How Germany got the baltic sea pipeline – and with worse consequences as we watch it

The pipeline issue has somehow been around for 2+ years by now but never really provoked a serious debate in Germany. It is one these strategic industry projects that receives the highest diplomatic and political blessings and no one really questions the economics behind it anymore. I have already expressed my doubts about the economic fundamentals behind the pipeline in a previous article. But the more I follow the issue, the more I wonder why neither business nor politics starts a serious re-think before it is too late.

Speaking to a German MP lately it turned out that parliament (Bundestag) had not been involved in the project launch at all. – After the private and surprising Putin-Schröder deal in early September 2005, the official go-ahead was a mere cabinet approval in the last days of the red-green coalition. The election campaign on “more important” domestic issues overshadowed a deeper look into the pipeline issue both for media and politicians. Government protagonists (including Green environment minister Trittin) were hailing the pipeline’s merits in terms of diversifying Germany’s gas supply. But no one questioned its fundamentals.

The German owners (BASF, E.ON) are blind to their business risk
BASFeon On the hand you could expect the owners of this business project to make their business case before investment. But maybe more is involved at this pipeline project. Gazprom has always been a political instrument of the Kremlin. – It still sets prices at political rates (both for export and domestic consumption). But what is it that drives BASF and E.ON to further step up a project that might eventually be their biggest investment grave if the close-to-certain supply shortages of Gazprom become reality after 2010? Do they not see that their energy undertakings will turn into the cheap take-over targets of Gazprom?

Sometimes we look with arrogant pride over to the US and their sometimes disfunctional system of democratic control. Deployment of troops, judges and ambassors promoted outside Congress session by presidential order are not what we German democrats consider good parliamentary democracy. However, during election campaign and governmenet formation, we leave at least 3 months in the hands and good-trust of our (outgoing) chancellor. The baltic sea pipeline project will bear the highest costs for our energy supply, the relations to our neighbours and eventually the ownership of two key companies of this country. But leaving economic policy in the hands of materialistic politicians has never been a good idea. Will we learn from this?

Strategies to minimise damage

As we can and should not be sure that this pipeline is ever built – and filled with gas, we should not start to build projects depending on this source. The planned construction of a mega gas power plant of 1000 megawatt production in Lubmin should be halted. Secondly, Gazprom should provide clear, binding and enforcable commitments for its gas supply after 2010. These should include the safe supply of all EU members and our neighbours. Until these are provided and cross-checked with independent experts from the IEA, further subsidies from national or EU level need to be halted. Thirdly, Germany should bind its further support on Russia’s engagement for an agreement on a revised Energy Charter Treaty (ECT) includign all transit countries from source (central Asia) and into the EU (via e.g. Ukraine). Fourthly, a political conference involving a) all neighbouring countries of the pipeline and b) gas recipients (DK, F, UK, NL) should be organised to put everyone’s cards on the table and end the distrust and blame-game.

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