A short history of large-scale rent-extraction schemes in the Ukrainian energy sector
In her book, Margarita Balmaceda offers a detailed comparative account of how post-Soviet political elites dealt with the political consequences of their dependence on energy imports from Russia in the first decades after the Soviet collapse, focusing on the cases of Ukraine, Belarus and Lithuania.
Although described as “energy poor”, Ukraine’s reliance on Russia for a large share of its energy deliveries (excluding nuclear fuel) was considerably lower than for Belarus or Lithuania (Balmaceda, 2013, pp. 93, 317). Nevertheless, the relationship led periodically to serious bilateral strains, especially over issues around natural gas.
Rather than straightforward energy dependence, however, Ukraine’s basic energy relation with Russia is better understood as one of “asymmetric interdependence”, Balmaceda contends. By this she means that post-Soviet Ukraine had significant energy assets with which it could have mitigated the effects of its reliance on energy supplies from Russia. Chief among these assets she counts the Ukrainian gas transit system, which in 2010 was still carrying 80% of Russian/ Gazprom’s natural gas to central and western Europe (Balmaceda, 2013, p. 94), but also includes gas-storage and oil-refining facilities, as well as a large natural gas market.
Her main argument, however, is that Ukrainian elites routinely mismanaged this hand, so that valuable national energy assets were not used to further Ukraine’s long-term national interests—such as energy diversification and energy security.
One reason for this is that powerful individuals and networks on both the Russian and Ukrainian sides prioritised their private, rent-seeking goals over the public interest. The author describes this “transborder sharing” as one of the main mechanisms for the management of energy conflict in this period. In Ukraine, these flows of energy rents formed a focal point of rivalry and co-operation around which the Ukrainian political and economic elites have cohered in the independence era, at the same time defining an uneasy relationship with their Russian counterparts—that is to say, tying the Ukrainian elite materially to the Russian elite, while subordinating them to it (Balmaceda & Rutland, 2014).
Although described as “energy poor”, Ukraine’s reliance on Russia for a large share of its energy deliveries (excluding nuclear fuel) was considerably lower than for Belarus or Lithuania (Balmaceda, 2013, pp. 93, 317). Nevertheless, the relationship led periodically to serious bilateral strains, especially over issues around natural gas.
Rather than straightforward energy dependence, however, Ukraine’s basic energy relation with Russia is better understood as one of “asymmetric interdependence”, Balmaceda contends. By this she means that post-Soviet Ukraine had significant energy assets with which it could have mitigated the effects of its reliance on energy supplies from Russia. Chief among these assets she counts the Ukrainian gas transit system, which in 2010 was still carrying 80% of Russian/ Gazprom’s natural gas to central and western Europe (Balmaceda, 2013, p. 94), but also includes gas-storage and oil-refining facilities, as well as a large natural gas market.
Her main argument, however, is that Ukrainian elites routinely mismanaged this hand, so that valuable national energy assets were not used to further Ukraine’s long-term national interests—such as energy diversification and energy security.
One reason for this is that powerful individuals and networks on both the Russian and Ukrainian sides prioritised their private, rent-seeking goals over the public interest. The author describes this “transborder sharing” as one of the main mechanisms for the management of energy conflict in this period. In Ukraine, these flows of energy rents formed a focal point of rivalry and co-operation around which the Ukrainian political and economic elites have cohered in the independence era, at the same time defining an uneasy relationship with their Russian counterparts—that is to say, tying the Ukrainian elite materially to the Russian elite, while subordinating them to it (Balmaceda & Rutland, 2014).
Persistent structures
A second, related reason for Ukraine's poor management of its asymmetric energy interdependence with Russia is the political influence that the main beneficiaries of the joint energy rent schemes were able to exert, not just on energy policy, but also on aspects of state formation more widely. Specifically, this involved the establishment in the early post-Soviet period, following a phase of considerable flux, of a new understanding of power and business-political relations, with lasting effects on the country’s political-economic institutions[, including a certain looseness of application of formal rules and adherence to organisation structures amenable to this set up].As a result of these factors, Ukraine was unable to adopt a strong, unified stance on energy policy, or to respond effectively to developments in its external energy environment—such as Russia’s long-term plans to construct energy pipelines to Europe around Ukraine, thereby reducing gas transit volumes through Ukraine, weakening both a stream of state revenue and the country's “asymmetric” energy bargaining power.
Ukraine’s basic energy relation with Russia, at least until 2005, was one of gas imports bartered for gas transit services, but at a preferential price—in effect, a significant energy subsidy. While Russian subsidies afforded both Belarus and Ukraine significant rent-extraction opportunities, Ukraine also generated the “largest range of domestic rent-acquisition opportunities” (Balmaceda, 2013, p. 95). Compared with Belarus or Lithuania, then, a distinguishing feature of Ukraine’s energy relation with Russia, and of the joint Ukrainian-Russian gas rent-extraction schemes in particular, was the size of the energy rents available. Others included “the ease with which they could be accessed by those with the right political connections” (Balmaceda, 2013, pp 151-152), the intensity of its elite struggles for control of rents, and the clearer negative impact on the state and society.
Balmaceda’s account of how energy rent-extraction operations dovetail into the wider institutional political economy frameworks of the Kuchma and Yushchenko presidencies offers a useful, pratical model of how to approach an analysis of energy rent-extraction schemes under the different political-institutional and energy policy conditions of the post-Maidan period, which is the key original contribution of this chapter.
Produced immediately below is an account of two of the most high-profile rent-extraction schemes to appear in the modern Ukrainian gas sector. The first is of Pavlo Lazarenko and his UESA intermediary in 1995-98, while the second is of Dmitry Firtash and his RosUkrEnergo (RUE) intermediary in 2004-09. The purpose is not just to describe what happened, but also to narrate how the parts of each scheme—the main political and actors and institutions—worked in relation to one another. The results of these analyses will be a shortlist table of the kinds of actors and institutional structures, and the relations between them, involved in each scheme’s rent-extraction mechanism. The idea of this is to produce a benchmarking tool against which post-Maidan energy rent-extraction schemes can be compared, thereby bringing out elements of continuity and change in such schemes in an evolving political-institutional environment.
Ukraine’s basic energy relation with Russia, at least until 2005, was one of gas imports bartered for gas transit services, but at a preferential price—in effect, a significant energy subsidy. While Russian subsidies afforded both Belarus and Ukraine significant rent-extraction opportunities, Ukraine also generated the “largest range of domestic rent-acquisition opportunities” (Balmaceda, 2013, p. 95). Compared with Belarus or Lithuania, then, a distinguishing feature of Ukraine’s energy relation with Russia, and of the joint Ukrainian-Russian gas rent-extraction schemes in particular, was the size of the energy rents available. Others included “the ease with which they could be accessed by those with the right political connections” (Balmaceda, 2013, pp 151-152), the intensity of its elite struggles for control of rents, and the clearer negative impact on the state and society.
Balmaceda’s account of how energy rent-extraction operations dovetail into the wider institutional political economy frameworks of the Kuchma and Yushchenko presidencies offers a useful, pratical model of how to approach an analysis of energy rent-extraction schemes under the different political-institutional and energy policy conditions of the post-Maidan period, which is the key original contribution of this chapter.
Produced immediately below is an account of two of the most high-profile rent-extraction schemes to appear in the modern Ukrainian gas sector. The first is of Pavlo Lazarenko and his UESA intermediary in 1995-98, while the second is of Dmitry Firtash and his RosUkrEnergo (RUE) intermediary in 2004-09. The purpose is not just to describe what happened, but also to narrate how the parts of each scheme—the main political and actors and institutions—worked in relation to one another. The results of these analyses will be a shortlist table of the kinds of actors and institutional structures, and the relations between them, involved in each scheme’s rent-extraction mechanism. The idea of this is to produce a benchmarking tool against which post-Maidan energy rent-extraction schemes can be compared, thereby bringing out elements of continuity and change in such schemes in an evolving political-institutional environment.
Comments
Post a Comment