Caspian Energy Journal Caspian European Club
Friday, 29 April 2016 16:00

EU has a substantial interest in unlocking the maritime route between the Southern Caucasus and Central Asia, - EU Ambassador to RF Vygaudas Ušackas Featured

Caspian Energy (СЕ): Mr. Ušackas, you are a successful political figure of Lithuania and your diplomatic carrier is impressive – you were an ambassador of Lithuania to Afghanistan, US, Mexico, and the UK; you led the process of Lithuania's accession to the EU, now you represent the EU in Russia. In which was your work the most challengeable? What achievements are you the most proud of? What is your mission at the moment?

Vygaudas Ušackas, Ambassador Extraordinary and Plenipotentiary of the European Union to the Russian Federation:Indeed, I'm privileged with the unique opportunity as well as a great honour and responsibility, to work in the key areas of both Lithuanian and European diplomacy.

From the political, cultural and diplomatic point of view, my work in Afghanistan was a very exclusive and extraordinary experience. During the years that I spent in Afghanistan representing the European Union, the world's largest donor of development aid, I was personally involved in the implementation of humanitarian projects which changed, in obvious and specific ways, the destiny of ordinary Afghans and improved their social and economic circumstances.

Now, in these troublesome times for EU – Russia relations, I see my mission as the EU ambassador to Russia in maintaining bridges of cooperation between us and open communication channels on issues of common interest: energy, trade, international issues starting from Iran, Middle East Peace Process, Syria, Libya, DPRK, but also horizontal issues as migration, counter-terrorism, climate change, and etc. 

СЕ: Regardless of the sanctions, the EU continues to be Russia's major trade and investment partner. What potential do you see in these key sectors of the bilateral cooperation?

Vygaudas Ušackas: The restrictive measures adopted by the European Union as a result of Russia's actions in Ukraine are targeted measures that still leave the majority of trade and investment flows unaffected. There is no export ban from the side of the EU in most businesses. By contrast, Russia implements a broad ban on agricultural imports causing an increase in the domestic Russian inflation. In any event, even in the current circumstances, the EU is indeed Russia's main trade partner, accounting for approximately 46% of Russia's foreign trade in 2015. It is also the main source of foreign direct investment in Russia (75% of all FDI).

Yet, it is a fact that the economic growth potential of Russia began to fade after the global financial crisis with signs of decline begun to appear in 2012 and, at present, the country is going through a serious economic recession, which logically takes a toll on international business operations. The devaluation of the rouble and lower commodity prices have had an important impact on Russia's international trade, which shrunk by more than 30% overall in 2015 compared to the previous year. Also, as a result of the crisis, but also uncertainties created by domestic policy developments in Russia, foreign direct investment flows sharply fell in 2014 and 2015. According to the UN Conference on Trade and Development, FDI into Russia fell by 92% in 2015.

A key element that will determine the nature and extent of EU-Russia economic relations is the direction of Russia's domestic policies. The growing emphasis on concepts such as import substitution illustrates a degree of trade protectionism and inwardness and can act as a deterrent for foreign economic operators. We live in an increasingly inter-connected and inter-dependent world, where the ability to integrate in global value chains is often key to global success. When in 2012 Russia became a WTO member these possibilities increased but it is for Russia to seize the possibilities.

In its cooperation activities, the EU generally advocates for adopting international standards, promoting competition, providing a stable and transparent regulatory framework and gradually liberalising trade. This is in stark contrast with a growing emphasis in Russia on protectionist measures such as restrictions to the access of foreign goods and services to public procurement contracts, irrespective of price and quality considerations. Not only these measures impact on foreign partners: they also results in additional costs for Russian taxpayers, and they stifle competition and, ultimately, competitiveness.

It should nonetheless be said that the EU is ready to engage with Russia on selected trade and investment issues, particularly on topics that need to be addressed to avoid unnecessary trade frictions and to ensure the respect common rules such as those included in the WTO agreement.

СЕ: What is your assessment of EU – Russia cooperation in solving such a long-standing issue as the Caspian Sea's legal status which has negative impact on investment attractiveness of upstream, transport and other projects by the EU in the region? 

Vygaudas Ušackas: Attempts have been underway for over 20 years now to develop a five-nation Convention on the legal status of the Caspian Sea as a basic document defining issues of jurisdiction over the water area and the seabed, principles of the production of hydrocarbon resources, their transportation routes to world markets as well as issues of navigation, the use of biological resources of the sea, environmental protection, security, the fight against organised crime and drug trafficking.

As you know, the European Union is not a party on the negotiations. Nevertheless, the EU has a substantial interest in unlocking the maritime route between the Southern Caucasus and Central Asia. In the first place, this would have important political, economic and commercial consequences for the countries in the region which is a key trade and transport corridor between Europe and Asia. In addition, the unresolved status of the Caspian is one of the main arguments blocking the Trans-Caspian Pipeline. Therefore, it is in the interests of the 5 countries engaged in the negotiations to bring a legal clarity and thereby to reap fruits of their favourable geographical location and vast natural resources.

СЕ: What new requirements and principles will the evolving Energy Union impose to gas exporters from the US, Canada, Azerbaijan, Israel, Egypt or other countries wishing to work on the European market?

Vygaudas Ušackas: I understand that by referring, in your question, to such relatively new players on the European gas market, you want to address the Energy Union's focus on LNG supplies to the European markets. Indeed, in the next years we expect an unprecedented increase on the global natural gas markets of LNG. We welcome such a positive development, believing that a functioning (liquid, competitive and flexible) LNG market is central to ensuring the energy security of the EU and that of other gas importers. 

Access to the global LNG market provides Member States with a wide choice of alternative suppliers and routes, both under normal market conditions and as a back-up in crisis situations making full use of LNG terminals, FSRU’s (floating storage and regasification unit) and Underground Storage Facilities in the EU.

A well-functioning global energy market requires fair and robust rules, and the abolishment of restrictions on the trade and transit of natural gas.

The EU engages closely to strengthen energy cooperation and developing an active agenda with other significant importers (e.g.: Japan, China), and with existing and developing suppliers in the wider Middle East, the Americas, Africa, the Euro-Mediterranean region, Australia and other relevant third countries.

Trade agreements, like the Transatlantic Trade and Investment Partnership (TTIP), should be an opportunity for setting transparent standards in the trade of energy and energy services, provided the autonomy of Member States is preserved in matters related to sovereignty. The EU encourages inclusion of dedicated energy and raw materials provisions in trade and investment negotiations, to the benefit of both energy producers and consumers.

The EU also supports the work of all relevant multilateral and regional initiatives aimed at improving the transparency and functioning of the global energy market, including through the initiatives of the G7 and G20, the work of the IEA and the Energy Charter as well as close cooperation under the Energy Community.  

СЕ: What means do you see available for balancing the interests of both exporters and European consumers? 

Vygaudas Ušackas: Guaranteeing secure, resilient and competitive energy supplies is one of the key strategic objectives of our energy policy. Energy security requires firstly enhancing energy efficiency, followed by well-functioning, transparent and liquid energy markets, and a diversified portfolio of supplies.

The EU is, and will likely remain in the foreseeable future, a net importer of gas resources as domestic production declines. The need for diversification is particularly relevant for the EU in the field of natural gas, due to the historical dependence, in particular in certain Member States, on a limited number of external pipeline suppliers. It complements the key efforts, led by the European Commission, to increase security of gas supplies through a well-functioning internal market based on a robust internal gas infrastructure and the enforcement of relevant EU legislation.

To improve and promote diversification as an essential enabler for enhanced energy security in line with the Energy Union strategy, the EU will continue to further develop strategic energy partnerships with important producing and transit countries, giving priority to partners and initiatives crucial to EU Efforts to strengthen the diversification of EU energy sources, suppliers and routes.

The EU's strategic focus on diversifying natural gas sources, suppliers and routes is directed towards:

(1) The Southern Gas Corridor connecting to resources in the Caspian basin (and potentially elsewhere);

(2) Developing and utilising resources in the Mediterranean region, and the creation of better market conditions and connections in the Euro-Mediterranean area;

(3) Enabling access for all EU Member States to liquid hubs and a rapidly growing global market in Liquefied Natural Gas (LNG) and, with it, the potential for supplies from a diverse range of sources in North America, Africa, the Middle East, the Euro-Mediterranean region, Australia and elsewhere.

СЕ: Recently, DEPA, Edisson and Gasprom signed a memorandum on gas transportation from Russia through the territory of the third countries and further along ITGI route (Turkey – Greece – Italy interconnector with the help of Poseidon project through the Ionian Sea). Does the European Commission support this initiative? 

Vygaudas Ušackas: It is to be recalled that the Commission analyses all major infrastructure projects, including the abovementioned Turkey – Greece – Italy interconnector, for their impact on the security of supply. In this context, the EU will support infrastructure projects that are in line with the principles of the Energy Union, including those of the EU Energy Security Strategy, as recalled by the European Council in December 2015.

Furthermore, any such project will have to comply fully with the applicable EU law, including on energy, environment, competition and public procurement. The Commission, as well as Member States, will assess it against the regulatory framework.

СЕ: This year, China holds the presidency of the G20. What hopes do you pin on this institution and the presidency in solving key global economic issues? 

Vygaudas Ušackas: The EU is a strong supporter of multilateral cooperation to address common challenges. We believe that the G20 has contributed to strengthen the international financial architecture and to foster sustainable economic growth and development. In the aftermath of the global financial crisis, the G20 played a role in driving forward work between advanced and emerging economies to restore worldwide financial stability and lead the international economic recovery. At present, the G20 can further advance those goals. Large emerging economies have increasing responsibilities to contribute to the definition of global objectives and the implementation of solutions. China, because of its economic prominence, can play a special role internationally while pursuing in parallel its own domestic economic reforms, which have global implications. It is undisputable that China's commitment to multilateral fora, including the G20, is a key element for an effective global governance and cooperation.

Thank you for the interview

Interview made by Sabina Mammadova, Olga Nagiyeva


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