Boris Nemtsov, Member of the Federal Political Council of the political party SPS, Russian Federation

It is an honor for me to be the first on this panel discussion. I would like to focus mainly on gas issue. As far as gas is concerned, it is the most complicated and the most difficult point. As a former minister of fuel and oil of Russian government (it was when I was a very young boy), in 1997-1998, I remember something very well. Not long ago, we published a special report about gas entitled “Putin and Gasprom”. What is important to understand? First of all, Gasprom really controls not only Russian market but market of its neighbors and of Central European countries. Mainly this corresponds to Ukraine, Baltic states, Belarus, and now Gasprom has huge influence in Turkey. There are also ideas to connect with Israel and with Middle East. A lot of Gasprom customers are very nervous about the future because of two points.

First point – are the prices, and second is predictability of supply. As far as prices are concerned, the most serious situation is with Ukraine. My estimation is that finally Ukraine will pay like Europeans pay, of course, including transportation and etc., and this is Ukraine’s payment for sovereignty. If you want to be independent state, you have to pay. Russia, including Putin’s Russia has a lot of problems with neighbors but if you look at the very sensitive relationship with Baltic states, Putin will never use pipeline, never cut pipeline with Latvia and Lithuania, and even with Estonia, because he understands that this is huge money, this is business and these are European prices. And Estonia is part of the united Europe, the EU, and to take such kind of decisions is very dangerous for Putinizm and for Kremlin. That is why I think that for Ukraine it will be a huge problem in the future, very near future, because Gasprom was very successful in monopolization of Central Asian gas. Putin, Medvedev and Miller signed contracts with Turkmen government, with Uzbekistan and Kazakhstan. Gasprom now bought all of the gas supply from this area for 20 years to come.

From my point of view, they signed very unprofitable contract because the prices will be a little be less than $300 per 1 000 cubic meters. And all of this gas will be in the Ukrainian market. Unfortunately, I can say that from the 1st of January next year Ukraine will face dramatic increase of gas prices. It is difficult to estimate it exactly because talks are under the table but I think that it will be good if it will be less than $400. That’s why for critical crisis situation inside Ukraine, such kind of dramatic development, is very sensitive from economic point of view. Moreover, in situation of political turbulence this becomes a very serious political problem.

What we have in the future? Of course, all European countries, Ukraine included, everybody needs diversification. Kremlin understands that and Kremlin proceeds with absolutely different policy, policy of monopolization and control of fields. We have some changes inside Russian legal system and the main one is that just Gasprom can sell gas outside the country – this is new chapter of Russian law. The problem is that Gasprom is very inefficient company. During the last 9 years production of gas looks like stagnation (in 1990 it was about 546-549, and in 2007 – 148). If you compare Gasprom with oil companies like Lukoil or RosNeft, it is a disaster. That’s why Gasprom faces deficit of gas not only on international market, but even on the Russian market. That will be a dramatic choice for Putin and Medvedev for the near future, because if nothing happens in production by 2010, Russia will face deficit of gas of about 60 billion of cubic meters, which is a little bit less than Ukrainian market.

What they want to do? First of all, they have priorities and they want to be comfortable partner for the West. If they will face a choice between Russian market and European market, they will choose European. Not because they like Europe but because Europe pays $500, right? If you look at the domestic market, the prices are about $60. That’s why priority is very clear. But for domestic market my estimation is that finally they will liberize domestic market. Fortunately, Russia has opportunity to increase production of gas because of Novatek, of Lukoil, RosNeft, Neftegas and some other independent producers. Now all of these companies are under very big pressure of Gasprom because Gasprom insisted that they sell gas for funny prices like $25 or $30, and they didn’t permit them to use pipeline system. Our proposal with my friend Mr.Vladimir Milov, Deputy Minister of Energy in 2002, was to separate the pipeline system, not even to privatize but to separate it from Gasprom and to do the same like we did with TransNeft. Not even to change the structure of property - pipeline system would remain under state control, this is not a question, but it would be independent company. This is the first point, and the second point is that there will be absolutely equal prices and conditions for every producer of gas - Gasprom, Rosneft, Tumen company, etc. What is interesting that not so long ago the Deputy Prime Minister Mr.Sechin, of course, he is Chairman of the Board of RosNeft, insisted that Gasprom should permit RosNeft to sell gas using the pipeline system of Gasprom which is good news. But even now there are no decisions made. However, I believe that finally facing deficit even Putin will be ready to liberalize domestic market. As far as export is concerned, I am sure that they will control export forever.

The last point is South Stream and North Stream. There are a lot of speculations about these projects. In our report it is said that it looks like a fraud: all of these constructions are against business rules first of all, because price for the South Stream is about $ 20 billion, and North Stream is about $15 billion. For North Stream Russia needs permission from Estonia, and I don’t want even to continue with some other countries, like Finland, Sweden etc. Estonia is enough. That’s why they have no ideas how to overcome resistance of Estonian government. As far as South Stream is concerned, they need permission from Ukrainian government. I am not sure that Ukrainian government, regardless, who will be the Prime Minister of Ukraine, is ready to give such kind of permission.

What is important? - That capacity of South Stream plus North Stream is about 85 billion of cubic meters per year, and capacity of Ukrainian transportation system, is 150 billion. That’s why even if Ukraine gives permission for Putin pipeline, even in this case, it will be impossible to reject Ukrainian opportunities. South Stream is not enough for export, that’s why I say that it looks like a tricky point, and I am not sure that they will build a new pipeline. If you look at the Blue Stream, which was built not long ago, even in the case of Russian-Turkish relationship, this pipeline fulfills only 50% of its capacity. That’s why I don’t think that such ideas like these new pipelines are very realistic; they are extremely expensive, but not realistic.

My last point concerns Nabucco project. There are a lot of discussions in the West, and also in Ukraine and Georgia, about Nabucco. Of course, these are interesting ideas but the problem is that there is no gas. There is gas in Iran – Iran is one of the biggest gas countries in the world after Russia but I am not sure that the US government, even the new administration, will be happy if Nabucco will be organized using the gas from Iran. What is the real hope for Nabucco – it is new gas fields in Turkmenistan. Problem is that Gasprom understands that and it seems to me that there will be huge competition for these new gas fields which have already been discovered. Then Nabucco will have a chance if the decision concerning this new gas field will be adopted soon. It takes time, it takes very serious negotiations with Berdy Mukhammedov, with some authorities inside Turkmenistan, and this is very complicated. As far as I know competition between Ukraine and Gasprom has already happened. If the same happens with Nabucco, forget about Nabucco. Of course, we need common decision about Nabucco among European states, Turkmenistan, Turkey, Ukraine and other countries. And if this decision will be adopted soon, there is some chance for diversification. Thank you.

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