Tuesday, February 17, 2009

Sting in Serpent Island tale leads to political strife in Romania

Graham Stack in Kyiv
February 17, 2009

The International Court in The Hague awarded the lion's share of the hydrocarbon-rich north-western Black Sea bloc to Romania over Ukraine in January, leading many to see the decision as poetic justice after the country's gas supplies were cut to nothing during Ukraine's gas row with Russia that month. But Romania's politicians have again showed their mastery of snatching defeat from the jaws of victory.

Maritime border disputes are usually mind-bogglingly arcane affairs. So it was with the decade-old dispute between Romania and Ukraine over what line divides their territories in the north-western corner of the Black Sea. The main bone of contention was an "insular feature" known as Serpent's Island.

Reminiscent of the row over the Caspian Sea's status - is it a "lake" or a "sea"? - the size of the insular feature is key to the wrangling. Ukraine claims that with a length of a few football pitches just off from Romania's Danube delta, the land should be classified as a full-fledged "island," which even has a Potemkin village of "settlers." Romania disagrees: it's a "rock," Bucharest says. The distinction is important, as international borders automatically extend into the sea beyond sovereign territory and islands count, whereas rocks don't.

The row may seem like nit-picking, but with an estimated 70bn cubic meters of natural gas - enough to supply Romania's entire gas needs for five years - and 12m tonnes of oil, a massive amount of money rides on what signpost goes up over this bit of earth in the sea.

The row was given poignancy in January when Romania's gas supplies from Russia, delivered via Ukraine's pipes, fell to almost nothing in the middle of a nasty cold snap. Both countries are now doubly keen to develop any and all gas resources they have on their territory.

The International Court of Justice in The Hague deliberated on the dispute for years but finally reached a decision February 3, awarding four-fifths of the territory to Romania with the rest going to Ukraine. In effect, Romania gets control of 9,730 square kilometres of Black Sea continental shelf.

Ironically the entire rock/island issue turned out to be a red herring. "The ICJ decided that it was not necessary to determine whether Serpent's Island is a rock or an island in order to delimit the maritime boundary," says Martin Pratt of Durham University's International Boundary Research Unit.

Ukraine put a brave face on yet another international setback, while Romania celebrated, with President Traian Basescu calling it a "big success for Romanian foreign policy." Prime Minister Emil Boc immediately promoted the Romanian representative at the ICJ to a senior post in Romania's Ministry of Foreign affairs. And commentators pointed to the poetic justice of the award after Ukraine's spat with Russia had cut off gas supplies in January. The more enthusiastic called it a victory for Western civilization, with the Nato and EU border shifting to its easternmost point.

Sting in the tale

But the Serpent Island victory quickly proved to have a sting in its tail. It transpired that two weeks before the November 30 elections that voted out the government led by Calin Popescu Tariceanu of the National Liberal Party (PNL), a cabinet resolution had granted a production-sharing concession for blocks in the Serpent Island area to Sterling Resources, a little-known Canadian firm. The agreement, some annexes of which were classified secret, had apparently awarded Sterling Resources production rights in addition to existing exploration rights, in the event that the ICJ ruled in Romania's favour.

The government's reaction was immediate, with new Democratic Liberal PM Boc dismissing Bogdan Gabudeanu, the head of the National Agency for Mineral Resources, Romania's natural resource regulator, on the same day.

Romanian investigative reporters quickly claimed murky ties existed between uber-oligarch Dinu Patriciu - head of Romania's largest energy company Rompetrol and regarded as sponsor of Tariceanu's PNL - Sterling Petroleum, other foreign concession holders and sundry officials. Apart from Gabudeanu, attention is focusing on the current environment secretary, former head of the prime minister's chancellery, Doru Badulescu. It was Badulescu and Gabudeanu who signed off on the concession agreement. Question marks also hang over the role of former justice minister Catalin Predoiu.

Of course, with the economic situation for Romania in 2009 looking increasingly grim, PM Boc is keen on blackening the name of his predecessor. For his part, former PM Tariceanu has said he will sue Boc over any corruption allegations made in public.

Sterling Resources says that all relevant ministries signed and approved the resolution. "The Eleventh Amendment took over 20 months to be approved and followed the approving process by the line ministries, as provided by the existing regulations, until final approval by the government on November 12, 2008," the Canada-listed company said in a statement denying all allegations. The company admits, however, that the November 12 agreement "transfers greater control and decision-making to the operator".

Dinu Patriciu for his part also denied the allegations in a Rompetrol statement, and is dismissive of the Black Sea resources as a whole, adding his voice to that of other experts in saying that the potential reserves are over-stated and the costs prohibitive.

Whatever the truth of the affair, it bodes ill for Romania's corruption-dogged relations with the EU, which have led to suspension of billions of euros of structural subsidies. Romanians will be worrying lest their courtroom victory over Ukraine, at least in the short term, costs more EU subsidies than it produces gas and oil revenues.

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