Commonwealth of Independent States is a community of states which was established with the signing of the Declaration no. 142-N of the Soviet of the Republics of the Supreme Soviet of the USSR by the Russian Federation, Ukraine and Belarus in December, 1991.The dissolution of Soviet Union had significant implications for energy trade in the region.

After the establishment of geographical frontiers five of the countries became net energy exporters while couple of others were highly dependent on other providers for energy. The net exporters discovered that neighboring countries took control of their pipeline access to regional and European markets. After this incident, the governments established an alliance in which they tried to take advantage of the extraction of rents through limiting access to transit pipelines. Meanwhile the lack of connection between Western and world market eliminated the necessity for net exporters to do trade in Western standards and provided them with an opportunity to create their own market. Net exporters, which were used to very low energy prices, had faced with enormous terms of trade shocks.The debt of energy trade payments has risen dramatically, especially in exporting countries, and the difficulty they had while clearing the debt caused a massive external debt problem. Between importing and exporting countries, different payment methods like various forms of barter had surfaced. Cross-border energy trade has become an issue which occurred continuously and that is one of the main reasons which caused disunity in energy trade.

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There is a broad consensus within the international financial institutions (IFIs) on the nature of energy sector problems in the CIS countries and on appropriate reform strategies. By international standards, energy intensity levels in the CIS remain extremely high, notably among the region’s net energy exporters, but also in some energy-deficit countries, such as Belarus and Ukraine. The slow progress towards the efficient usage of energy for both industrial and household, often reflects continued (mostly indirect) subsidization of domestic energy prices and the incomplete restructuring of major state enterprises.Lack of competition resumed state involvement and inappropriate regulation of natural monopolies serve to restrict access to transit pipelines for oil and gas and thereby distort regional energy trade.

This section outlines the extent of state involvement in the energy sector, the monopolistic and vertically integrated system of the oil and gas markets, the transit impediments associated with these market structures, and how these impediments distort and disrupt local energy trade, through discussion of chosen CIS countries.ENERGY TRADE AND TRANSIT PROBLEMSThis subsection describes the disruptions and distortions in regional energy trade associated with discriminatory access to pipelines. Belarus, Russia, and Ukraine are at the center of regional transit activity and reforms to liberalize transit are key to greater regional trade and economic efficiency.

Regional efforts to liberalize access to transit pipelines could help to achieve a cooperative solution that would yield larger long-run benefits than might be achievable solely based on national reform strategies, given the short-run incentives for noncooperative behavior. The importance of ensuring market-based transit of energy to help ensure the development of the region’s rich energy potential was recognized and codified in the Energy Charter Treaty of 1994. Unfortunately, not all countries (including Russia) have ratified the treaty and policies have not always been consistent with the full implementation of the treaty’s provisions


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