Vladimir Putin, President of the Russian Federation

Benita Ferrero-Waldner, European Commissioner for External Relations and the European Neighbourhood and Partnership Policy

One of the major results of the EU-Russia Summit held in October 2000 in Paris was a decision to establish an Energy Dialogue to provide a wide and stable partnership between the EU and Russia and to enhance the reliability of energy supplies both in the EU and Russia. Subsequent EU-Russia Summits have established important guidelines for the practical implementation of the strategic partnership between the EU and Russia by increasing interaction in the Energy Dialogue.

The aim of the Dialogue is to develop a long-term energy partnership between the EU and Russia as part of the Partnership and Cooperation Agreement. The Dialogue is focused on oil and natural gas, energy efficiency, cooperation in the interconnection of the European Union and Russia’s electricity grids, trade and enhancing the safe use of nuclear materials.

Why the Dialogue?

Russia is a major supplier of energy products to the European Union (EU) market and the EU as a major consumer of energy. The European Union Member States remain Russia’s largest importers of energy resources. Russia’s oil and gas deliveries represent around a quarter of the EU's oil and gas consumption and there is a potential for growth in volume. Furthermore, around a quarter of EU’s coal imports and close to a fifth of uranium delivered to EU utilities come from Russia. The EU-Russia energy partnership is of major importance as the demand for energy resources in Russia and the EU is increasing while hydrocarbon production is decreasing in the EU. Although the EU and Russia are diversifying their energy deliveries, the share of Russian hydrocarbons and conversion products at the EU market will remain high in consideration of the geographical proximity of Russia and the EU Member States, existing energy transport infrastructure and traditionally successful energy cooperation implemented since the 1960’s.

The strategic partnership between Russia and the EU in the energy sector is aimed at providing reliability, security and predictability in the medium to long term. The partnership represents an important component in the stable mutual relations. Both Russia and the EU have a mutual interest in developing this partnership and maintaining a close cooperation with a continuous Dialogue. The EU-Russia Energy Dialogue is aimed at increasing the level of confidence and transparency in the interrelations between Russia and the EU in the energy sector, including an exchange of information on energy policies of both sides, on the development of legislation and regulatory and legal framework. Therefore, Russia and the EU are objectively interested in strengthening the mutually beneficial cooperation in energy as the main objective of the Energy Dialogue.

The energy sector in Russia represents a major opportunity both for investment and revenue creation. However, an ageing energy infrastructure, and increasing demands for hydrocarbons are placing a heavy strain on Russian production. The ongoing global financial and economic crisis also has an impact on the energy sector and combating its effects must be a priority.

Common goals, interests and objectives

Russia and the EU both seek to ensure stable energy markets, to secure reliable exports and imports at increased volumes, and recognise a pressing need to modernise the Russian energy sector. Both wish to see improved energy efficiency and a reduction in greenhouse gas emissions from energy production and use in their respective economies. The overall objective of the Energy Dialogue is to enhance the energy security of the European continent by binding Russia and the EU into a closer interrelationship in all issues of mutual concern in the energy sector.

Against this background, the EU-Russia Energy Dialogue has identified a number of common and complementary interests for which concrete actions for the short and medium-term are implemented.

These areas include:

• Ensuring reliable energy supplies in the short and long-term future;
• Increasing energy efficiency;
• Securing long term investment;
• Opening up energy markets;
• Diversifying the range of imports and exports of energy products;
• Enhancing the technological base of the energy sector of the economy;
• Developing the legal basis for energy production and transport;
• Ensuring the physical security of transport networks;
• Alleviating the impacts of the economic and financial crisis on the energy sector.

The Dialogue also has an environmental aspect as it aims to reduce the impact energy infrastructure causes on the environment, to encourage the ongoing opening of energy markets, to facilitate the market penetration of more environmentally friendly technologies and energy resources, and to promote energy efficiency and energy saving.

The Early Warning Mechanism

The Early Warning Mechanism is a rather new element of the EU-Russia Energy Dialogue. Russia and the EU agreed to establish the Mechanism at the EU-Russia Summit in May 2007 in Samara and confirmed this agreement at the EU-Russia Summit in October 2007 in Mafra. The importance of further developing the Early Warning Mechanism was last reconfirmed in the EU-Russia Summit in May 2009 in Khabarovsk.

Sustainable development in the Russian energy sector requires investment

For the success of the Energy Dialogue, it is essential to establish the conditions necessary to encourage investment and technology transfers in Russia’s energy sector, including in production, transportation, and consumption. The scale of investment required in Russia’s energy sector is considerable. According to Russia’s Energy Strategy until 2030, up to 1,8 trillion euro in investment will be needed to renew ageing capital stock and maintain production at forecast levels. These investments are planned to come mainly from the private sector, including direct foreign investments. To attract investment, both from the EU and from the domestic market, Russia needs to increase the predictability and transparency of its business and investment climate.

The Dialogue supports policy reforms in the Russian energy sector

The Dialogue is conducted with a medium to long-term perspective. It is a dialogue between two parties who will benefit equally from its success.

For the EU, the long-term security of energy supplies is a major concern. It is important to agree on a set of realistic and mutually beneficial commitments with Russia that will facilitate EU-Russia energy cooperation and to identify concrete steps to rapidly improve the investment climate. For these reasons, the Dialogue supports policy reform in the Russian energy sector.

For Russia, it is important to attract investment to maintain and increase its oil and gas production, to rehabilitate and upgrade its energy infrastructure and to use knowledge and technology transfers as a means of enhancing economic growth. Variables in these processes are quality, the timing and implementation of policy reforms; the deregulation of monopolies; the freeing up of energy tariffs; access to networks; investment protection; and transit issues.

The Dialogue in practice

The European Commissioner for Energy leads the Dialogue on the EU side and the Energy Minister of the Russian Federation is his Russian counterpart. The Dialogue is managed through the institutions set up by the Partnership and Cooperation Agreement.

After having studied particular questions of energy strategies and balances, investment, technology transfer, energy infrastructure, and energy efficiency and the related environmental dimension during the initial, exploratory phase of the Dialogue, three thematic groups of EU and Russian experts are currently operational working in the following key areas of mutual interest:

• Energy strategies, forecasts and scenarios,
• Energy market developments, and
• Energy efficiency.

Representatives from the Russian Government, EU Member States, the European Commission, energy institutes and academic circles, international financial institutions, such as European Bank for Restructuring and Development (EBRD) and European Investment Bank (EIB), as well as Russian and EU businesses take part in the work of the thematic groups.

Projects

A number of cooperation projects within the scope of the Energy Dialogue have been financed through the EU-Russia Cooperation Programmes (e.g. TACIS):

In addition to the aforementioned projects, the Energy Dialogue is supported through a number of smaller projects focused on single policy issues of mutual interest, such as the impact of the economic crisis on the energy sector and best practices in promoting energy efficiency.

Russian and EU experts are also already currently studying the feasibility of the interconnection of EU and Russian electricity grids.

Nuclear safety

Russia is involved in all aspects of nuclear power. Nuclear energy is an important source of electricity and the civil nuclear industry is also a major source of employment. Russia continues to build new reactors and has a policy of prolonging of the life span of its first-generation reactor capacity and provides nuclear fuel to many reactors in the EU.

EU cooperation programmes in the nuclear field have been working on a number of priorities:

• The promotion of an effective nuclear safety culture;
• The development and implementation of strategies for dealing with spent fuel, decommissioning and managing nuclear waste;
• Contributions to international initiatives such as the G8/EU initiative on the closure of Chernobyl;
• Strengthen the role of the national nuclear safety authorities to encourage improved licensing procedures and to ensure regulatory involvement in all relevant nuclear activities;
• Link Russian nuclear power plants’ on-site assistance with EU operators;
• Promote projects in support of nuclear safety;
• Support regulatory work and safety analyses;
• Improve spent fuel and radioactive waste management and encourage the timely preparation of decommissioning;
• Promote the training of inspectors and plant operators, accountability for nuclear material and the implementation of measures at plant level to prevent illicit trafficking.

The Energy Charter

The Energy Charter Treaty was signed in December 1994 and entered into legal force in April 1998. To date, it has been signed by 50 states, including all EU Member States as individual signatories. The EU and Euratom have also collectively signed the Treaty. It is a legally binding multilateral instrument dealing specifically with intergovernmental cooperation in the energy sector based on market economy and non-discrimination.

Russia signed the Energy Charter Treaty in 1994 but notified the Energy Charter Secretariat in August 2009 that it did not intend to become a contracting party of the Treaty and to the Protocol on Energy Efficiency and Related Environmental Aspects. This notification of withdrawal took effect 60 days after reception or, in other words, on 18 October 2009. Having said that, Russia agrees with many of the Treaty’s key points and has confirmed its appreciation of the Energy Charter Treaty achievements.

The European Commission continues to believe that the Energy Charter is a valuable instrument regulating multilateral energy relations. Both Russia and the EU have an interest in basing our energy relations on a sound legal footing. EU leaders and Russia have reiterated their conviction that energy cooperation should be based on principles of predictability and the mutual dependence of supply and demand, transparency, the rule of law, reciprocity and non-discrimination along with market opening and market access. The G8 Summit in Saint-Petersburg in 2006 clearly indicated Russia’s commitment to these principles.

New Agreement replacing the 1994 Partnership Agreement

In accordance with the agreements reached at the EU-Russia Summit held in June 2008 in Khanty-Mansiysk, negotiations towards a new EU-Russia Agreement have been started with the aim to replace the current Agreement on Partnership and Cooperation between Russia and the EU.

Both Russia and the EU consider the need to reflect the principles agreed upon at the G8 Summit in 2006 in Saint-Petersburg in the future new Agreement between Russia and the EU Member States.

Issues relating to demand, supply, transportation and transit reliability, investment, energy efficiency, Early Warning Mechanism and nuclear power could also be reflected in the energy section of the future new Agreement.

The way forward

Among the most important issues for the EU is the need for Russia to continue economic reforms in the energy sector. The European Union is ready to cooperate with Russia in further developing a number of basic market principles in the energy sector, such as: an energy efficiency and saving policy, investment facilitation and protection, the right of access to energy transport infrastructure, network operators’ independence from the natural monopoly producers, sector regulation, and reform of monopolies.

In the coming years, Europe will be more dependent on imports as its reserves of fossil fuels are depleting. The infrastructure needs to be improved. To respond to these challenges, EU leaders have agreed on the objectives of an energy policy for Europe: the security of energy supplies, competitiveness, and environmental sustainability, including a substantial increase in renewable energy sources and energy efficiency, all of which also form priority targets of cooperation with the Russian Federation.

The Energy Dialogue remains one of the most important aspects of cooperation between Russia and the EU. Its current structure ensures the close involvement of EU Member States, the European energy industry and international financial institutions. Thematic working groups bring together more than 100 European and Russian experts from the private and academic sectors and the administrations to discuss investments, infrastructures, trade and energy efficiency issues and to prepare further proposals for the Energy Dialogue.

These experts have underlined the importance of working on the convergence of regulatory frameworks in the EU and Russia, on the continued development of an attractive, stable and predictable investment climate that allows an active role for foreign investors, on the oil and gas transportation infrastructure projects and the integration of electricity markets.

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