Czech study probes behaviour of Russian state power giants on CEE markets

The behavior of Russian power giants Gazprom and Rosatom has been the subject of an in-depth Czech report which has produced some mixed findings about the state of energy security in the region. The results fed into a multinational conference about what risks the state-owned Russian companies posed on the power market.

Illustrative photo: European Commission

Russian natural gas exporter Gazprom’s main claim to fame for most people is its advertising spot as the main sponsor of football’s Champions League. Away from sports, Gazprom raises mixed emotions across Europe. It currently faces an in-depth competition probe from the European Commission, in part for abusing its dominant position in gas sales across Central and Eastern Europe, including the Czech Republic.

And in Russia’s episodic disputes and conflicts with Ukraine, the gas and nuclear weapon have been used or threatened by the companies’owner. Gas supplies to Europe were were most notably cut at the start of 2009. And in March 2014, Vladimir Putin threatened to stop nuclear fuel supplies to Ukraine if Kiev pushed ahead with an association agreement with the European Union. Rosatom intervened to withdraw the fuel threat and try and assure its customers that such ‘muscle’ would not be used.

At a conference on energy security In Prague this week, the findings of a study by the Faculty of Social Studies at Masaryk University, Brno, and the Prague Security Studies Institute looking at the behavior of both Gazprom and Russia’s main nuclear power company, Rosatom, were revealed.

Martin Jirušek is an analyst at Masaryk University. He says the two power giants usually follow the conventional business path in Europe but sometimes the influence of the 100 percent owner, the state, becomes all too clear: “They do what they are allowed to do. And they are stretching the possibilities to the maximum extent allowable. This applies both to the gas sector and the nuclear sector.”

The study is the result of around 18 months of work and will be published in full in the autumn. Jirušek continues: “There definitely are pressures from the Russian government, which is natural because Russia is dependent on energy exports. And when the government is a majority shareholder in the company then you have to imagine that something has to appear in this regard. Russia has an almost 40 percent direct stake in Gazprom.

Package deals

There definitely are pressures from the Russian government, which is natural because Russia is dependent on energy exports.

As regards Rosotom, which was a bidder in the Russian-led consortium for the tender to build two new nuclear reactors at Temelín, the study suggests that especially in developing countries, Moscow is able to package power, arms, and other offers to sweeten the nuclear reactor contracts. “When you have these strategic companies under the wing of a government, you can tailor individual deals and you can actually ask the country what will be the most suitable cooperation pattern for them and then you can tailor the deal and this is something that other contractors cannot really match.”

Václav Bartuška has been Czech ambassador at large for energy security since 2006, for a while also he kept tabs on the Temelín tender. He was a bit more philosophical about whether the two state companies are being used as weapons by the Russian government. “I think we all play with what we have. I mean the countries that have only oil or gas for export, well they use it any way they can. That is very logical. I mean the countries that are strong in soft power, or the export of cars, or export of other technologies are using them as a political tool and that is fairly logical. For Russia, it is what it exports, more than half of its GDP comes from oil and gas. Logically, they use it as a tool when they can and in most European countries they cannot.”

Thanks to its diversity of pipelines brining in gas from Norway as well as Russia, the Czech Republic is in a fairly comfortable situation as regards gas security compared with other countries closer to Russia. And the Czech Republic has also taken advantage of other fundamental changes in the European gas market which has resulted in much higher volumes being traded at so-called gas hubs and a lot less reliance on long term contracts with the likes of Gazprom. Václav Bartuška again: “We basically buy all of the gas on the exchanges in Germany and the Netherlands and we feel fairly secure as was predicted by the stress tests of the European Commission last year.

Václav Bartuška, photo: Šárka Ševčíková

"At the moment we do not have any fears about gas deliveries, even in the case of a Russian cut off [0f deliveries] to Europe. Cut off of Ukrainian transit, which is something we basically work with as a baseline scenario, is something we can easily overcome. The cut off of all Russian deliveries to Europe, which is roughly a third of European gas would be a different story. That would be difficult for even core markets like Germany and France, but we can solve it, it is actually something that can be done. It would be a difficult winter but not a frozen winter.”

But the Czech energy ambassador is a lot blunter when it comes to whether Rosatom should be allowed to bid for any future contracts to build nuclear power plant in the Czech Republic : “I don’t think that we should invite Rosatom for the next possible expansion in this country. That is my personal opinion, but I stick by it."

Other Czech government ministers have said they see no problems in a Rosatom bid, though with a decision over new reactors probably a decade or so away nothing is set in concrete on that.

Chinese pipedreams

I don’t think that we should invite Rosatom for the next possible expansion in this country. That is my personal opinion, but I stick by it.

Ironically perhaps, some of the concern about energy security as regards natural gas centres on the lack of future Gazprom supplies coming to Europe. Gazprom is, encouraged by the government, seeking to develop supplies to China, which is trying to wean itself off its heavy use of coal. Under one agreement already signed between Moscow and Beijing new gas fields in Eastern Siberia would be opened up and a pipeline constructed to take them thousands of kilometres to the east. That is the so-called Power of Siberia deal. Another scenario Russia using some existing gas fields and infrastructure for the China deliveries. Either way, fears have been expressed that with China as a major customer, Gazprom and the Russian state might have a freer hand to use gas as a weapon against Western and Central Europe.

Hedvika Kod’ousková, an assistant professor at Masaryk University, was one of those to address the Asian perspective at the energy conference. “If Gazprom will build the Power of Siberia, there is no reason to fear any consequences to the European market because it is completely different sources of gas, completely different infrastructure. If Gazprom would be able to proceed with the Western route, which means the pipeline running to China through the very short border between Kazakhstan and Mongolia, then there will be probably some connection to the European market because Gazprom would probably like to use previous investments and investments in infrastructure in Western Siberia. But Europe is still the most important for Europe and it will be a long time before Asia will be so important.”

Temelín, photo: Filip Jandourek

Another Asian perspective is Rosatom’s attempt to grab a large slice of the expanding nuclear market there with European and local rivals unhappy about the attractive packages it can roll out and the soft financing of these very expensive projects it can offer. Worse for them, China too looks like it wants to enter the nuclear market as well, taking many of its lessons out of Rosatom’s marketing and sales book.