OPEN WINTER WINDOWS IN EASTERN EUROPE
by Judy Dempsey – The New York Times Media Group

The International Herald Tribune
January 6, 2007 Saturday

If you ever visit countries like Ukraine, Moldova or Georgia during
the winter months, try to avoid spending much time in government
buildings. They are sweltering. Ask that the temperature be turned
down and your host will immediately oblige by opening the window.

Thermostats are nonexistent.

Once I asked an official why the buildings are overheated and why
so much energy is wasted. Professor Igor Burakovsky, director of
the Institute for Economic Research and Policy Consulting in Kiev,
rolled his eyes. "We became used to cheap energy," he said. "Times
are changing as Russia charges more for its gas. We need to introduce
reforms to save energy and modernize the sector’s infrastructure."

Reform, however slowly, is on the way, thanks, ironically, to Gazprom,
Russia’s giant state-owned energy monopoly. After all, this is the
company identified with the Kremlin, which, under President Vladimir
Putin, has used energy as one of its main political instruments to
increase the power of the new Russia. During a speech marking the
10th anniversary of Gazprom in 2003, Putin said that Gazprom was a
strategically important company. "Gazprom," he said, "is a powerful
and economic lever of influence over the rest of the world."

Dmitri Medvedev, the Kremlin’s No.2, is also chairman of Gazprom,
which shows the symbiotic relationship between the two most important
centers of economic and political power in Russia today.

The Kremlin’s energy policies, however, are forcing some countries
to introduce reforms, diversify their energy imports and even shift
their foreign policy toward Europe, according to Russian experts.

"The Kremlin’s attempts to use its energy power as political pressure
on its neighbors is actually slowly encouraging some reforms," says
Grzegorz Gromadzki of the Stefan Batory Foundation in Warsaw.

The Kremlin most recently attempted to use energy as a political
weapon against its western neighbor and supposed ally, Belarus.

Gazprom warned its president, Aleksandr Lukashenko, that it would cut
off supplies unless he accepted higher gas prices and sold a majority
stake of Belarus’s gas transit pipeline to Russia. Twenty percent of
Russia’s gas exports to Europe pass through the Belarus pipeline.

Putin had another reason to threaten Lukashenko. For several years
he has been trying to bring Belarus into a formal union with Russia.

When Lukashenko refused to join the union during the winter of
2003-04, Gazprom turned off the tap to Belarus, causing serious
shortages there and in Poland, and Germany and the Netherlands dipped
into their reserves to make up for shortfalls. After several days,
Gazprom resumed supplies, only to pressure Lukashenko again with
the same demands three years later. This time, the Belarus president
accepted the higher prices and even agreed to sell the part of the
pipeline Gazprom wanted, a strategic gain for Russia. But he did not
join the union with Russia.

Belarus is not an isolated case. Gazprom has romped around the
Commonwealth of Independent States, or former Soviet republics and
Eastern Europe, using its energy power to impose high prices and grab
control of the distribution and transit pipelines. When the president
of Ukraine, Viktor Yushchenko, refused to yield to both demands last
year, Gazprom again cut off supplies.

Gazprom says it is simply phasing out subsidies in order to adapt
to world market prices. The World Trade Organization, the United
States and the European Union say all well and good, but they also
say Gazprom uses its power abroad without introducing world market
prices for energy back home or allowing foreign companies access to
its vast pipeline network.

When Georgia, for example, refused last year to cede control of its
pipelines to Russia, Gazprom responded by telling Georgia it would
charge world market prices for its gas. The demand was made before the
NATO summit meeting last month, when Georgia was desperately seeking
some signal from the Europeans and the Americans that it could one
day join the alliance. Georgia accepted the hefty gas costs as the
price to pay for the shift away from Moscow.

Moldova, which is also dependent on Russia for its energy, had little
choice but to accept a sharp rise in prices, too. Gazprom cut gas
supplies to Moldova just before elections in 2005. The Communists, led
by Vladimir Voronin, won after promising to bring Moldova closer to
the EU and NATO. Since then, Moldova has slowly started to introduce
reforms. Voronin, however, did not forget Russia’s bullying. He
threatened to veto Russia’s joining the WTO unless Russia lifted its
embargo of Moldovan wine and meat sales, another way in which Moscow
was pressuring Moldova to give up control of its gas distribution
network. Russia ended the embargo last November, but obtained the
distribution network.

Russia has tried similar policies in Armenia, which is considered
Moscow’s closest ally among the Commonwealth of Independent States.

It wanted control of Armenia’s electricity power grid. When Armenia
refused, energy subsidies were lifted. Last September, Armenia sold the
grid to a state-owned Russian electricity company. Russia, meanwhile,
is still trying to buy Ukraine’s gas pipeline, which sends 80 percent
of Russia’s gas exports to Europe.

These acquisitions may seem like a series of successes for Putin. But
energy experts say Russia’s blatant use of its energy muscle has
built up resentment throughout the region, all the more so since
Russia is not using the higher revenues or pipeline acquisitions to
invest sufficiently in its own energy infrastructure. In some cases,
Russia’s heavy-handed attitudes have spurred several countries to
start introducing reforms to try to reduce their dependence on Russia.

Peter Kaderjak, director of the energy department at Corvinus
University in Budapest, says the Kremlin’s methods have often proved
to be counterproductive. "I find it a strange policy," he said.

"If countries accept the high energy prices, then Russia loses the
power to blackmail them. As a result of the Kremlin’s policies, some
countries start trying to diversify their energy imports, restructure
the energy sector and cooperate with each other much more."

"Depending on Russian gas used never be an issue," Kaderjak
continued. "But because of Gazprom’s policies, attitudes across the
region are changing. We are seeing a bigger effort to diversify and
think more about renewable energy. Change will not happen overnight.

But at least it has started."