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European security issues

21 - Relations with Russia on energy issues

Grade: C+
Unity 4/5
Resources 2/5
Outcome 3/10
Total 9/20
Scorecard 2012: B- (11/20)

Despite the EU’s unity, it failed to persuade Russia to ratify the ECT and member states’ reluctance to “unbundle” remains a problem.

The EU’s main objective is to strengthen its energy security. Vis-à-vis Russia, this means ensuring reliable cross-border energy transit, energy efficiency, agreed procedures for dispute resolution, protection for foreign investors in Russia, and non-discriminatory conditions for trade in energy materials and products. Most of these objectives are part of the Energy Charter Treaty (ECT), which the EU wants Russia to ratify.

Apart from the suggestion by France and Germany to link progress on visa-free travel to Russia’s ratification of the ECT (see component 15), which was later rejected by other member states, the EU remained united on this issue in 2010. However, the EU did not succeed in persuading Russia to ratify the ECT. Moreover, it made little progress in creating a single energy market. This is particularly because of the reluctance of many member states, including Germany and France, to “unbundle” their national energy champions, which would make it harder for Russia to set artificially high prices. The Polish-Russian deal on gas deliveries has also been criticised, as Poland did not unbundle its own national gas company. Russia announced a 15 percent cut in gas prices to Estonia and Latvia, which have dragged their feet on gas liberalisation, but not to Lithuania, which announced plans to liberalise its gas market quickly.

Progress on another element of EU energy security – the modernisation of Ukraine’s gas transit system (GTS) – also stalled after the change of government in Kyiv led to the re-opening of negotiations about a merger of Russia’s Gazprom and Ukraine’s Naftogaz, which would exclude the EU from participation in the modernisation. This led to renewed concerns that the modernisation of the GTS is unlikely to succeed. Despite the potential risks linked to the Gazprom-Naftogaz merger, the EU shied away from officially commenting on its likely exclusion from Ukraine's GTS modernisation.

Energy issues are also discussed in component 49.