President of Russia Dmitry Medvedev: Good afternoon dear colleagues!
I would like to say a few words about the meeting that just took place, a meeting in which countries that are consumers of Russian gas participated along with transit countries, a meeting which was devoted to the deliveries of Russian gas to Europe. I think this meeting was very useful. And perhaps most importantly its most obvious benefit was that we were able to directly, openly, and in a completely constructive and friendly manner share our impressions of the conflict and the gas crisis which, unfortunately, exists in Europe today. And we have not only shared our impressions on the situation but also talked about two major things.
First. We talked about how we can reach a decision and achieve the immediate resumption of deliveries of Russian gas to Europe with all parties – those actually involved in this dispute, namely Russia, Ukraine and other countries. These negotiations will continue between Russia and Ukraine. They will be conducted by Prime Minister of Russia Vladimir Putin and Ukrainian Prime Minister Yulia Tymoshenko.
And the second point, the second reason we had the meeting today and one that, strangely enough, I think may be even more important than the first, is that we need to avoid similar problems in the future. Recently we assumed that the current energy security system in Europe is the best. It turns out that it is not. There are problems that can destabilise the legal regime governing supplies and jeopardise transit and the delivery of Russian gas to European consumers, thus creating uncomfortable conditions that affect the lives of millions of people.
This is not an excuse to simply continue to exchange accusations, but rather an occasion to create an effective mechanism to protect against such occurrences. Incidentally, this of course not only applies to the present conflict and dispute between Russia and Ukraine. It affects a broader set of countries. I also heard a number of ideas put forward by our colleagues on this topic. I hope that these ideas will be represented in the new international documents.
When opening today's meeting I said that existing international instruments are not fully satisfactory and I also mentioned the well-known Energy Charter, which Russia does not and will not follow. Therefore we need to think about how we can create a solid legal basis. I told my colleagues that I will raise this issue with the G-8 and quite probably during the event which will soon be held in London – I mean the summit of the twenty largest economies. Because the global crisis that unfolds today is a financial crisis, it should not be exacerbated by problems such as this gas conflict, otherwise the situation will become even more difficult for everybody.
I would like to say once again that I appreciate the conversation that took place, the proposals that were made, and the fact that we talked about quite specific things. Following our meeting [with journalists] we will continue our conversation both in a broad format and in a bilateral mode.
That is all I wanted to say to begin with. I am now ready to answer your questions.
Question: Dmitry Anatolyevich, I have one crucial question: when will Russian gas be delivered to European consumers? Did you move forward on this issue? And do you think we will be able to fill the export pipes not on someone else's account, but based on common agreements? Thank you.
Dmitry Medvedev: Thank you.
It is an important question and we will give it a serious answer: we would like this to happen as quickly as possible, literally in the next few days. Why? Because it has already created big problems for a number of states, our partners, and a considerable number of people. As for suggestions, I can tell you frankly that both the Russian and Ukrainian parties made some suggestions during the discussion. I will name them to you. In any case, I believe that some of these proposals can be used to achieve a final agreement.
What does this mean? In order to finalise an agreement on the resumption of deliveries and the operation of Ukraine's gas export system we need to agree on proper controls. So that there is no unauthorised siphoning, or what we are now more rigorously calling the wrongful appropriation of gas, a system that determines how to pay, how to calculate what should be paid, and what technological regime will be maintained in the pipline.
As I have already said, we made a proposal several days ago – this issue was discussed in the government cabinet among other places. It is that part of the gas Ukraine needs to fully operate its gas transportation system be acquired by an international consortium of companies – these companies would own that gas, the gas would be put into the pipeline system and, accordingly, the system would become functional. This is one of the proposals.
The second proposal, which will no doubt be subject to review, involves granting a credit to the Ukrainian side so that it will be able to pay for the gas that it needs today. Incidentally, our Ukrainian partners have just expressed their intention to pay up front for a whole bunch of things. Well, this is good, we can only welcome such a position. Now we need to work on some of the finer points concerning more specific details.
There is another idea that has been put forward that I find very interesting. This idea was raised during my conversation with Ukrainian President Viktor Andreyevich Yushchenko. It would involve a state guarantee for Russian gas suppliers that would last for a certain period of time. This sort of government guarantee is a complex instrument in technical terms, but today during the discussion at this meeting something simpler was suggested, namely an irrevocable letter of credit issued by a major bank in a European country, with partial coverage that the Ukrainian side could provide. If the bank issued such a letter without such coverage, that would be very good. The reason for claiming the money from the letter of credit would be the claim of unauthorised gas siphoning sent in by the Russian company, the supplier of gas, and would be confirmed by the group of observers that we have put together with the participation of the European Union. Bearing in mind that our Ukrainian partners have once again today confirmed that they have no intention of siphoning off gas, we hope that if such a letter of credit was to be issued no payment would ever have to be made on it. This letter of credit would simply work to defend the short term interests of the Russian Federation, until we can come to some sort of agreement with Ukraine on the conditions of supply of gas for Ukrainian consumers, because that is a separate issue.
By the way, I would like to say that in her speech the Prime Minister of Ukraine specifically stated that Ukrainians are fully committed to the transit of gas to Europe and to the agreement on gas deliveries to the territory of Ukraine for Ukrainian consumers, and that they believe that their first priority is to transport gas to European consumers. We hope that this statement will prove to be a guide to action. Here perhaps is what we can say now.
There are a number of important and interesting ideas to be discussed both at the governmental level and at the level of companies involved in this, including the technology issues. In both senses I hope that these talks will enable us to achieve good results.
Question: Will you allow me two questions?
Dmitry Medvedev: One or two? How about one and a half?
Question: Why has Russia not agreed to supply technical gas to Ukraine, as requested, in order to free up gas transit to Europe? And, second, what price concessions is Russia prepared to make for Ukraine?
Dmitry Medvedev: Okay, thanks.
With regard to the transfer of technical gas and furnace gas and all the rest of the gases, I would like colleagues who are present in this room and those who are listening to us today to be aware that any gas, whatever name we give it, is still gas in the end, not some special gas, but its role is to make the system function properly.
How much technical gas does Ukraine now need? Our Ukrainian friends say that they need 21 million cubic metres per day. That is not a large amount, but the problem is that we need a guarantee not only with respect to technical gas but concerning all the gas that will be put into the pipeline. Because the whole transmission system is designed to operate at a certain level and we have to be sure that the gas that goes into the pipeline will reach European consumers, and will not in any way be used for domestic purposes. So the question now is precisely how to guarantee this, not how to provide technical gas for the system.
By the way, in order to reactivate the transmission system and create the necessary pressure in it, pressure that is still lacking, despite what our Ukrainian partners have sometimes claimed it is not 21 million cubic metres that are needed but a great deal more. Here we are talking about volumes in excess of 100 million cubic metres. But it’s not a question of cubic metres or a certain volume. What we need is a mechanism that will allow us to do this in a systematic way. And it seems to me that the proposals that I presented can help resolve this problem. Our Ukrainian partners have said that they are even ready to pay for this technical gas in advance. I don’t see any irresolvable issues here.
As for your other question about what price concessions Russia is ready to make: I don’t think that it’s appropriate to talk about any sort of concessions. With Ukraine we have a special relationship, despite this dispute, which began as a disagreement between companies and unfortunately moved to the political level, forcing us to organise this meeting. For this reason, I don’t think that we should be talking about concessions but, on the contrary, about how we can work out our differences in a civilised, measured way, based on the European prices that other countries are willing to pay.
During our first meeting with the President of Ukraine, Viktor Andreyevich Yushchenko, in Saint Petersburg, he told me that his goal was a quick transition to the European market price for Ukraine, so that there would be no distortions, no intermediaries, no opaque schemes, none of the problems with which unfortunately we have to deal today. I think this is really the most legitimate and reasonable goal. Ukraine should pay European prices for its gas – this is perfectly normal. That is our position. There is nothing defective in this solution. Our other partners pay these prices and Ukraine is fully capable of paying the same.
Question: Dmitry Anatolyevich, a very quick question. Does Madam Tymoshenko have a mandate to negotiate on any subject in Moscow? Or should we expect that tomorrow someone in Ukraine will say: “Well, whatever you have decided in Moscow, we now think differently”?
Dmitry Medvedev: It is a legitimate and a timely question. As you know, I sincerely hope that Prime Minister Yulia Vladimirovna Tymoshenko, who attended our meeting, has all the necessary administrative authority to represent Ukraine. Normally a prime minister, by virtue of their position as “ex officio,” as lawyers like to say, is always able to perform certain actions. I hope that this holds true today and that the powers of the Prime Minister of Ukraine have not been curtailed or limited in any way.
In our telephone conversations with the President of Ukraine, the President told me one key thing, namely that the position of the President and the Prime Minister on the gas issue are absolutely identical. We shall see.
Question: Dmitry Anatolyevich, what percentage of the consortium will the participants constitute? You haven’t talked about the structure that the consortium will assume.
Dmitry Medvedev: Do you mean how much will be private capital?
Question: I was thinking of all the participants. And my second question is: did you discuss today the question of returning Ukrenergo to the status of delivery supplier? Thank you.
Dmitry Medvedev: Thank you.
As for the consortium, I think that the question of how much each of them will have depends on the companies that make up the list of participants and what they agree on. I would have thought – and I’m just thinking out loud here – that in general we would be talking about equal shares, but that is a matter of commercial agreement. The main thing is that our Ukrainian partners have agreed that a certain amount of gas to deal with controversial legal problems will temporarily belong to a consortium of large companies in the gas sector, major energy companies. If they agree to this, the companies will have no problem coming to an agreement about their share of the project.
I would like to stress again that, if the idea of a consortium does not work, then it seems completely plausible to use letters of credit as an alternative. This is a simple and transparent financial instrument, one that does not even require the issuing of state guarantees to cover the amount stipulated. The question is whether our Ukrainian partners can agree on this with one of the European banks. If they have any difficulties, we are ready to help them, including in the negotiations. Ukraine certainly has the necessary collateral to cover such a modest sum. I think the amount in question would be somewhere around a billion dollars.
Question: You have already talked in general terms about supplying gas to Europe. I would like to clarify some points regarding the signing of agreements between Ukraine and Russia on gas supplies.
When can Naftogaz and Gazprom actually start specific negotiations? It would seem that concrete negotiations on this topic have not yet been conducted.
Do you expect this to happen after the issue of the delivery of gas to Europe is finally resolved?
Dmitry Medvedev: Thank you.
I want to return to a previous question.
I didn’t get a chance to answer the second question, the one dealing with RosUkrEnergo.
I have made my position very clear in the media, as have my colleagues. I believe that we can trade with our Ukrainian partners without intermediaries of any kind, in particular without intermediaries who have caused the Ukrainian public, and not only Ukrainian, to have a number of doubts. So I think that in the future we can work without any intermediaries whatsoever, including the one that you mentioned.
At the same time it is not a secret that it was the Ukrainians who kept insisting that one well-known intermediary should take part in the talks. What its position in this situation will be I do not know. The problem is that some participants in the negotiations insisted on the need to work through the mediators and kept referring to instructions from the top, and the other negotiators said that these middlemen were an unequivocal evil requiring unconditional and immediate elimination. Our position is simple: we do not need intermediaries. And even within the framework of the campaign in question, as you know, the Russian side was represented by the largest natural gas concern.
Now, returning to the question asked by our Ukrainian comrades about the agreement between Naftogaz and Gazprom. I would put it this way. These negotiations are ongoing, they have not been interrupted. The problem is that they haven’t produced results. I would like them to do significantly better in this regard. During my last telephone conversation with the President of Ukraine, I felt that our Ukrainian partners were not in any great hurry to take up these negotiations again. It was said that we need to urgently resolve the issue, which is true and absolutely correct. But the question of reaching an agreement on prices for the current year and for the future will take time. Of course it will, but the longer the talks drag on, the more problems will build up in our relations concerning this question of gas.
I am sure that we will soon resolve the issue of gas transit. Of course we need to solve the issue of gas prices for Ukraine, and for that we should sit at the negotiating table, look the truth in the face, look at what current prices are, use the European pricing formula, find an acceptable mechanism to ensure our mutual interests, and sign the relevant agreements. I do not think that this will be all that difficult, especially since a number of countries, whose economic situation is substantially worse than Ukraine’s, have agreed to use the European pricing formula and to pay for Russian gas what European consumers pay. I think that Naftogaz and the Ukrainian economy can take advantage of the same opportunities, despite the fact that all of us today are in a less advantageous financial position.
But in what sense are the European prices good? They are good in the sense that even if today they seem quite high, given the dynamics of oil prices during the year they are sure to decline and decline quite seriously. If we fix the price at whatever level, U.S. $250–300, this is the price that must be paid until the end of the year. But we can see today the dynamics of oil prices. The formula for calculating the price of gas changes more slowly for well-known technological reasons, but ultimately gas prices will be significantly lower than they are today, by a factor of 2 or even 2.5. For this reason the whole world is using this equitable system, and that is what we and our Ukrainian partners must do.
Question: Dmitry Anatolyevich, I also have one and a half questions. Do you think that the current crisis has impeded or accelerated the process of building alternative routes, that is, North and South Streams? And what about the suggestion that Europe will seek alternative suppliers?
And the half-question: we have heard various leaders express the view that this crisis is a final gift for you, that is, for Russia, from the outgoing U.S. administration. What is your opinion?
Dmitry Medvedev: All right. If we are talking about gifts, then of course this is not the perfect gift for anyone, especially for Europeans, for the ordinary people who in their everyday lives either receive or do not receive gas. I am not a fan of conspiracy theories so I will not talk about someone's ”hand“ or influence, but I would say the following: we really have to think about optimising our gas supply routes, and this is true even without regard to what happened today. Both the North Stream and South Stream projects are related to this idea. They would ensure much better energy security for European consumers because one pipeline is good, but to have more pipelines is better. And this is true not just in light of potential conflicts, such as the one we have now, but simply for technological reasons. Therefore the construction of bypass routes and the diversification of supply routes is a very important goal, and I believe that we must therefore continue to work on this.
But the problem goes beyond the crisis and the dispute that we are discussing here. It is simply our duty to deliver the relevant volumes of gas to European consumers, to do so properly and in a timely fashion, regardless of political considerations, regardless of who is in power in a given state and the economic conditions that affect the work being done in a given country .
Incidentally, this does not mean that we should simply stop transporting gas through the existing system, including through Ukraine. On the contrary, I believe that we must learn all the possible lessons from what has happened and establish both bilateral and multilateral mechanisms, with the participation of all interested states, to prevent this kind of conflict.
Once again I would like to stress one simple idea: no matter how hard we can try to speculate that this is simply a bilateral misunderstanding, a bilateral dispute between Russia and Ukraine, in the end these kinds of issues cause problems for many states and therefore require international mechanisms. Our world is a global one and energy supplies are also globalised. I think that perhaps the best result from the current gas crisis will be the creation of this kind of international system.
Thank you very much. I hope that the next occasion on which we meet will be more fun and that we can talk about other things.