Remarks
by
Samuel Bodman
United States Secretary of
Energy
Roundtable
at the
U.S. Embassy
Kiev,
Ukraine
(BEGIN TEXT)
SECRETARY BODMAN: Ladies and gentlemen, I just would start off with a brief statement. This is the conclusion of a week-long trip to the region. The trip has been presidentially mandated – or translated, President Bush was quite explicit in his direction as to what he wanted done at each stop on the trip. The first visit was in Moscow, which grew out of the Bratislava agreement between President Bush and President Putin. In Moscow, the focus was twofold. First, on the re-invigoration of the commercial energy dialogue. The energy dialogue is the responsibility of Secretary Guiterrez, of the Commerce Department of the United States, and myself, working with our counterparts, Minister Gref and Minister Khristenko of Russia, and is on improving the commercial energy relationships between our countries.
Subsequently I worked on the second part of the Bratislava agreement, which related to the improvement of the cooperation between the United States and Russia on matters related to the securing of nuclear facilities and nuclear materials. There I worked with Director Rumiantsev of RosAtom (Russian Agency for Nuclear Energy) in an effort to continue the dialogue that we have been working on over the past two or three months.
I then moved on to Baku and was involved in the group of dignitaries from around the world who gathered to commemorate the beginning of the operation of the Baku-Tbilisi-Ceyhan pipeline. That pipeline, we believe, will be instrumental in improving the energy security of the countries involved, which are Azerbaijan, Georgia, and Turkey, as well as other countries of the region, including Ukraine. And I believe it will also improve the economic security of the region.
And then, lastly, I've been here in Ukraine over the last two days. And here it was again, a twofold mission. First, to evaluate and provide advice on the improvement of the energy economy of Ukraine, and specifically, following up on a commitment of our president to your president that the energy department offer its services in order to help with the development and creation of a national energy strategy.
Then, secondly, the goal was to work with various members of the government on matters related to nuclear security, and these matters include Chernobyl, and the support our government has provided to this country in dealing with the tragedy of Chernobyl, and continuing efforts to secure nuclear materials that are stored in various reactors and facilities throughout Ukraine.
All of this came about because of the meeting that occurred when President Yushchenko met with President Bush a short while ago in Washington, and delivered an address to a combined session of our Congress. President Yushchenko was extremely well received in Washington, and President Bush wanted a rapid follow-up to various commitments that the two of them discussed.
That completes my preliminary statement, and I'd be happy to take
questions.
QUESTION: Mr. Bodman, you mentioned U.S. assistance in developing the energy strategy of Ukraine. This strategy was being formed for a number of years, the work was close to completion, however, now the government plans some drastic changes to this concept. In particular, there is a plan to dramatically increase the share of nuclear power in this strategy. Do you support this intention?
SECRETARY BODMAN: First let me say that it is my view that many of the fundamental decisions that are part of the energy strategy of this nation or any nation need to be made by the government representing the people of that nation. For example will there be a national energy company? What role should that national energy company play? Should there be multiple national energy companies? Should they be entirely owned by the state or should there be participation by other companies or governments?
What role should nuclear energy play? What about other forms of energy that might be available whether it’s hydropower or solar energy or wind energy or liquefied natural gas, all of the different forms that might be available. Aspects of that seem to me to be a highly – if you will – personal decision that the country should be making on its own.
If in the oil and gas field should there be production-sharing agreements or in what other ways should international energy companies be treated financially if they are going to be involved in developing these resources?
These are some the questions that need to be addressed in developing a national energy strategy. After the strategy is developed, I believe that outsiders such as ourselves can be helpful in advising a country as to how to go about implementing the strategy that they have determined is right for their country.
That’s the general statement. With respect to the nuclear strategy which you mentioned, if that turns out to be a part of the strategy for the country once the strategy is developed and described we would be happy to work with Ukraine in developing that strategy and giving ideas as to how one might go about that based on our own experiences.
With respect to the Odesa-Brody pipeline, that is a subject that I think I can give a short and simple answer on. It really needs to be determined by the market. In the past the decisions about the direction of flow and the utilization of that pipeline have been, to a large degree, political. We need to get rid of that and we need to focus on the marketplace. The government needs to deal with the private sector, with the producers of energy materials, with the potential users in order to make the decision of what is most optimal for Ukraine.
QUESTION: Mr. Secretary, you probably discussed with our leadership the benefits of the market-driven energy sector. Was it mentioned that the government of the United States noticed a diversion from market-based principles in our energy sector, which led to the recent fuel crisis?
SECRETARY BODMAN: Yes.
QUESTION: And my second question, would the U.S. government support the decision of the Ukrainian government should the Ukrainian government decide to create a consortium to manage the Odesa-Brody pipeline as a concession?
SECRETARY BODMAN: Let me give a more complete answer on the first question, which really is related to the role of the free market. We believe in the free market. We believe that it is very important that the free market determine price because eventually that allocates in an optimum way the materials in any economy. I think it has been a problem that we have recognized and both the President and the Prime Minister, as well as other ministers, all seem to agree with that. And my job over time – I take them at their word – and we will be observing and seeing that hopefully that they are doing what they said they are going to do and we will be observing very closely.
I can tell that you in our country we tried price controls on gasoline back in the seventies and it was an extremely painful thing to live through. Instead of certainty we got panic. Instead of clarity we got long waiting lines at gasoline stations and it was a very unsuccessful effort and eventually it was scraped, and I believe that our economic success since that time has been – in part – reflective of our efforts to make free markets the cornerstone of what the U.S. economy relies on.
Now you asked a second question…
QUESTION: My second question was about a potential consortium to manage the Odesa-Brody pipeline. Would you support such a decision and would your country participate in such a consortium?
SECRETARY BODMAN: We would be a happy to provide advice to the government with respect to the idea of a consortium if that’s what the government wants to do, but it is not likely that our government would be a participant in such a thing. Our government does not make investments. We do no conduct operations. Our private sector does. Our job is to help create an environment such that our private sector can be successful. And that involved working toward the rule of law, to transparency in all transactions, to the protection of intellectual property, to the sanctity of contracts and in general the creation of a marketplace that would create confidence not just here locally but around the world. With that then Ukraine becomes an environment that would very attractive for investors to participate in.
QUESTION: From your list of conditions one might conclude that as of today you would not advise your companies to invest in Ukraine.
SECRETARY BODMAN: We do not advise companies. I think it is very important. We work to try to improve conditions such that private companies can find opportunity. The private sector advises us as to what the problems are, what the barriers are, what the issues are, and then we work with the government of the country – whatever the country – in addressing what we view as problems. It is an enormously powerful process: freedom, independence, risk taking. And we get all manner of risk being taken depending on the company, depending on the environment in which each company operates, but the sum total of it all has produced an extraordinary economic record.
I would just conclude by saying that is the strategy we would advocate for Ukraine because it works. It can be painful and at times it can be unpopular. But it has the benefit of a long record of accomplishment. And our president and our administration believe in it passionately and that’s why I came.
QUESTION: My question concerns today’s initiative by the Cabinet of Ministers of Ukraine to split the Ministry of Fuel and Energy of Ukraine into three ministries: a Ministry of Oil and Gas, Ministry of Energy and Ministry of Coal Mining. Do you have an opinion of how efficient such a distribution of responsibilities might be based on U.S. experience where I know the Department of Energy encompasses many more areas of responsibility?
SECRETARY BODMAN: I have not really studied it very carefully. I would just observe that we have worked with countries around the world, some of which have organized themselves in very different ways, some of them along the general lines you have described and some of those economies do very well that are organized exactly in the fashion you described and some of them don’t do well. The focus is not on how it is organized but what the underlying principles are on which the government operates. Does the government believe in the rule of law? Does it believe in an independent judiciary? Does it believe in the sanctity of contracts? Does it believe in a marketplace that will attract the very best in the world that want to come? Or put another way we can work with any organization if we are of a common view of what the goals are.
QUESTION: The first question concerns your meetings with key Ukrainian officials. As far as we know, you have met with the President, the Prime Minister, and Mr. Poroshenko [Secretary of the National Security and Defense Council]. Could you please inform us briefly what your discussions were about and have you reached any specific agreements?
SECRETARY BODMAN: I did meet with those officials, as well as other senior ministers within the government, and, as I mentioned before, the discussions were twofold: on the one side thanking your country for the cooperation that we have received in the past, are receiving today, and hope to receive in the future with respect to nuclear material security. That's been a very important part of the relationship between our countries in the past and it's very important on an ongoing basis.
With respect to the second question, namely, the development of the energy sector – it's really the development of the economy, generally – you heard my views. That's what I expressed to each of the ministers. I did observe that I felt that the country would benefit significantly by increased cooperation and contact with the private sector that is already operating here, so that the President, the Prime Minister, and all of the ministers in the government, would have a much more direct sense of the barriers, as well as the advantages, that are seen by those that are working in the private sector of this country.
We suggested that there could be, or well should be, periodic meetings between the senior ministers and those that are attempting to deal with the dramatic changes that are occurring in the economy today, so that the ministers understand what things are working, and what things are not working as well as they could. The Ambassador has offered to help facilitate such meetings if the ministers should wish to pursue them. I'm sure he will respond if asked. What's your next question?
QUESTION: You have been at the opening of the Baku-Tblisi-Ceyhan pipeline recently, and the Odesa-Brody pipeline would be a competitor to Baku-Tblisi-Ceyhan, and there have also been initiatives from American companies, such as Chevron-Texaco, and Hunt Oil Company, [inaudible], and others, to invest in Odesa-Brody. Would you think that is not corresponding to the benefits of profits the companies might gain? For example, if Baku-Tblisi-Ceyhan is already operating, how would they then invest in the Odesa-Brody pipeline?
SECRETARY BODMAN: First, I don't see them as competitors. I see them as potentially complementary activities. It is to the countries' advantage, to the region's advantage, having multiple ways of moving materials from producers to ultimate users, here, or beyond – presumably in the West, in Europe.
The key issue is on the second part of your question – it relates to the decision-making process with respect to investment. That's really a private sector thing. Our goal, for our own government, and our advice to the government here in Kiev, is to provide an environment such that the private sector can function. They get the benefits; let them take the risk. They make the decisions for where money ought to go. They make the decisions on whether to participate. Our goal is to provide an environment to let them take risk. That's what we do, so that we can encourage them to take risks, if they choose to do so. That's the beauty of the system. Our goal is to allow them to do what they know how to do, and they're very good at doing, and then let them do it. And don't interfere with it.
Some of them will be wildly successful, others will fail. The failures can start over again if they wish. The successes grow, and add additional resources, and they have made, presumably, the right decisions, and they have the right people, and they will grow and create value, jobs, and economic growth beyond your wildest dreams. That's where America came from. That's what we stand for. And we think there's nothing like it.
Thank you all.
(END TEXT)
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