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Annex III. EU-Russia Energy Dialogue Fourth Progress Report

Rome, Italy | 6 íîÿáðÿ 2003 ãîäà

Presented by Russian Vice-Prime Minister Victor Khristenko and European Commission Director-General Francois Lamoureux

Moscow/ Brussels November 2003

This report takes stock of the progress achieved to date in the framework of the EU-Russia Energy Dialogue. This process contributes to the practical development of the Common European Economic Space.

It has been agreed that, in the framework of the Energy Dialogue, the Russian Federation and the European Union shall regularly undertake joint analyses of energy strategies. In the light of the recently approved Russian Energy Strategy to 2020 and the publication of the latest European Energy and Transport Trends to 2030, a Round Table was held in Moscow on 17th October 2003 on Energy Strategies. This brought together representatives of the EU and the Russian Federation, including the European Commission and Russian Federation ministries and agencies, as well as the energy industries of the EU and Russia.

The exchange of views underlined the growing mutual interdependency and interest of pursuing legislative and regulatory approximation, as well as the convergence of technical norms and standards in the energy sector. As a net energy importer, the EU strategy places an important emphasis not only on ensuring secure and stable supplies and promoting more sustainable sources of energy, but also on energy efficiency and energy demand management. Russia’s energy strategy, as a major energy producer and exporter, focuses more substantially on developing and enhancing energy supplies. It is therefore important to develop together a shared analysis and a better understanding of each other’s strategic energy priorities in order to ensure our growing energy integration.

In addition, the evolving legislative frameworks of our respective energy markets call for a further sharing of experience.

For oil, we recognise the necessity of increasing co-operation through the exchange of information on production, consumption, prices and forecasts. It is noted that the European Commission intends to establish, in its services, an observatory for monitoring the oil market, to which Russia could be associated.

While recognising that denominating Russia’s oil and gas exports in Euros is a matter for the individual suppliers and their clients, it would be a clear signal of the deepening relations of the Russia and the European Union in the energy sector.

At the next meeting of the EU-Russian Industrialists Round Table, it is intended that an industry “steering group” of high-level representatives of EU and Russian energy companies will be created. This will foster the deeper involvement of the energy industry. The Energy Dialogue is contributing to improving the investment climate and, in this context, mutual investments into the energy sector will be welcomed.

Building upon the successful co-operation to date, we can also highlight priority areas on which a special emphasis will be given in the near future.

1. Integration of energy markets

Both parties support the objective of gradually integrating the Community and Russian energy markets, including electricity. Such an integration would bring important benefits, in terms of security of supply, business opportunities and competition for both EU and Russian industry.

As regards electricity markets, the significant opportunities for both the Russian Federation and the EU offered by increased market integration was highlighted at a Round Table on Electricity that was hosted by RAO UES in Moscow on 16th October 2003. At this event it was underlined that, in order to bring this matter forward, it is now necessary to make rapid progress with regard to the establishment of a common view on the extent to which current and planned EU and Russian market and environmental rules are equivalent. With respect to the necessary interconnection of the two systems, the Union for the Co-ordination of the Transmission of Electricity (UCTE) and the Integrated Power System/Unified Power System (IPS/UPS) were encouraged in their common efforts to continue all necessary investigations to define under which conditions an interconnection of the two systems could be feasible and operated under stable conditions. The working group should now make rapid progress and submit a report of all relevant issues by mid-2004. Following this, a common strategy on a progressive integration of the European and Russian networks and electricity markets should be developed, including options for a conclusion of a respective Agreement.

Further integration in the gas sector based on agreed regulatory principles as well as long term contracts will permit an increase in the security of supply and create mechanisms for financing important infrastructure projects of common interest. We note further progress towards reaching mutually-acceptable solutions for territorial restriction clauses in some long-term gas supply contracts which take into account the legal interests of Russia and EU, including Community legislation.

The Parties note that long term “take or pay” export contracts have played and will continue to play an important role in ensuring the stable and reliable supplies of Russian natural gas to the EU market. The Russian Party considers that the forthcoming EU enlargement should not affect the existing long-term contracts and should not make conditions for these supplies worse. Consultations on these issues will continue.

Furthermore it is important that Russia participates, on a regular basis, in the meetings of the Florence Forum of electricity regulators and the Madrid European Gas Regulatory Forum. These fora, which consist of the national regulatory authorities, the EU Member States, the European Commission, Transmission System Operators, suppliers and traders, consumers, network users, and gas exchanges, have been established to discuss issues regarding the creation of a true EU internal electricity and gas markets which are not addressed in the market opening Directives.

2. Energy Infrastructure Projects of Common Interest.

We note that the North European Gas Pipeline project is now recognised both as one of the EU priority projects in the framework of the Trans-European Networks and also, at the October 2001 Summit, as an energy infrastructure project of common interest in the framework of the Energy Dialogue. We welcome the EU decision to co-finance a feasibility study of the North Trans-European Gas Pipeline, which will examine in particular its environmental impact.

Further work should be carried out to examine the opportunity of expanding the list of agreed projects of “common interest” to include the enhancement of the existing pipeline infrastructures to carry oil.

3. Trade in nuclear materials

The importance of reaching a mutually acceptable solution to the issue of trade in nuclear materials, in accordance with Article 22 of the PCA and in the context of EU enlargement, has been recognised at recent Summits. The negotiations on this issue should start not later than 1st January 2004 and be completed as soon as possible.

4. Co-operation in the field of nuclear energy.

Nuclear energy policy is an integral part of the EU and Russian energy strategies. Taking into account the importance of ensuring secure nuclear energy, we agree that this sector is an important field for co-operation between the Russian Federation and the European Commission. The agreement on Co-operation in the field of nuclear safety signed between the Russian Federation and EURATOM in October 2001 could serve as one of the basic elements for such collaboration.

Recognising the contribution that has already been made by our existing co-operation in various areas, the Parties have suggested that they should enhance co-operation between the Russian Federation and the European Union in the field of nuclear energy as a whole, including the issues of its development, improvement of security, enhancement of fuel cycle and treatment of radio-active waste, as well as the issues of non-proliferation, accounting and control of nuclear materials.

It is proposed that our nuclear safeguards specialists should meet in the near future and draw up a proposal for a joint programme of co-operation before the end of this year.

5. Arbitral Award Guarantee Fund.

As noted at the October 2001 EU-Russian Federation Summit, the potential and merits of an investment support scheme to mitigate non-commercial risks warranted further examination and technical study. The realisation of such a scheme could have a real impact on investment flows into the Russian energy sector and for this reason a study is now underway by the European Investment Fund, in collaboration with the European Bank for Reconstruction and Development. The results of this study will be available in six months and the possible implementation of the scheme then discussed in the framework of the EU-Russia Partnership and Co-operation Agreement.

6. Safety of the energy transport networks.

Recognising the importance of ensuring high levels of safety for the transportation of hydrocarbons, the Parties will examine the possibility of using a regional satellite monitoring system that could be deployed on the basis of the Russian GLONASS and the future European GALILEO navigational systems.

Both Parties recognise the importance of launching consultations, at a political level, on associating Russia on the above-mentioned issues.

7. Maritime Safety.

It is necessary to ensure the maximum possible environmental safety levels for the transportation of crude oil and oil products. Therefore it is also important to not only address the pipeline network, but also the infrastructure and handling facilities at oil terminals and the resilience of the maritime tankers operating quite often in difficult climatic conditions. The European Party appreciates the constructive comments and active support received from the Russian Federation in response to the EU proposal to accelerate the phasing out of single hull tankers and to ban the transport of heavy oils in single hull tankers in the framework of the International Maritime Organisation. Both Parties have agreed to work closely together in order to agree, in the short run, on measures on maritime safety.

8. Energy Technology Centre.

The main objective of the Centre is to strengthen co-operation between Russia and the EU in the sphere of advanced energy technologies in the sectors of oil, gas, coal, electricity, new and renewable energies, and energy savings. With the purpose of fulfilling this task, the Centre will:

– Promote the necessary conditions for exchange of information about advanced energy technologies and organise and co-ordinate activities which will facilitate contacts between EU and Russian energy sector actors;

– Identify, evaluate, facilitate and assist in promoting concrete, large-scale, technology co-operation projects in the above-mentioned energy sectors,

– To liaise and co-ordinate joint activities with other Russian and EU Energy Centres operating in Russia and the EU, and to promote the creation of a common information space for disseminating energy technologies.

The Parties note that the activities of this Centre will contribute to attracting mutually-beneficial investments into the spheres covered by the Centre.

We welcome the nomination of the co-directors representing the Russian Federation and the European Commission, and note that they are preparing a work programme for our consideration. We also note with satisfaction that the Centre has begun its activities. Round tables on more efficient, coal combustion technologies, with the participation of scientific, business and financial circles, have been held in Novosibirsk, Ekaterinburg and Moscow and a workshop has been held on the use of coal-bed methane in Russia. We also take note of the conference planned for 5-6 February 2004 in Moscow on “Project Opportunities in the Russian Power Generation Sector”.

The Centre has also begun collecting proposals regarding the technology projects of potential mutual benefit.

9. Energy efficiency

For the pilot projects for rational energy use and energy savings for Astrakhan, Archangelsk and Kaliningrad, it is noted that work is now underway to produce the specifications for technical assistance projects that will be financed under the TACIS programme for 2003.

Both Parties suggest that work be undertaken to develop efficient frameworks for reducing energy consumption. Following the strategy set out in the European Commission’s Green Paper on the Security of Energy Supplies, the practical experience of the European Union in preparing legislative proposals to address energy efficiency in the construction and renovation of buildings, as well as in the transport sector and co-generation could be usefully shared with the Russian Federation.

Over the coming months, energy issues related to the transport sector will be examined jointly, in particular the use of alternative energy sources. The use of compressed natural gas in the transportation sector could also be an area of co-operation.

Conclusions

Important progress has been achieved in areas such as the common understanding of energy strategies, the goal of interconnecting the electricity networks, reaching mutually acceptable solutions relating to territorial restriction clauses in certain long-term contracts for natural gas and paving the way for the forthcoming negotiations on the trade in nuclear materials.

The time has come to reflect upon the establishment of an institutionalised relationship between Russia and the EU in the field of energy, which would pave the way for the creation of a real Energy Community.

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