EU losing faith in Russia energy charter scheme
17.10.06 @ 17:40
BRUSSELS - The EU is coming round to the realisation that Russia will not in the foreseeable future ratify the Energy Charter Treaty (ECT) - a major deal on energy market access - with the European Commission set to offer Russia an alternative energy market model in its new pact for EU-Russia relations.
"The Russians are not very keen [on ECT ratification]," an EU official close to the talks told EUobserver on Tuesday (17 October). "So the main alternative would be to get the most important points into the Partnership and Cooperation Agreement [a post-2007 EU-Russia bilateral pact]. That's what we're looking at."
The ECT is a set of legally-binding rules on access to pipelines, investment in new markets and arbitration of energy disputes that dates back to 1991 and aims to create a "level playing field" between EU states and countries from the former Soviet Union.
"We still want to go for an advanced liberalisation of markets, market opening," the EU official stated. "EU companies want to go upstream in Russia. Russian companies want to go downstream in Europe. We want to create more or less a single market with Russia, and the member states are right behind us."
Russia signed the multilateral ECT in 1991 along with some 50 other states, but has still failed to ratify key elements on access to Russian pipelines and markets, which could see EU firms break Gazprom's monopoly on Russian and Central Asian gas supplies.
The treaty - little known outside energy circles - became a hot topic at the G8 summit in St Petersburg in July, with European Commission president Jose Manuel Barroso saying Russian ECT ratification would be a test of its integrity on G8 energy market promises.
Mr Barroso and German chancellor Angela Merkel publicly urged Moscow to move on ECT as late as last week with EU and Russia experts set to hold another round of talks in late October, despite the fact that Brussels' faith in the project is ebbing away.
"It's difficult to discern what the added value of the energy charter is," Russia's ambassador to the EU, Vladimir Chizhov, told EUobserver on Friday. "If you look back at the Ukrainian hiccup [the Russia-Ukraine gas crisis] last year, the dispute settling mechanisms of the charter were never employed."
Ideals not wanted
EU energy companies have also been lobbying the European Commission to put aside the idealistic market economy principles of the ECT and to offer Russia something more pragmatic that stands a chance of getting agreement fast.
"A mutually satisfactory relationship between the EU as a consumer and Russia as a supplier of energy is not furthered by a fruitless discussion on the ratification of the ECT," Richard de Lange, the head of the Dutch energy industry lobby, Energiened, stated. "[The ECT] does not appeal to Russia's needs for a balance in security of demand and security of supply."
EU firms and Gazprom have been pressing ahead with investments despite the lack of a multinational framework, with Germany's E.ON entering Siberia, Royal Dutch Shell drilling in the Russian Far East and Gazprom gaining toeholds in the Hungarian and Austrian consumer markets.
But the bilateral political deals - such as between Germany and Russia - needed to smooth the way for investment have caused huge fallout in the EU, with the Baltic States and Poland accusing Germany of violating EU solidarity in the face of energy security risks.
A 'low-flying duck'
The lack of clear rules for investment also contrtibuted to other problems in recent months, with the UK blocking state-owned Gazprom from buying its gas distributor, Centrica, on political grounds and with Royal Dutch Shell involved in a major funding dispute with Russian authorities in Sakhalin.
Meanwhile, the ECT and its 30-person strong secretariat in Brussels plans to keep on working with the 47 signatory countries - including energy giant Kazakhstan - that have ratified the charter, amid dim hopes of one day pulling Russia back into the multilateral club.
But the loss of Russia - which supplies 25 percent of EU oil and gas - will be a blow to the credibility of the scheme. Asked by EUobserver if the ECT without Russia is a "dead duck," a senior diplomat from an ECT signatory country answered "it's a very low-flying duck."