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Outside View: Gazprom, Ukraine price rows

disclaimer: image is for illustration purposes only
by Oleg Mityayev
Moscow (UPI) Mar 19, 2008
A long gas squabble ended with Gazprom's recognition of Ukraine's main demands.

Russian gas monopoly Gazprom announced on March 13 that it came to terms with Ukraine on gas supplies for 2008.

In turn, Gazprom received only minor concessions from Ukraine -- an opportunity to settle accounts for January and February supplies through middlemen who will then leave the scene. Although instead of the promised 50 percent of the Ukrainian gas market imports, Gazprom will receive a mere 15 percent.

What happened on March 13 cannot be explained without recalling the pattern of Russian gas supplies to Ukraine that have existed since 2006. Swiss trader RosUkrEnergo was the monopoly gas supplier (Gazprom and Ukrainian businessmen Dmitry Firtash and Ivan Fursin own its shares 50-50). Since 2007 this trader supplied Ukraine exclusively with Central Asian gas. It received this gas from Gazprom and resold it to its Ukrainian subsidiary UkrGazEnergo (its stock belongs to RosUkrEnergo and Naftogaz of Ukraine in the same proportion) on the Ukrainian border. The state-controlled Naftogaz was the main purchaser of gas from UkrGazEnergo.

Yulia Tymoshenko, who headed the Ukrainian government at the end of the last year, was emphatically against this system and considered the middlemen, RosUkrEnergo and UkrGazEnergo, the root of all evil. Since last November after her cabinet came to power, the objectionable intermediaries stopped receiving money for the supplied fuel from Naftogaz.

Gazprom tried to defend the middlemen. Its officials maintained that because of winter frosts in Central Asia it supplied Ukraine not only with Central Asian gas (for $179.5 per thousand cubic meters) but also with much more expensive Russian gas (for $315 per thousand cubic meters). Therefore, Ukraine's debts for the unpaid fuel grew much faster than Naftogaz thought. Gazprom repeatedly made gas ultimatums to Ukraine in February and early March, but they were quite vague. Last week Gazprom cut gas supplies by half but then resumed full delivery and continued talks with Ukraine.

On Feb. 12 after the meeting of the Russian and Ukrainian presidents, Vladimir Putin and Viktor Yushchenko, there appeared to be hope for a positive resolution of the gas dispute that would take Gazprom's interests into account. Ukraine was supposed to pay its debts, and the intermediaries were to be replaced with two new joint ventures to be set up by Gazprom, the exporter, and Naftogaz, the importer. The state companies were supposed to share the stock 50-50. This would give Gazprom 50 percent of the Ukrainian gas imports market.

But the presidential scheme existed only on paper, and Tymoshenko instantly objected to it. She insisted on direct supplies from Gazprom to Naftogaz.

As a result, some strange proposals emerged on March 13. They largely reflect Tymoshenko's position, disavow the Putin-Yushchenko agreements and contain minor concessions to Gazprom.

It appeared that Gazprom's main goal was to make the adamant Ukrainians pay for the Russian gas supplied last January and February for $315 per thousand cubic meters. It was specified that Ukraine may pay this debt by returning the supplied gas that was kept in storage facilities during this time. Why was this gas supplied at all if it was not meant for consumption but as a reserve? Gazprom gave one more farewell present to its former intermediaries by receiving payment for Central Asian gas supplies in January and February through RosUkrEnergo and UkrGazEnergo.

Now the mysterious middlemen have to leave the scene. Before this year ends, Russia will supply Ukraine with at least 49.8 billion cubic meters of Central Asian gas at a price of $179.5 per thousand cubic meters. It will be bought on the border directly by Naftogaz (it is not yet clear who will sell it -- Gazprom or a new go-between).

Eventually, Gazprom was promised direct access to the Ukrainian gas market. Starting in April, its subsidiary will directly supply Ukraine with 7.5 billion cubic meters of gas per year (or 13 percent to 15 percent of import gas sales on the Ukrainian domestic market).

Incidentally, for the time being the new system of gas supplies also exists only on paper. It has already sparked many questions from Yushchenko's entourage. He asked Tymoshenko and the head of Naftogaz to report to him on what agreements they signed.

A much more important event for Russian-Ukrainian gas relations took place a couple of days before the most recent agreement. Uzbekistan, Kazakhstan and Turkmenistan agreed with Gazprom that starting next year they will charge European prices for gas. By that time, the price will be about $360 per thousand cubic meters. In less than a year, Central Asian gas will no longer be cheap for Ukraine nor for Gazprom itself, for that matter.

The Ukrainians are already considering higher tariffs for gas transit and underground storage facilities.

(Oleg Mityayev is an economic commentator for RIA Novosti. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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Israel slams Swiss-Iranian gas deal as 'unfriendly act'
Jerusalem (AFP) March 19, 2008
Israel on Wednesday slammed Switzerland for signing a deal with Iran's state gas firm, branding the move an "unfriendly act" hampering efforts to halt its arch foe's nuclear programme.

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