Russian Oil Giant Brings Ukranian Naftogaz Into Compliance With EU Rules

Andriy Kobolyev, CEO of the Ukrainian state energy company Naftogaz. (Wikimedia Commons)

Forbes credited the Russian oil company Gazprom with "saving" Ukraine's national oil and gas company, Naftogaz, by forcing it to adopt European trade standards. Russia’s insistence that in order for Gazprom to return to Ukraine, the country had to adopt European open market trade standards and modernize its state-run gas firms was most likely responsible for Ukraine’s compliance.

Ukraine’s national oil and gas company, Naftogaz, has struggled for years under the leadership of Andriy Kobolyev to persuade corrupt government officials to adopt a modern, open market trade strategy in accordance with EU standards.

Despite these efforts, it was Russian President Vladimir Putin’s insistence that the private Russian oil giant Gazprom’s return to Ukraine was contingent on adopting European trade standards that ultimately sparked change, said Janez Kopac, director of the EU’s Energy Community, on January 23.

“It was not easy. There were a lot of dirty stories behind the scenes, but it’s over,” Kopac said. “In the last month, the biggest push for European-oriented gas market reforms in Ukraine came from Gazprom because Putin said that if Ukraine would comply fully with European rules they will sign a transit contract. Ukrainian authorities adopted all those measures, measures that were not done for years.”

Gazprom cut off gas supplies to Ukraine in 2009, one of numerous instances of Russia flexing its energy-sector dominance. On January 8, Putin celebrated the launch of TurkStream, a pipeline designed to transport Russian gas to Europe. American sanctions on Nord Stream 2, a pipeline from Russia to Germany, will only slightly affect the project—TurkStream is expected to be completed before the U.S. finalizes its list of targets.

Russia’s economic policy is clearly changing. The promotion of former economic advisor Andrei Belousov to the post of first deputy prime minister seems to signal and symbolize this shift. Belousov has previously been involved in pro-growth policies, indicating Putin's potential interest in energy sector expansion throughout Europe.

Included in this more liberal, open approach is an “outreach to the West” as Russian policy grows more amenable to European and Western trade standards. Ukraine seems to be a key arena for this effort.

Gazprom paid Naftogaz a $2.9 billion fine in late 2019, with Ukraine’s President Volodymyr Zelensky calling it a great victory for Ukraine. The payment comes as part of an arbitration decision by the Arbitration Institute of the Stockholm Chamber of Commerce. 

“Another victory,” Zelensky said of the deal on his Facebook page. “It may be a small victory for some, but it is a big one for the country.”

The Russian energy sector’s relative friendliness toward Ukraine may be part of a larger effort to expand the reach of its international trade. Regardless, Naftogaz benefits.