Jul 17, 2008

How do you tell a difference between political, and commercial? (Oil Cut to Czech Republic)

By Andrej Nosko

How does one tell what is politics and what is business? If business uses the state to further its interests, people call it state capture. How do you call it when state uses business to further its interests? Raison d'etre?
Following the recent news in Czech Republic makes one wonder about Russia, or maybe rather about the rest of the Europe? Is not Russia the 'normal' one in the equation? It is doing what states have been doing for hundreds of years - maximizing its power.

Oil supplies from Russia have been cut to Czech republic, without any warning (in accordance to the agreement with Russia, the EC should have been informed), and U.S. presidential candidate Mr. McCain, subconsciously turned-on his Cold War reflex, when he expressed “regret some of the recent behavior that Russia has exhibited [...] including reduction in oil supplies to Czechoslovakia.”

When Nicollo Machiavelli wrote to his friend Francesco Vettori 495 years ago, that he can only talk about politics, because he doesn't understand business, the political reality was quite different. In the contemporary polyarchic political systems (people sometiems call them democracies, but this is energy security section, so I leave the conceptualization issues aside) interests (whose?) tend to be aggregated through political parties. Therefore state should cater for the needs of its citizens, through politicians aggregating the preferences and interests of their constituencies to maximize their potential for re-election, (which, if democracy functions well, should happen through catering for the decisive amount of electorate). Nonetheless, this is theory, the reality is, as usual, bit different. State uses business to pursue its needs and interests, and business uses the state reciprocally. This is particularly the case in the energy sector.

Without advertising a new movie (which in itself advertises bio fuels), the first few seconds of the following clip fit this blog: "Energy is really political, and it was always political."

On the July 10, Czech Ministry of Economy confirmed cuts in oil supplies from Russia. Nothing serious, previously I have written about the fact that Czech Republic has diversified its oil supplies, it also has sufficient strategic stockpiles (at 02/06/2008 CR had more than required 90 days of its consumption of fuels) this means that Czech refineries have sufficient time to buy substitute crude oil elsewhere, and they also have alternative route to ship it into the country.

So if there is nothing serious, one could ask why this blog-post. I would like to point out couple of similarities from the history, and pose couple of questions, without any definitive answers. On July 8, Czech Republic and USA signed an agreement on 'controversial' anti-missile shield radar base to be stationed in Czech Republic. This is part of a US system, that aims to protect USA against Iran, the other part of the system to be stationed in EU - the ten interceptor missiles are planned for Poland. Russia was not happy about this. At numerous occasions Russia has voiced its discontent with US plans to station its installations in Europe. Another example is at the end of this video, when Mr. Putin, back than president of Russia, 'theorizes' over aiming missiles at Ukraine, if it joins NATO - a potential move that Russia is not very happy about.

Therefore it is interesting, that the oil supplies were significantly 'reduced' only to Czech Republic, and this happened just a day after the signing of the agreement with USA. Russian side claims reasons are unpolitical (the official press statement states reasons as "technical organizational problems in Russia"). Nonetheless, even Russian media makes the connection, see an article in Kommersant, Pravda or longer historical and regional comparison in RIA Novosti. Let's review context of similar events from the recent past, when supplies of energy were significantly reduced, or cut completely, for business or technical reasons.

Besides the well known issue of 'gas row' with Ukraine in 2006, 2007 and 2008, which would deserve a separate post, and very interesting case of gas cut for Georgia (2001, 2004, and combined with electricity in 2006 - mostly in connection with the Russian supported separatism movements), or oil cut in Belarus in 2007 (over prices of products and transit fees, followed by an agreement on early warning system), the case of Lithuanian refinery Mazeikiu deserves more attention.

In July 2006, Lithuanian refinery Mazeikiu ceased to receive its oil supplies through Druzhba pipeline allegedly due to technical problems. Ideas of some, who have pointed out, that the fact that the cut, and a peculiar fire in the refinery, occurred after Gazprom was not succesful in trying to acquire the only Baltic refinery, over Polish PKN Orlen, are supported by the fact that the supplies have still not been restored. The refinery imports oil through its Butinge terminal, originally conceived as an export terminal.

Seeing this situation, and the experience of PKN Orlen, from Lithuania, and Latvia (Ventspils bid), its Czech operator Unipetrol (owning both of the Czech Refineries), may be facing another struggle with the Russians in the eastern part of the EU. It may also be another proof, that the distance between the politics and business is much smaller than the 15 km, that Alexander Medvedev mentions. (In an interview for Euronews at 5:30"/6:55" in this video referring to the distance between the Kremlin and HQ of Gazprom in Moscow).

No comments: