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Ukraine gas chief urges US to add more sanctions against Russian pipeline

Andriy Kobolyev (Campbeca/WikiCommons)

This article was originally published by Radio Free Europe/Radio Liberty and is reprinted with permission.

Ukraine’s natural-gas chief has urged the United States to expand sanctions aimed at stopping construction of a nearly complete Russian energy pipeline that would bring gas to Germany under the Baltic Sea.

Andriy Kobolyev, the chief executive officer of state-owned Naftogaz, told RFE/RL in an interview on October 29 during a visit to Washington that he tied his trip to the U.S. capital to congressional discussions on a bill that would widen sanctions against the Kremlin-backed Nord Stream 2 pipeline.

There has been some concern that the bill, known as the Protecting Europe’s Energy Security Clarification Act (PEESCA), could be dropped from the 2021 National Defense Authorization Act amid worries it could further hurt already strained U.S.-German relations.

Nord Stream 2 runs from Russia to Germany under the Baltic Sea, bypassing Ukraine. The pipeline could potentially deprive Kyiv of billions of dollars in transit fees over the coming years if it is completed.

PEESCA would widen the scope of sanctions to include any individual or entity providing insurance or welding services for the project as well as potentially anyone providing testing or inspection services.

Kobolyev told RFE/RL he believes the additional sanctions “will completely stop this pipeline from being finished.”

If Congress approves PEESCA, Kobolyev estimates Russia would need to increase the amount of natural gas it plans to ship to Europe through Ukraine next year by half. He said that Moscow had already inquired about increasing the volumes in 2021.

Russia and Ukraine signed a five-year gas-transport deal in December — after the first round of U.S. sanctions on Nord Stream were passed by Congress — that stipulates Moscow will ship at least 65 billion cubic meters (bcm) of gas through Ukraine this year and at least 40 bcm in each of the next four years.

‘Political Pressure’ At Home

Kobolyev said he met with officials from the State Department and Energy Department during his visit and discussed with them topics beyond the pipeline, including what is described as a politically motivated “attack” on the company.

Ukraine’s State Audit Service has recently accused the company of artificially decreasing its profit — and thus the amount in dividends it pays to the state — by offsetting bad debt against it.

Kobolyev rejected the accusation, saying its practices were in line with international financial reporting standards and that its books are audited by Deloitte, one of the largest international accounting firms.

Naftogaz, one of the country’s largest companies by revenue, has long been the object of corruption schemes by officials and oligarchs. The situation began to change after the 2014 upheaval that swept pro-Kremlin President Viktor Yanukovych from power.

Ukraine’s Western backers tied financial aid to the country to concrete steps to clean up state companies like Naftogaz, including calling for the creation of an independent supervisory board that would guard the company from political or oligarchic pressure.

That has angered some powerful people, analysts say.

One of Naftogaz’s supervisory board members, former U.S. State Department official Amos Hochstein, stepped down this month after saying management’s efforts to improve transparency were “resisted at every step of the way.”

He said the company faced “political pressure” as well as efforts by oligarchs to enrich themselves.

Kobolyev said the issue was “extensively discussed” with U.S. officials during his Washington trip.

The Naftogaz chief also said he raised the prospect of foreign investment in two major fields in Ukraine, including one in the Black Sea.

“We have come also to the States to look for partners who would help us on the financial front but also in getting the competence and knowledge” of how to develop the fields, which he described as “quite big and complicated.”

The West has encouraged Ukraine to attract foreign investment into its energy industry in order to reduce dependence on Russian oil and gas.

Ukraine has struggled in the past to attract major foreign companies into its oil and gas sector due to concerns over corruption in the country.