Transneft pipeline row is only latest episode in Russia-Ukraine fuel saga

Legal battle over 870 miles of pipes followed by dispute over coal supplies. Source: TASS

Legal battle over 870 miles of pipes followed by dispute over coal supplies. Source: TASS

A Ukrainian court recently ruled to nationalize 870 miles of pipeline passing through Ukraine that belong to Russian pipeline operator Transneft, leading to an intensification of the dispute over Russian coal deliveries to Ukraine, which is in need of winter supplies.

The Commercial Court of Appeals in the western Ukrainian city of Rivne has ruled to nationalize pipelines passing through Ukraine that belong to Russian company Transneft, according to Russian news agency Interfax. The decision affects 870 miles of pipeline thatRussia uses to deliver diesel fuSel to Hungary and Ukraine.

“This is a longstanding dispute between our countries, whose origins lie in differing views on the pipeline business that remained after the USSR, as well as several unsettled legal issues in relations between our countries,” said Dmitry Baranov, a leading expert at investment holding firm Finam Management.

According to Baranov, the dispute is of a commercial nature and “needs to be resolved from an economic position.” However, this is far from the only economic feud between Russia and Ukraine. Against the backdrop of the pipeline conflict, the disagreement over Russian coal supplies to Ukraine has also flared up.  

Battle for petrol

According to a statement issued by the Ukrainian General Prosecutor’s Office, sections of petroleum pipeline had been illegally registered to a Transneft subsidiary. In March 2011 the Rivne Commercial Court of Appeals upheld Ukraine’s right to those pipelines, but later the ruling was successfully appealed at the next judicial level. In the end, Transneft managed to re-secure control over the pipeline.

However, the Russian company started to reduce supplies through the pipeline with the onset of the Ukrainian crisis. According to Transneft, it halved diesel fuel deliveries to Hungary via Ukraine, while it slashed supplies to Ukraine itself by 900 percent.

“As far as I understand, they haven’t gone through all the judicial instances yet, and the proceedings may continue. In other words, those assets may still be returned to the Russian company,” Baranov said.

Spokespeople for Transneft have already deemed the Ukrainian court’s ruling unlawful. The company said in a statement that it will appeal the decision at the next judicial level. According to the Finam investment company, the ruling had no effect on Transneft’s share prices. In fact, on Nov. 28 Transneft shares were among the growth leaders on the Moscow Exchange, with a 6.43 percent jump in price.

Besides that, Russian Ambassador to the European Union Vladimir Chizhov told the Rossiya television channel that Transneft has good chances to appeal the ruling in international courts.  

The coal question

The row over Transneft’s pipelines is not the only conflict of interests between Russian and Ukrainian companies in recent times. At the end of November, the Ukrainian authorities cited information from Ukrainian oligarch Rinat Akhmetov’s company DTEK and state-run Centrenergo, saying that the country had not received the necessary supplies of Russian coal since Nov. 22.

On Dec. 1, Ukrainian Energy and Coal Industry Minister Yuriy Prodan told the TASS news agency that Russia had partially resumed coal deliveries to Ukraine. In mid-November, the Ukrainian authorities admitted the country’s dependence on Russian coal for the winter period. It made that admission after deliveries of South African coal were called into question because of their high price. Ukraine’s monthly coal shortage is estimated at 1 million tons.

“The situation with coal supplies is so confusing that it’s impossible to make any definite conclusions,” Baranov from Finam said. Furthermore, according to the Kommersant daily, Ukrainian energy companies are still in talks to buy coal from the breakaway Donetsk and Lugansk people’s republics in the Donbass region of eastern Ukraine.

There are two reasons for Ukraine’s coal shortage: the termination of Russian gas supplies on June 16 and the shutdown of many mines in the Donbass due to the hostilities there. The country found another opportunity to buy gas at the end of October, when Ukraine struck an agreement with Russian gas giant Gazprom to pay back part of its debt in exchange for gas supplies.

All rights reserved by Rossiyskaya Gazeta.

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