperation within the current policy framework and the prevailing mistrust and recurring tensions can be explained by this sensitivity. However, even if both sides’ policies were adjusted, vulnerability interdependence would still prevent them from seriously reducing their energy cooperation. It is necessary then to see how EU and Russian energy diplomacy can converge and how their strategic energy partnership can be cemented.

Deploying the energy incentive: reinforcing EU integration in South-East Europe. CEPS Policy Brief No. 296, July 2013

This Policy Brief urges the European Union to consider reinforcing the Energy Community by further Europeanising the Energy Community Treaty. It argues that the level of dysfunctionality with respect to the rule of law and corruption will make it very hard to establish a pathway for accession for most Balkan states. However, the demand across the region for a sustainable, competitive and stable energy sector creates an ‘energy incentive’ that the Union can leverage to improve the rule of law and adherence to European rules. Furthermore, a juridical strengthening of the Energy Community Treaty will also strengthen the hand of those parties supporting energy liberalisation rules across the region, such as independent businesses, consumers and NGOs. In addition, there is likely to be significant spill-over effects from decisions of a European Energy Community Court operating in the region on the rule of law in general and the accession process in particular.