Presented by Deputy Prime Minister of the Russian Federation Viktor Khristenko and Director-General of the European Commission Francois Lamoureux
In the framework of the Energy Dialogue, this third report clarifies the status of the work on the themes identified at the EU-Russia Summits of October 2001 and May 2002.
Progress on the themes agreed.
1. Energy projects of common interest.
The October 2001 Summit identified a number of projects of “common interest”. While these projects will remain a matter for private sector decisions based upon economic and commercial judgements and on the authorities of the States involved, it is necessary to facilitate their practical realisation.
A joint group of independent experts has been mandated to assess projects of “common interest” and has carried out consultations with representatives of the major Russian and EU companies involved in the energy sector, as well as with legal, financial and insurance specialists. As a result of the work carried out, the experts note that the projects of common interest previously identified remain of mutual strategic interest and worthy of the support of the EU and Russian authorities. The experts recommend that the list be expanded by including new projects that they believe can also be included into the list of potential projects of “common interest”. In order to mobilise the appropriate funding, the joint group of independent experts recommend the creation of an arbitral award guarantee fund which would help to protect investors and other parties against the risk of non-enforceability of their contractual rights. The creation of such a fund would involve the appropriate International Financial Institutions and regional banks, export credit agencies, the authorities of participating countries and private sector insurers and investors.
The Parties note the validity of recommendations provided by the group of independent experts about giving special attention to the implementation of projects of common interest, that is to say the northern trans-European gas pipeline, the Shtokman field, the Yamal gas pipeline and the Adria/Druzhba network and the necessity to carry on the work of experts in the framework of the projects of common interest.
2. Improvement of the energy production and transport legal framework.
The Parties welcome the progress which has been achieved in the work on the Tax Code as it applies to Production Sharing Agreements (PSA). An important element for improving the legal framework in this field could be the work on the remaining outstanding normative acts, the dispute settlement procedures, access to foreign markets, the hydrocarbon reserves available for development via PSAs and the further development of the “one stop shop” investors’ facility.
Given the importance, over the medium term, of also using other legal frameworks such as concessions and joint ventures for investments, it is important to ensure appropriate access to the energy transport networks. An important precondition for significantly increasing investments are appropriate rules providing a stable framework to ensure non-discriminatory access to the energy transport networks. As it is clearly a commercial imperative for investing companies that at least the capital and operating costs can be recovered, it is important that energy prices reflect this.
The application by the parties of the Energy Charter Treaty contributes to improving the climate for investments.
3. Alleged limitation on EU imports of fossil fuels.
Russia has expressed repeated concerns with respect to a possible EU or Member State legal requirement to limit natural gas imports from a single non-EU supplier to 30% of consumption. The European Commission has organised a meeting with experts from the EU Member states in order to assess these concerns. The conclusion is that in the EU there is no such requirement on quantitative limits for importing different kinds of fossil fuels from Russia.
The Parties note, with satisfaction, that a further meeting of officials from the Russian administration and the European Commission on the general issues of energy markets and policies took place on 4 October 2002 in Brussels. They stress that continuing such consultations are important for contributing to the transparency of the energy markets of Russia and the EU in the framework of opening them to competition and for discussing concerns as they arise, including in the context of the enlargement of the EU.
Russia asks for an indication that the EU’s policy of opening up the electricity and natural gas markets to competition is not being conceived in a way that would limit the presence of Russian supplies in the EU.
4. Legal security for long term supplies.
The Parties note the importance of the existence of a secure legal framework and regulatory environment for the supply of gas from Russia to the EU. Both the EU and Russia recognise that long term gas contracts played and still play an important role in developing the European gas market by providing a risk sharing arrangement between producers and buyers. They will continue to remain important for financing major new investment projects in the future.
Russia believes that the conclusion and implementation of long-term gas supply contracts do not contradict Community law.
The European Commission underlines that all long-term contracts need to be in conformity with Community law.
The legal environment adopted in the context of the creation of the Internal Gas Market will ensure the continued existence of such contracts. In addition, we take note that the European Commission has proposed, for adoption by the EU Council of Ministers, additional measures which could, if necessary, be taken to guarantee the existence of an arrangement for ensuring security of energy supplies in the context of an increasingly globalised market. Both the EU and Russia have underlined the importance of reaching a mutually agreeable solution on so-called “destination clauses” that respects Russia’s interests as well as EU competition law and the EU’s other legitimate interests.
5. Technology co-operation.
The EU-Russia Energy Technology Centre was inaugurated on 5th November 2002 in Moscow with the support of both the European Commission and the Russian authorities.
This Centre will provide a forum for the exchange of ideas and information and, through the creation of a network linking the existing sectorally-focused energy technology centres, to facilitate a more structured framework for co-operation. The Centre will provide training to specific target groups on energy technologies, technical assistance for the introduction of advanced energy technologies and undertake information dissemination and communication activities.
The main areas of activity will be split by sector – hydrocarbons, coal and electricity, renewables, energy savings and efficiency.
The Centre will be led by two co-directors, one from the European Commission and the other from the Russian Federation. The Centre is a joint project of the Government of the Russian Federation and the European Commission. The principles of the management of the Centre, its internal structure, its functioning as well as its working programme has to be agreed by the two sole interlocutors. The implementation of specific projects will be developed under the responsibility of the two co-directors. Each sole interlocutor will appoint its respective co-director.
6. Security of the energy transport networks.
Technical assistance under the TACIS National Action Programme for 2003 has been identified to initiate the agreed joint evaluation of the rehabilitation of energy transport networks and the level of investments needed. An overall budget of 10 million Euro is foreseen under TACIS to initiate this work in the hydrocarbons sector.
In the framework of energy security, the European Commission intends to establish an observatory in Brussels, in which Russia could be associated.
7. Energy efficiency.
Technical work has begun in order to launch an important energy efficiency project in Kaliningrad, in the light of the considerable energy savings which could be made in this Oblast (potentially 40%). On 15–16 October 2002, a team of officials from the European Commission went to Kaliningrad in order to evaluate the needs and elaborate concrete proposals. An integrated demonstration project targeting a population of 30,000 people will be considered with a view to identifying the technological, economic and institutional improvements needed to reduce energy losses and optimise energy efficiency. Work is ongoing in preparing the technical specifications for the pilot projects in the Archangelsk and Astrakhan regions.
8. Interconnection of electricity networks and trade in electricity.
Technical studies will be initiated to examine the physical requirements for interconnecting the networks, involving the Union for the Co-ordination of Transmission of Electricity (UCTE) from the EU and the Unified Power System/Interconnected Power System (IPS/UPS) from Russia. The Trans-European Networks (TEN’s) will contribute to these studies. Russia believes that a synchronous operation is the best technological solution.
Both parties believe it is important to jointly analyse the potential for electricity trade between the EU and Russia. If results of these studies are positive, the conditions for non-discriminatory access to markets should be addressed to assist system flexibility and exchanges of electricity. The European Commission indicates that nuclear safety and environment should also be addressed.
9. Joint assessment of the oil market
With the EU being Russia’s most important external market for oil and with Russia being the single most important external supplier of oil into the EU, it is clear that we must enhance the scope of our dialogue on oil matters to examine ways to jointly promote energy security and market stability on the European continent. The Parties wish to reinforce the exchange information on the oil market and regret its continued volatility, believing that a better co-operation could be developed, inter alia, with respect to energy emergency measures.
10. Trade in nuclear materials
The last two Summits agreed to reach a mutually acceptable solution to the issue of trade in nuclear materials in accordance with Article 22 of the PCA and in the context of EU enlargement. The European Commission is therefore requesting from the Council a mandate to negotiate in order to update its current supply policy in this area.
Russia believes that the objective of the negotiations should be to bring the existing EURATOM supply policy into compliance with the intergovernmental agreements and long-term contracts in the supply of nuclear materials from Russia to applicant countries and to ensure conditions for extending the general treatment for trade in common goods to cover the trade in nuclear materials.
The European Commission stresses the importance of reaching a mutually acceptable agreement in conformity with the relevant provisions of the EURATOM Treaty and the necessity for ensuring reliable, secure and safe supplies for the enlarged EU. In this context, the European Commission will take into account the evolution in the market.