Grigory Pasko: Interview with Vladimir Milov

milov0411082.jpgVladimir Milov: “Nord Stream – this is an reckless project” By Grigory Pasko, journalist Recently, information was placed on the website of the company Nord Stream about how the technical maintenance of the Nord Stream gas pipeline is feasible without the use of a service platform that the consortium had earlier intended to build near the Swedish island of Gotland. [italics mine—G.P.] In such an unexpected manner did the company react to a request from the Swedish government concerning the provision of additional documentation with respect to the construction of the service platform.

Further on its website, the company Nord Stream clarifies that it is “pleased that technological advances obviate the need for a platform at the mid-point of the planned pipeline route”.In addition to this, the company indicates at technological progress in the industry that “all prerequisites have been met to start dialogue with the Swedish government about this important project for meeting Europe’s energy supply needs and protecting the climate”.In my view, the information contains a minimum of one ruse and one speculative detail. The ruse is that surely there aren’t any “technological advances” in the industry. This reminds me of a story with one acquaintance: during an attempt to sneak into a nightclub in a non-sober state, he was kicked out of the establishment. He wiped the dust from his trousers and said: “Ah, I didn’t really want to go in that lousy club anyway…” The same thing with Nord Stream: as soon as it was asked “let’s see your documents”, its ability to sneak into Sweden’s Exclusive Economic Zone fell flat on its face. And then the company declares: “Ah, we didn’t really need that lousy service platform anyway – we’ll get by just fine with ‘technological advances’.”The speculative moment I see in the fact that the information contains an insinuation: it’s like, if Sweden refuses to discuss the project further and the project doesn’t happen, then Sweden will come out against “meeting Europe’s energy supply needs and protecting the climate”.It is quite possible indeed that Sweden will in the end refuse to approve the project to lay the pipeline within its Exclusive Economic Zone.And it is quite possible that Finland, too, will refuse, as Estonia already has.So what exactly is this Nord Stream pipeline? I asked a competent individual: the economist Vladimir Milov, who in the year 2002 was deputy minister of energy in the Russian government.These days, Vladimir Milov is the president of the Institute of Energy Problems. I met him in St. Petersburg at the conference on «The new agenda of the democratic movement». It was not by accident that we met precisely there: Vladimir Stanislavovih is one of the organizers of this conference, and a member of the coordination committee for the preparation of the congress of democratic forces of Russia that will take place in the autumn of this year.milov041108Vladimir Milov (photo by Grigory Pasko)Vladimir Stanislavovich, I know of your negative attitude to the Nord Stream gas pipeline. But still: what specifically, in your view, do the shortcomings of this project consist of?The project is reckless, its shortcomings are in the fact that it does not have real economic foundations. Once, several years ago, I had a conversation with the managers of the company Nord Stream and asked how they intended to resolve the question with the Baltic countries with respect to the passing of the pipe through the Exclusive Economic Zones of these countries. After all, there is a convention on the law of the sea, there’s no such thing as sea that isn’t anybody’s, you’re going to have to reach agreement with Sweden, Estonia, Finland… I asked: are you convinced that you’ll reach agreement with them? They answered me: yes, we are convinced. Furthermore, they said that with Estonia all questions have been resolved. The irony of it is that Estonia did not even begin to review the application and refused to conduct within the framework of the project surveying work on the corresponding section of the Baltic Sea. Poland declared yet again that “the project does not meet its economic interests”. And the Swedes and the Finns proposed using alternative routings, which is also tantamount to refusing to approve the project.The second story has to do with the cost of the project. For a long time, representatives of Nord Stream were naming a figure of 4-5 billion euros. Recently, they have admitted that the real cost will be somewhere in the vicinity of 12 billion euros. I’m naming a figure – 15 billion euros. In such complex projects, cost overruns usually comprise two times more than the originally declared estimated sum.It should also be borne in mind that Gazprom signed an agreement that is extremely disadvantageous for it concerning the conditions of the transportation of the gas, according to which during the course of 30 years it will pay the operator company of the project an elevated tariff, called upon to compensate the investments. This tariff will exceed 3 dollars per 1000 cubic meters of gas per 100 kilometers. This is one and a half times more than the level of the transit tariff that was proposed for the transportation of gas through a second strand of the gas pipeline «Yamal-Europe» along the territory of Belarus and Poland. These are completely interchangeable pipelines, their gas throughput is comparable – the second strand was intended to carry 33 bln. cubic meters of gas.The capacity of Nord Stream is being declared to be 55 bln. cubic meters, but there is no assurance that all 55 bln. will be needed by Western consumers. I think that in the event of the implementation of the project, realistically speaking 30-40 bln. cubic meters of gas will be flowing through it.Remember that the problems for the Nord Stream project began after Poland declared that “the project does not meet its economic interests”. There the question concerned disagreements about the level of the transit tariff on the order of 20 cents for pumping 1000 cubic meters of gas 100 km., that is, these were absolutely inconsequential disagreements. Meanwhile, the cost of this possible pipeline through Belarus and Poland – is 2.5 bln., while the cost of «Nord-Stream» only by official estimates today is over 10 bln. euros.You need to understand that the Nord Stream pipeline – this is not a cheap thrill. This project is 6 times more expensive than a second strand of the «Yamal- Europe» gas pipeline. This is a very costly project.It is known that Gazprom – and now the company Nord Stream as well – do not like to name concrete numbers and sums. I, for example, never have been able to find a precise figure for the cost of the underwater section of the pipeline…Indeed. Besides that, it is unintelligible how much the transit tariff will comprise, the one that will be levied by this North European Gas Pipeline Company on that same «Gazprom». If it will be sufficiently high, this means that «Gazprom» is going to have to pay more dearly than it is paying today for transit to Belarus, Ukraine, or Poland. If the tariff will be small, then this means that this pipeline will take forever to pay for itself. Therefore there are far more questions about this pipeline than there are answers. My opinion – the Nord Stream gas pipeline project ought to be abandoned. It is expensive, it can be blocked, there exist other risks……Environmental, for example? And then the chemical weapons on the bottom of the seabed?Yes, these risks as well. It is known that the Baltic is poor in oxygen, there are problems with the regeneration of bottom-dwelling fauna. On the Nord Stream website, there is a picture of how a pipeline is laid. You can see there that in order to maintain the buckling stability of the pipe, you need to slice off the uneven areas on the sea bed – all kinds of prominences, and then fill them anew. If you lay a pipe along such a terrain, then you’ll need to dig up the whole sea bed to all hell. What will happen with the fauna in this case?The question with the chemical weapons has also not been resolved. Despite the brave replies of representatives of the company about how everything’s normal, there is no clarity in this. All the time, we are hearing the declarations of the Kremlin and Gazprom that the accusations about the risks of this pipeline are politicized. But there haven’t been any concrete answers to many questions, and there still aren’t any. Therefore I repeat – this project – it is reckless! By the way, completely in the style of Gazprom and today’s power.By the way, this isn’t the first such project…Yes, there is also Blue Stream. In the year 1997, Gazprom was telling us how wonderful everything is with this project. They were supposed to go around Georgia, in order to get to Turkey directly. In essence, they built this pipeline for the money of the state budget, for taxpayers’ money. The tax concessions comprised more than a billion dollars for Gazprom. This at a time when there wasn’t enough money in the country – this was in the years 1998-1999, in the post-default period.It ought to be noted that to this day the gas being supplied to Turkey is not subject to an export duty. The country is losing colossal money – up to a billion dollars a year. But what are we getting from Blue Stream?Besides this, despite the fact that huge funds were put in – buried, the pipe is now only running at half its capacity, while before it was running at less than a third.And they’re even planning a South Stream, as well…Yes, these days Gazprom has hit up against the problem of Turkey and now it wants to bypass it as well, having refused to build the second phase of Blue Stream. And in order to fill the first phase of the Blue Stream pipe, it is being proposed… to build a branch to Georgia – which they had bypassed in their time. This is laughable already. Why did this need to be done? They created this half-empty “wunderpipeline”. Why?Perhaps Putin’s pipeline spiderweb is beneficial for somebody? By there is one important question: what will they fill all these pipelines with?Good question. The fact is tat in Russia there are problems with gas production. Gazprom says that everything will be reliable. But it is known that in reality funds are not being invested into gas production. If in oil production a good level has been attained and it is understandable that there shouldn’t be problems with, for example, the Eastern Siberia-Pacific Ocean pipeline, then with gas all is not so good: where to get another 55 bln. cubic meters, when we’re just barely able to maintain the level of production as of today.vologda041108Nord Stream originates in Vologda Oblast (Photo by Grigory Pasko)I met with residents of the settlement of Babayevo of Vologda Oblast, and they said that they’ve got a serious shortage of gas for consumption. This despite the fact that no fewer than three trunk gas pipelines go through Babayevo to beyond the border. Three pipes – and there’s no gas.There is a certain Mr. Valery Yazev, a well-known Gazprom lobbyist, now he’s the vice-speaker of the State Duma. In November 2007 he introduced a bill that is supposed to establish a procedure of compulsory restrictions on deliveries of gas to consumers and conversions to reserve kinds of fuel in colder periods, in the autumn-winter season. Here in Russia, as is known, it sometimes gets cold, especially in the autumn-winter period. That is, rather than a real solution to the problems with the gasification of the country, some kind of energy prodrazvyorstka (“surplus appropriation system”) is being proposed instead.Russia has already been though prodrazvyorstka in the 1920s. It did not lead to successes in the economy and in people’s lives. Thanks for the interview.Reference:Vladimir Milov — Worked in the federal organs of executive power in the years 1997—2002, in 5 years rising from leading specialist in the Federal Energy Commission to deputy minister of energy. He was one of the main architects of Russian energy reforms, called upon to raise the efficiency of the energy sector of the country. Having voluntarily left the government at the end of 2002, he became Russia’s leading independent expert in the area of energy.