Nord Stream 2 - Frustration At The German Chancellor’s Office [ Interview]

PUBLISHED AT: Friday, 08 January 2016, 16:38
Piotr Maciążek

In his interview for, Ernest Wyciszkiewicz, Vice-Director of the Centre for Polish Russian Dialogue and Understanding, explains why the Polish – Russian “reset” had no impact on increase of the scale of the Russian investments in Poland. The expert explains the relations between both countries within the scope of the energy industry, and the shape of those relations that may be expected to come, throughout the upcoming years. Wyciszkiewicz also wonders whether the Nord Stream 2 issue, along with the issue related to the fact that the Western sanctions imposed on Moscow have not been lifted, are going to have an impact on the economic relations, between Kremlin and Warsaw.

Piotr Maciążek: My first question refers to the Polish-Russian economic relations. We just could have witnessed a reset of the mutual relationship, however it quickly turned out that Sberbank branch is not going to be established in Warsaw (as presence of this bank signifies the Russian involvement in the region – editor’s note). Donald Tusk did not let the Russian capital in. Why?

Ernest Wyciszkiewicz: We perfectly know why this has happened. The quantitatively significant Russian capital is followed by other phenomena, all of which have always been concerning for Poland, regardless of the power relations. Leftist governments were less sensitive in that matter, however it is those governments that also led to a situation in which the Polish market became widely opened for the Russian capital. Not only is this capital burdened with a political risk, but it also carries, briefly speaking, a certain post-Soviet business model, characterized with its lack of transparency, its corruption-provoking cooperation mechanisms, and the advantage of the informal connections, over the legal and institutional solutions. In the light of the above, only the Jamal Gas Pipeline or the Lukoil gas stations exist in Poland. And this is it, when it comes to the large Russian investments in Poland. There is the Cracow seat of the Novatek company...

Which sells LPG in Poland...

Yes. And that’s it, when it comes to the large businesses connected with the Russian elites, penetrating the European markets, which wanted to fill in the Polish “blank space”. If we look at the Russian investments in Europe, Poland may be treated as a desert island. Of course, this was often treated as the symptom of the Polish russophobia, which is the main reason for our lack of willingness to let the Russian businesses grow in Poland. Meanwhile, this was not caused by the anti-Russian sentiment. This lack of willingness and reserved stance was caused by the awareness of the fact that the aforementioned phenomena, we do not want on the Polish market, could penetrate the borders. As we can see, observing the reaction of the Visegrad states, towards the annexation of the Crimean peninsula, this kind of investment is a long-term measure that allows the Kremlin to acquire the political dividend. The real political consequences, of increased presence of the Russian capital within the given market, are becoming more pronounced during the political crises.

So, here we are referring to acquisition of political peace, paid for with the investment?

Not necessarily peace, rather a favourable stance, should a need arise. Here, we do not mean the direct influence on the given government, we mean increase of the internal political costs that could arise, should the relationship with Russia be worsened. In such circumstances, the social groups, or political groups threatened with potential losses will, without any doubt, be driven towards limitation of the losses, realized through mitigation of the rhetoric and avoidance of conflicts. Thus – being aware of it or not – it is an issue to be discussed. The Polish government managed to maintain the immune system, protecting the Polish market from the specific business practices, in a quite good condition, which would also protect Poland from potential political consequences.

Within the above-mentioned period, President Bronisław Komorowski provided the Russians with a list of potential companies, which could become a target for investment. The available information suggests that the interest was close to zero. Is it not that the Russians are only interested in investment related to the strategic areas, such as the energy industry?

The Russians are, above all, interested in the areas that bear some political, not necessarily strategic, potential. When it comes to the Polish investment on the Russian market, we may list the contracts signed by Pesa or the Rovese Group – private entities that get involved in the non-controversial market areas. On the other hand, the Russian actions are being executed by state entities, or by entities that are closely tied to the government which, obviously, not only do want to gain profit financially, but they are also making the political estimates of their actions. Not always are the actions intended to achieve quick results, however they may be considered to be an all-in game, allowing the player to actively control some issues. The attempt at taking over the Polish chemical industry, on one hand could have been considered as an investment in the important, but not strategic fertilizers manufacturing segment, while on the other it could have been interpreted as an investment in expansion of the political influence potential, since Grupa Azoty is the main gas consumer in Poland. Hence, the Russians wanted to – indirectly – realize their gas strategy, and gain more impact within the Polish market.

And in the new reality formed by the Law and Justice party, what the shape of the economic reality involving the Russians is going to be?

When it comes to the trade cooperation, Russia is the active party, realizing its sanctions programme, targeted against the European Union. It is the Russians that form the shape of the relationship with Poland, not the other way round. Sanctions have shown an interesting thing though. They have made it possible to consolidate the persons around Putin, and their strong stance against the West, however the fact that the counter-sanctions were related to the food industry shows that their goal was also to inflict a certain amount of pressure on Poland. Poland which, at the time, was going through the election.

Poland is second largest exporter of food and agricultural products, right after Germany...

Indeed. The Russians thought that if they get rid of the Polish companies, then pressure would be created during the electoral campaign. However, they have been astounded with the situation, since some signals emerged on the part of the PSL (Polish People's Party) in order to implement more constructive foreign policy in the Polish-Russian relations, however these signals were marginalized quite quickly.

In general terms, the Russians are aware of their connections with the economies of the European Union, they also know that trade- or energy-wise, Asian pivot would be ineffective. Poland is not a very important player for the Russians, however things turn out to be different, when it comes to the European market. If we look at the Russian investment within the EU, implemented even despite the sanctions, as attempts are made to penetrate the Western markets, looking for non-sanctioned areas, we may come to a conclusion that Moscow is aware of the fact that the European Union shall be treated as the primary area to generate profit, being more important that China or Asia, in a broader meaning of the term. Poland is not as important piece of the puzzle, however its position in the European Union may be considered to be of high value. The Warsaw’s ability to influence the European Community. Coming back to the bilateral economic relations, the Russians are going to use the carrot and stick approach in a continuous manner against Poland.

Stolypin’s method...

Yes. Russian methodology is quite primitive.

Yet, effective...

Sometimes yes, sometimes – not at all. In a short term these methods seem to be effective, since they generate costs for the partner, but in a longer run they turn out to be ineffective, which is proven by the way in which the Polish economy and the agricultural sector faced the challenge posed by the Russian sanctions.

When it comes to the economic relations, should Poland be fighting in order to maintain the sanctions against Russia?

Of course. Not only are the sanctions related to the economy, as they are rather referring to the foundations. In fact, the sanctions are the only practical effect of consolidation of the West, seen in the recent period. This is a situation which would not be even considered two years ago.

Putin was surprised...

Indeed, he was, he was astounded. He was shocked by a joint stance taken by Obama and Merkel. Putin thought that Snowden and the surveillance revelations created distrust in the US – German relations, however this was an overestimation. We must remember the context though. Had it not been for downing of the MH17, I am not sure whether implementation of the sanctions would be possible. This is the moment which became a tipping point, changing the political calculations of at least some of the Western-European governments.

Are there any chances that these sanctions are going to be maintained, kept in force?

So far – yes. However we may face some trouble, we have created ourselves. By determining the sanction deadlines, we must discuss this issue each 6 months. For some countries this creates a pretext for limiting the sanctions.

This has been done on purpose...

I am under the impression that some bureaucratic chaos was present in that area in the beginning. The hope that sanctions are just an episode, that Russia will change its stance. Today, indeed, it is a problem, since the conditions for lifting the sanctions remain unclear. The fact that they are based on “Minsk 2”, unenforceable, complex memorandum, only complicates the issue. Thus the Germans try to propose gradual lifting of the sanctions, in exchange for gradual steps back taken by Moscow.

Sanctions are effective. For example in the crude oil sector?

If we want to measure the impact of sanctions, then we may face some trouble. There are no tools that would allow us to determine, how much money is being lost by Russia. For sure, the structural problems faced by the Russian economy, emerging after the 2008 crisis, are getting deeper. The growth after the first crisis was not as spectacular as the one we could have witnessed at the threshold of the Putin-era. There also is a synergy, between the sanctions and the drop of the crude oil prices. Had it not been for a coincidence of all of the above factors, the trouble faced by Russia would not be so significant. The restrictions are an important element of the circumstances that choke the Russian economy today.

So, coming back to the Polish-Russian cooperation. What is going to happen, once Poland starts buying Saudi or Iranian crude oil?

Getting away from gas or oil supplies that are so close geographically has no sense. However, creating conditions for diversification is an optimal solution. This forces the Russians to take a market approach. They are going to publicly prove that the Polish investments, such as the gas terminal, are missing the point. At the same time, we cannot rule out a situation in which the Russians would offer better contract conditions. Diversification of the supplies is always beneficial, it is a principal rule business, both when it comes to the oil or gas, as well as in case of the apples – as the Polish farmers could have found out (once the sanctions on Russia, and the counter-sanctions, concerning the import of the Polish apples, were imposededitor’s note). In my opinion, the Russians have made a fundamental mistake, since through the gas-wars with Ukraine they have generated a diversification impulse in Europe. Putin became the founding father, in some sense, of the European energy policy, and of the Polish steps taken within the scope of diversification. Paradoxically speaking, the more energy-related tensions are caused by the Russians, the more beneficial our situation becomes, since the created atmosphere provokes investments that would, in a long term, enhance the safety of the supplies. Despite the investments, such as the Nord Stream 2 pipeline, there is a common perception in Europe that making business in Russia became more risky.

It is said that Poland is not very significant in the eyes of Moscow. On the other hand, the Eastern Partnership, or the Energy Union prove that the situation is different. So what is the truth? Is Poland important for the Russians or not?

This is very peculiar of the Russians, that they do not treat any players seriously, besides Germany, France or the US. However, this is just the media image. If we look at the quantity of crude oil bought by Poland from the Russians, we come to a conclusion that we are very significant. The sole fact that Poland is an EU member state raises the Poland’s significance. Hence the need of using the cliché, according to which Poland is a russophobe – this leads to diminished relevance of our country in Europe. Some time ago, this strategy was quite effective, nonetheless, nowadays this move is less significant, since the Western countries have been able to perceive Russia in the light of the annexation of the Crimean Peninsula. Poland is significant for the Russians as a spoiler, a factor which acts against the Russian actions in Europe. Thus, Warsaw is more important than we think, as it is also proven by the Russian steps taken against the Eastern Partnership. Moscow began to present this initiative as a geopolitical one, leading to the convoluted situation in Ukraine.

You are saying that we are far more important than we think. Is the Polish potential large enough to prevent Berlin and Moscow from building the Nord Stream 2 pipeline?

Individually – no.

Theoretically, a letter has been sent to the European Commission, signed, besides Poland, by the Central European states, but no significant players are placed on the list...

We have been able to create a certain amount political pressure, however it is not as significant as we would like it to be, as no important players took our side, however this pressure is important, since its hows that there is a group of countries which assesses the Nord Stream 2 initiative negatively. It is also worth remembering that in Germany a large conflict exists, pertaining the justification of the investment. There are some voices suggesting that the project, politically, creates more damage than benefits. In fact, almost everything is dependent on the European Commission. However, the commission cannot prevent the investment as such.

However, a set of legal limitations may be imposed. Nonetheless, many persons who are dealing with the Nord Stream 2 problems suggest that counting on the legal measures would become a cul-de-sac. The German companies have shown involvement in that project, being fully aware of the threats, applying a ready bundle of risk-reducing bundles.

Well, one cannot rule it out... Nonetheless, the Germans were surprised with the blockade of using the OPAL pipe (being a land section of Nord Stream – editor's note). Some German officials with whom I have talked considered the fact that OPAL capacity was limited by the Commission, to be a scandal motivated by the politics. As this example shows, should such intention exist, the Nord Stream 2 initiative may be at least significantly hampered by the European Commission.

And if the Germans create a gas pumping facility for the Nord Stream 2 pipeline in the sea, avoiding the legal consequences imposed by the European Union energy law? Since some pipes will be connected to that pumping station, and each of those pipes would be managed by a different German company...

The Commission is unable to block the project on its own. However, there is no consensus among the German elites, when it comes to Nord Stream 2. Here, we have to deal with a reciprocal transaction. Merkel’s position is weakened by the migrant crisis, we cannot rule out a situation in which her statement referring to Nord Stream as a “business, not political initiative” is a kind of a tribute. On the other hand, we must take Sigmar Gabriel into account, who is a significant proponent of Nord Stream 2. In my opinion, the level of frustration at the Chancellor’s office is high, when it comes to the Nord Stream 2 initiative. The project cannot be stopped with a political decision made by Berlin, since no “Manual” control is yielded over the economy in Germany, contrary to Russia. Some elites hope that the European Commission will take some steps against the investment, raising the risks and costs. One should remember that even if the Nord Stream 2 project is not realized, the Russians will still remain influential in Germany thanks to the transaction between Gazprom and BASF, in which the Russian company took over significant storage and trade assets in Germany. This transaction may be even more important than the pipeline, which is still hypothetical. Obviously, connecting the new infrastructure with the pipeline would be an optimal solution, however, it is not a condition which must be met, from the Russian point of view. 

See also: Not only is Nord Stream 2 detrimental energetically, but, above all, it is detrimental geopolitically [Interview]

Piotr Maciążek
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