Russia is having a good run in Eastern Europe.
Vladimir Putin, the Russian president, clinched a major energy deal with Viktor Orbán, the Hungarian conservative prime minister, who visited Moscow two weeks ago. The Russian state atomic energy corporation Rosatom agreed to help build a nuclear power plant in Paks, Hungary. It will also provide €10 billion ($13.7 billion) in loans.
In Poland, Italian energy company ENI announced that it was abandoning attempts to extract shale gas. North American firms ExxonMobil, Marathon Oil, and Talisman Energy already pulled out several months ago.
Meanwhile, U.S. energy company Chevron decided to quit neighboring Lithuania even though it had won a tender to explore shale gas in the Baltic state.
And in Ukraine, Putin persuaded President Viktor Yanukovych not to sign an association agreement with the EU by promising to reduce the price of Russian energy supplies to Ukraine by a third and providing loans amounting to €10.9 billion ($15 billion).
All four cases have one thing in common: the absence of a coherent, strategic EU policy on energy security in Eastern Europe. Despite EU attempts to promote energy security through diversifying sources and building storage facilities and interconnectors, Eastern Europe is still hampered by unclear legislation and political differences vis-à-vis Russia.
Orbán’s decision to depend on Russia for loans and for building the Paks nuclear power plant is a major turnaround for his right-wing Fidesz party, which has an overwhelming majority in the Hungarian parliament. When he was leader of the opposition, Orbán roundly criticized the then governing (former Communist) Socialists for being too pro-Russian. He accused them of striking energy deals such as Russian energy giant Gazprom’s South Stream project through the Black Sea that would only prolong Hungary’s dependence on Russia energy imports.
Now Orbán is doing the same. The Hungarian government, which has had plenty of run-ins with the EU over media restrictions and curbing the independence of the national bank, has turned to Russia for assistance in the financial and energy sectors. Orbán has also come out in support of South Stream, which would transport Russian natural gas to Bulgaria and—via Hungary—Italy and Austria.
It is no wonder that he won praise in the Russian media. “Hungary recovers from fuzzy European dreams,” was how the Russian newspaper Pravda described the deal.
“After the collapse of the USSR, Eastern bloc countries relied only on Euro-Atlantic integration processes, and finally, there is some return movement to Russia,” one analyst told Pravda. “This has to do with the policy of the European Union rather than the pressure from Russia.”
What is happening in Poland and Lithuania is a different matter. In 2011, foreign energy companies went to Poland believing that they would be able to make money by extracting shale gas, while diversifying Poland’s energy supplies.
That enthusiasm has given way to disappointment. According to Poland’s supreme audit office, that is largely due to bureaucracy and an unclear legal framework. In a report published this month, the audit office stated that it takes an average of one hundred thirty days to secure a license for drilling; normally it should take thirty days.
“The slow pace of operations stems not only from the changing economic and financial situation but also from improper government action,” the report added. Maciej Grabowski, Poland’s recently appointed environment minister, has pledged to deal with those problems.
In Lithuania, Chevron said it was giving up on a shale gas tender because of legislative changes that made exploration less attractive—changes that were introduced after the company had bidden for the exploration rights. Lithuania’s former prime minister Andrius Kubilius said Chevron’s pullout was “a triumph” for Russia’s state-owned gas company Gazprom.
He is right. Gazprom is doing very well in maintaining its grip over parts of Eastern Europe. It benefits hugely from the lack of a friendly investment climate, a plethora of old Russian business ties, and, in the case of Hungary, a political shift toward the Kremlin. Furthermore, the cancellation of the EU’s Nabucco project, which was supposed to bring Central Asian gas to Romania, Hungary, and Slovakia, hasn’t helped diversification—but was much to Gazprom’s delight.
Yet the countries in the region, and the EU, can still act to weaken Russia’s hold.
The European Commission is in the thick of an investigation into Gazprom’s pricing policies in the Baltic states. Separately, work has also begun on Azerbaijan’s Southern Gas Corridor, which will bring gas via Georgia and Turkey to the Balkans. Once completed, the 1,250-mile pipeline will supply gas to Bulgaria, Montenegro, Bosnia and Herzegovina, Croatia, and Albania. It will mean that this region will become far less dependent on Russian gas.
That poses a big challenge to Gazprom. With competition from the Southern Gas Corridor, Russia will have to weigh up the costs of building South Stream. What is more, the European Commission said last month that the South Stream project was in breach of EU antimonopoly legislation.
This is important, as it shows that the EU is trying to reshape Eastern Europe’s energy policies. The countries in the region now have to make their legislation far more attractive to Western investors and break out of their energy dependence on Russia.