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"Poroshenko tried to act as best he could in the interests of Ukraine." Former Head of Naftogaz about gas talks 2014

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In June, journalist Denys Bihus published the so-called "Medvedchuk tapes", from which it follows that Medvedchuk, in conversations with the leadership of Gazprom, promised to support ex-President Petro Poroshenko in addressing gas problems. It follows from the context of the conversation of the Opposition Platform—For Life (OPFL) leader that back in 2014 he could establish a new RosUkrEnergo that would deal with the supply of Russian gas to Ukraine at prices much higher than market prices. Medchedchuk himself says that Poroshenko is helping him. How he instructed the leadership of Naftogaz to lobby for Moscow's interests during the talks. Whether there was such an instruction to the then head of Naftogaz, Andriy Kobolyev did not comment to Denys Bihus. However, Kobolyev spoke about this in an interview with The Page, and also disclosed details and assessed the results of the gas talks in 2014.

- How were the gas talks held? What was the goal and what did you manage to achieve?

- Trilateral talks began much earlier and it was not just one session at the end of October 2014. After that, a trilateral binding protocol and other documents were signed that became part of the so-called winter energy package (a package because it combines several binding documents).

The main goal that the Ukrainian delegation set for itself at these talks was, first of all, to avoid the gas crisis that took place in the winter of 2009, when gas was actually cut off not only to Ukraine, but to the whole of Europe. The Russian Federation very harshly blackmailed both us and the European countries, forcing them to accept their demands. The government appointed in early 2014 assigned this task to me as the Head of Naftogaz. Later, the same task to prevent the crisis was confirmed to me by the then newly elected President Petro Poroshenko.

There were also three more important goals that we pursued in these talks. First, it is obtaining gas for Ukrainian consumers at a fair market price. That is why the price that Gazprom tried to demand in April 2014 was close to the level of $500 per thousand cubic meters. Of course, it was non-market and unfair. As the Head of Naftogaz, I considered it absolutely unfair and unacceptable to pay such a high bill.

In addition to obtaining gas at market price, it was very important for us to maintain the transit flow of gas through the territory of Ukraine. This was important for two reasons. The first is money. By that time, Ukraine was receiving about three billion US dollars annually under a transit contract. Along with this, there was and still is the aspect of security. The loss of the transit flow through the territory of Ukraine, in my deep conviction, makes it more possible for a full-fledged military aggression on the part of the Russian Federation and creates numerous risks for us in the military aspect.

There was one more task—to achieve, with the help of the Europeans, a real diversification of gas supplies to Ukraine. That is, to move away from almost complete dependence on Gazprom at that time. All these four tasks have evolved gradually, as we spoke with Gazprom, the European Commission, and our overseas partners. But I always kept them in my head as what we had to achieve exactly as part of the winter package.

QuoteThe loss of the transit flow through the territory of Ukraine, in my deep conviction, makes it more possible for a full-fledged military aggression on the part of the Russian Federation and creates numerous risks for us in the military aspect.

And now I will reveal a secret a bit from the point of view of the Ukrainian team's behavior tactics. We understood that all parties were acting due to certain objective restrictions that were hardly possible to change. For example, in June 2014, both Gazprom and Naftogaz went to arbitration. The main point of dispute in the arbitration was the price of gas imported from the Russian Federation. Obviously, having such an arbitration, to sign any agreements where the parties agree that a fair price is something other than the one they demand in this arbitration is in fact, with a high probability, a capitulation in this arbitration. And it was a big problem with a lot of controversy about it. I will explain later why this is so important.

Another obstacle already on the part of the European Union was that they were limiting their ability to give any guarantees and offer something specific to Ukraine—money, gas. They are not the Russian Federation. Chancellor Merkel cannot call out a private gas company and say: supply gas to Naftogaz at such-and-such price on such-and-such terms. It doesn't work that way. Accordingly, acting within the framework of these restrictions, we were looking for solutions to each of the listed problems.

The first task was to ensure the absence of a crisis. My experience of working with Gazprom, experience of working at Naftogaz, the whole situation in which Ukraine was then at the height of the Russian military aggression, made it clear to me that any guarantees of the crisis absence from the Russian side are not worth the papers on which they would have been written. They can simply be violated, as many other promises, guarantees, contracts were violated in the past. That is why we insisted so intensely on the trilateral format. Because we wanted in this situation that the countries of Europe (to be more precise, in this situation were formally represented by Vice-President Günther Oettinger, who was still the European Commissioner) act, firstly, as a mediator; secondly, a kind of guarantor that the agreement would be implemented. How they could fulfill the role of a mediator—due to the trilateral format of negotiations. As a result, they became the guarantor: Günther Oettinger signed the Trilateral Binding Protocol as one of the parties.

QuoteAny guarantees of the crisis absence from the Russian side are not worth the papers on which they would have been written.

Regarding gas supplies at an affordable price and resolving this issue, for future gas supplies, we managed to achieve a price that was valid until January 2014, when Yanukovych received a discount ($268 per thousand cubic meters) in exchange for refusing to associate with the European Union. This was enshrined in a tripartite protocol. Several preventers to control this price were actually provided for in the contract itself, that is, in an additional agreement that was also signed. This additional agreement allowed us to receive bills for gas prepayment, pay them in any amount that we saw fit, use any flexibility from zero to 100%, which is a very rare condition in the gas market. At that time, this flexibility worked very positively for Ukraine and we were able to get great economic benefits.

Moreover, in the supplementary agreement signed by Gazprom and Naftogaz, it was clearly stated that the money for settlements with Gazprom—more than three billion dollars—that the West actually allocated to us, namely the IMF, we pay under the condition that we paid off the gas debt based on that low price of $268.5. This was the position of Naftogaz. Gazprom also recorded in this supplementary agreement that they take this as a partial settlement. We did this in such a way to achieve another very important goal that became the element of evolution in the process of trilateral talks—to gain the opportunity to go to arbitration and achieve a final fair and non-political settlement of the issue, what a fair gas price should be between Naftogaz and Gazprom under this current contract. This is what we were able to achieve precisely in the price parameters of the winter package.

In the process of trilateral talks, we managed to achieve another very important victory as well. Actually, with the help of our American partners, partners in the European Commission, Chancellor Merkel personally, we were able to achieve the opening of the so-called Slovak reverse—the largest reverse flow that still operates from the European direction in Ukraine. It actually made Ukraine independent from Gazprom gas supplies.

The talks in this regard were very difficult, primarily with the European side. Gazprom was able, due to imperfect gas metering systems and historical problems with contracts, to build in many preventers. And therefore our Slovak partners used these preventers as an explanation why this reverse could not be provided to Ukraine. And precisely by appealing to the fact that the European side should be not only a mediator, but also a guarantor of Ukraine's energy security, we managed to persuade, through our German and American partners, the Slovak government and the Slovak operator that this reverse should be opened. It was opened urgently and in a larger volume than we were offered at the very beginning.

One of the main achievements that is not noticeable at once in the trilateral package, was precisely the fact that the reverse was opened to us. Since then, Ukraine was able to go through any winter without buying gas from Gazprom. We could not do this in the period 2014-2015 for the simple reason that we did not yet understand what consumption would be in Ukraine after the occupation. We did not fully understand all the possibilities of the transit flow. This reverse was the third very big achievement of the winter package. The fourth achievement was the fact that we were guaranteed uninterrupted transit in a trilateral protocol.

QuoteOne of the main achievements was precisely the fact that the reverse was opened to us. Since then, Ukraine was able to go through any winter without buying gas from Gazprom.

This instrument allowed Ukraine all this time, even during the period of arbitration on the contract, to get all the money for transit in full and not to be afraid of interruptions in gas transit to European countries that had put our relations with the EU countries on a not so positive note as it was in during this entire period when the contract had worked.

During these talks, of course, many compromises were made. I want to say right away that the main source of such relatively pragmatic pressure on both sides, both Russian and Ukrainian, was precisely European Commissioner Günther Oettinger. It was he who, regularly communicating on the phone with Chancellor Merkel (who, for her part, conducted several more negotiations with several other countries), forced Gazprom to derogate from several positions of principle for us. In particular, from the position that we must pay off the debt at the price that is now enshrined in the contract. This is not in the contract.

QuoteEveryone expected that there would be a gas crisis, that Ukraine would again be brought to its knees by harsh gas blackmail.

The negotiation triangle looked like this. Mr. Günther Oettinger spoke with Frau Merkel; Miller and Novak spoke with Moscow, I think, with Mr. Putin and someone else; for my part, I had many talks with the Ukrainian side, both with Prime Minister Yatsenyuk and with President Poroshenko. Thus, these negotiations ended in significant success that prevented what was expected to happen. Everyone expected that there would be a gas crisis, that Ukraine would again be brought to its knees by harsh gas blackmail. No, this did not happen due to precisely a result of the tripartite package.

- How would you assess these negotiations if 10 points is the highest rating and 0 is the lowest?

- It is considered a conflict of interest to rate yourself in the corporate world. But I believe that these talks gave more than was expected at the beginning of 2014. At that time we did not have an understanding whether we could open the Slovak reverse, whether we could move away from fully settling Gazprom's financial debt without paying the entire amount of the claim. Instead, we got the opportunity to "suspend" more than $2 billion in debt that was later credited as offset after winning the Stockholm Arbitration. That is, we did not pay "real-world" money for this gas consumed by Ukraine.

QuoteThere was considerable pressure on us from our European partners to give up arbitration.

Actually, there was considerable pressure on us from our European partners to give up arbitration. We were able to stand as a team and say: "No, colleagues. We understand your willingness to negotiate, we understand that it would be much more comfortable for you if there was no arbitration and there was some kind of price, but we can't accept the price that, in our opinion, is unfair. We have a very big difference with Gazprom. We do not want any kind of political compromise. So let's finalize this arbitration after all."

Eventually, it was the European side that helped a lot in this situation, including sobering up Gazprom that was also not very pleased with the fact that we were in arbitration. They were especially not pleased that we went to the transit arbitration that they wanted to stop. They were forced to admit that despite the arbitration the relations are needed now, because there is a temporary construction. As a result, this construction worked. Therefore, I believe that we have achieved more than we expected. But I consider it incorrect to rate myself.

- You listened to the tapes that Denys Bihus had made public—Medvedchuk's negotiations with some Russian officials. It says that there was an attempt on the part of Medvedchuk to somehow influence this process. And he said that he allegedly settled with Poroshenko. Was there any pressure on you from Poroshenko, Yatsenyuk, Prodan? Did anyone say that it was necessary to negotiate on other terms—on those that Medvedchuk voiced in his tapes?

- During the trilateral talks, I had many conversations with both the Prime Minister and the President. Mr. Prodan, the then Minister of Energy and Coal Industry, and his deputy, Ihor Didenko, were present at the talks themselves. At a certain point, Mrs. Zerkal joined in, who also played a very positive and important role. My impression of working with them is that, being people who cared primarily about getting the best conditions for Ukraine, they discussed all possible options with me, sought for where we could get something more, when we could get from Europeans promises of some other help. I have never heard from any of them that they spoke with Medvedchuk or that they referred to a conversation with Medvedchuk. And I didn’t see or hear Medvedchuk at the trilateral gas talks either.

QuoteI never felt that the leadership of the Ukrainian government or the President, or other members of the Ukrainian delegation wanted to do or force me to accept something that would not be in the interests of Ukraine.

We all worked in the format of a civilized and pragmatic discussion exactly about how to achieve the best result for Ukraine. In a certain way, they sometimes argued with me and said: no, this is better, but let's still try to squeeze the price, and let's try to get additional payment from the Europeans. I explained what was possible and what was impossible. That is, this kind of pressure, but in favor of the Ukrainian interest, I felt constantly from all sides. Then we went into the meeting room and had very long and hot debates. It even came to broken pencils that Mr. Oettinger threw at certain negotiators—at the Russian side. It was very emotional and simple. But I never felt that the leadership of the Ukrainian government or the President, or other members of the Ukrainian delegation wanted to do or force me to accept something that would not be in the interests of Ukraine.

- That is, there were no such proposals from Poroshenko?

- I do not remember that he requested or wanted to convince me of something that would be contrary to Ukrainian interests.

- If we proceed from the "Medvedchuk tapes", then Medvedchuk says that he allegedly has an agreement with Poroshenko that the price will be $500, there will be other conditions. What really happened?

- Let me start with two important facts. First fact. One of the first letters that I wrote to Gazprom when appointed Head of Naftogaz in 2014 contained the thesis that esteemed Mr. Miller should take into account the fact that in the future all relations on gas import issues between Naftogaz and Gazprom would be built without intermediaries. This letter, as I found out later, had a great resonance. Because some business groups believed that the government had changed, and they would try to copy the RosUkrEnergo scheme. After reading this letter, Gazprom, as far as I know, began to take talks with Naftogaz much more seriously. Because many people from the Ukrainian side told them that now Ukrainians would come to you and offer you some kind of private mediator. This letter helped a lot. Therefore, speaking of any mediators—and Mr. Medvedchuk could theoretically be such a mediator or wanted to become one—I closed this door for everyone at the very beginning. What was the point of him to promise something to someone, I don't fully understand. But I don’t understand this person, so I cannot say that this did not happen.

QuoteMr. Medvedchuk could theoretically be such a mediator between Naftogar and Gazprom or wanted to become one, but I closed this door for everyone at the very beginning.

The second important point. During the talks, a large number of various famous people came to the office of the Head of Naftogaz and said: "Kobolyev, I was in Moscow yesterday, I settled everything, just give me a mandate to negotiate, and tomorrow there will be gas. We will pick up the flares in Crimea, provide gas, and settle the transit issue. Give me a mandate for negotiations, and I will settle everything." For example, two of these at that time were people's deputies, they could not be restricted from entering the company. They came, sat in my reception and told my secretary that "we will wait for Kobolyev, we will not leave, we have information of state importance". I took it all as "selling air". During one of the conversations, Miller also told me: "Mr. Kobolyev, let's make a deal that any conversations about gas issues can be conducted either by me or by a person who will come from me with a power of attorney." Therefore, I told all these people: dear ones, as soon as you come to me with a power of attorney from Miller, we will continue this conversation. Until I see this power of attorney on the table, do not waste your time and mine. With all due respect to your status, this is not serious.

Quote"Kobolyev, I was in Moscow yesterday, I settled everything, just give me a mandate to negotiate, and tomorrow there will be gas. We will pick up the flares in Crimea, provide gas, and settle the transit issue." Two of these at that time were people's deputies.

These were facts, and now I will state a hypothesis. It is quite possible that Mr. Medvedchuk was seeking something in these talks. Maybe he tried to become a kind of intermediary, maybe he tried to exchange something for something. It's difficult for me to say. But the Ukrainian delegation did not make any exchanges for some commercial things or concessions that had no explanation or did not have any counter concessions from the Russian side. The result of this work is the fact that we very quickly realized that we no longer needed Russian gas. That we can go through the winter without Russian gas, buying gas in Europe, since the agreement allowed us to do this.

There was a moment when Gazprom called Naftogaz and said: you will not buy gas? We said: we don't need it, we buy cheaper elsewhere. Yes, we have a super contract that allows us to cover any need of Ukraine, if such a need arises. This is a very useful instrument. But for now, we will not use it. They say: why do you always take zero from us, while you take something from the Europeans? We say: give us a low price—we'll take gas from you. They say: we cannot, we have arbitration. Well, then we are sorry, we won't buy gas from you. Going through winter, stability, money, and diversification proved that the Ukrainian delegation did more during the talks on the winter energy package in 2014 than was expected from us.

QuoteAt the time of my appointment, one of the courses of action considered at Naftogaz was its bankruptcy.

When I was appointed Head of Naftogaz, I could not even imagine that in a year we would be able to completely abandon Gazprom's gas. Let me tell you a little secret: at the time of my appointment, one of the courses of action considered at Naftogaz was its bankruptcy. Exactly because of this contract, because of debts, prices and other things. At that time, our team, together with the government and the President of Ukraine, found a way that saved the company, and then allowed it to win in arbitration, get all the money and turn Naftogaz into the largest donor to the state budget. The basic principles of this strategy were set out during the talks exactly around the winter package.

- And were there other cases when politicians—the President or the Prime Minister—tried to somehow influence you, so that you negotiated with Gazprom in such a way that it was not advantageous for Naftogaz?

- In matters of negotiating with Gazprom I have experience of communicating with two Presidents. I believe that both Presidents—both Poroshenko and Zelenskyy—tried to act as best they could in the interests of Ukraine.

QuoteI believe that both Presidents—both Poroshenko and Zelenskyy—tried to act as best they could in the interests of Ukraine.

- And what about the Prime Ministers?

- Yatsenyuk definitely acted in the interests of Ukraine. Groysman did not take any part in these talks. Honcharuk and Shmyhal, I would say, almost did not take part. Although I must say that Mr. Honcharuk did a lot to complete the unbundling in 2019. It was not related directly to talks with the Russians, but for the success of these talks, the timely and high-quality completion of the unbundling was critical. He made a very big contribution to this unbundling.

- How, in your opinion, will the situation with Gazprom develop in the future? Nord Stream 2 will start operating shortly, and Ukraine will find itself in a situation where a significant part of Russian gas will not be transported through our GTS. Will this change anything in relations with Gazprom?

- I believe that there is still a chance to stop this gas pipeline. It is difficult, but there is a chance.

- Everyone says that Nord Stream 2 will start operating shortly.

- When I started dealing with the issue of this gas pipeline, everyone told me: Kobolyev, it’s already done, forget about it. Many people both from Europe and from America have said this to me. Nevertheless, as you can see, there are and were effective ways that were used to stop it. If this happens, I can’t even imagine what mechanisms we can use to compensate for the military threat aspect. I have no answer to this question yet. As for economic compensators, there are many options, and we need to work on them. But I believe that the launch of this gas pipeline will be a defeat, and I hope that it will not take place.

QuoteIf this happens, I can’t even imagine what mechanisms we can use to compensate for the military threat aspect.

- Does this mean war?

- I am not ready to make such a forecast, I am not a military expert. And I think it is incorrect to speculate on the theme of war.

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