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Ukraine: Kyiv Secures Turkmen Gas Supplies For 2006

Presidents Yushchenko and Niyazov in March in Ashgabat On 24 June in Ashgabat, Naftohaz Ukrayiny head Oleksiy Ivchenko signed what he described to journalists in Kyiv as "four historic agreements" with Turkmen President Saparmurat Niyazov.

According to Ivchenko, Niyazov agreed that in the second half of 2005 and the entire 2006 Turkmenistan will supply 48.5 billion cubic meters of gas to Ukraine for $44 per 1,000 cubic meters, down from the $58 per 1,000 cubic meters that Kyiv has had to pay so far. In exchange for the lower price, Kyiv obliged itself to pay for Turkmen gas fully in cash as of 1 July. Under the previous contract that was valid for 2002-06, Ukraine was to obtain 36 billion cubic meters of Turkmen gas annually, paying 50 percent in cash and the other 50 percent in commodities.

Ivchenko's visit to Ashgabat followed what Russian newspapers presented as scathing criticism by Niyazov of Ukraine's failure to pay fully and timely with commodities for Turkmen gas deliveries in 2004-05. "You are fooling us beautifully, while the money is circulating in Ukraine," the 22 June "Kommersant-Daily" quoted Niyazov as saying on Turkmen television, reportedly in a public response to an earlier telephone call from Ukrainian President Viktor Yushchenko. "If you don't have commodities, do not sign commodity agreements. Let's switch to payments in hard currency."

Other Russian newspapers, citing Turkmen sources, reported that Ukraine has accumulated from $560 million to $600 million worth of a commodity debt for Turkmen gas supplies. Niyazov's ire, according to Russian newspapers, was also provoked by the fact that Kyiv reportedly priced its goods shipped to Turkmenistan as payment for Turkmen gas nearly three times as much as was their market value. Therefore, Ivchenko's boast after his return to Kyiv that the new gas contract with Turkmenistan will allow a saving of some $20-$22 on the purchase and transit costs of each 1,000 cubic meters of Turkmen gas in comparison with the previous contract came as a fairly big surprise.

According to Ivchenko, it was Ukraine's initiative to switch to cash payments for Turkmen gas. In addition to the lower gas price negotiated with Niyazov, Ivchenko claimed that Ukraine will also save money on transit of Turkmen gas across Uzbekistan, Kazakhstan, and Russia. "Since we pay 37.5 percent of the [Turkmen-gas] transit cost with gas itself, we will economize an extra sum on the transit," Ivchenko explained on the 1+1 television channel on 26 June. "It is because 37.5 percent of the previous price of $58 [per 1,000 cubic meters] is certainly more than 37.5 percent of the current price of $44 [per 1,000 cubic meters]. Thus, we will economize not just $14 but as much as $20-$22 [on each 1,000 cubic meters of Turkmen gas]."

What's The Real Price?

However, according to the 27 June "Kommersant-Daily," Ivchenko's calculations should not be taken for granted. The Russian newspaper argued that after switching to cash settlements for Turkmen gas, Ukraine will actually have to pay more than before. The newspaper quoted Ukrainian lawmaker Oleksandr Hudyma, a member of the parliamentary Committee for the Fuel and Energy Complex, as saying that under the previous contract, because of overpricing its goods shipped to Turkmenistan as payment for Turkmen gas, Kyiv actually paid $30-$32 per 1,000 cubic meters.

"Kommersant-Daily" did not specify the new real price of Turkmen gas for Ukraine but predicted that the price of gas for Ukrainian corporate consumers could soon be increased from $65 to $90 per 1,000 cubic meters. The increase would reportedly be due to the fact that Ukrainian enterprises are sold exclusively imported gas, while cheaper, domestically extracted gas is provided to individual consumers.

Ivchenko announced that he also signed three other agreements with the Turkmen president: on Ukraine's repayment of a commodity debt for Turkmen gas supplied in the first half of 2005; on a supply of $500 million worth of Ukrainian goods to Turkmenistan in July 2005-December 2006; and on increasing the supply of the so-called "investment" Turkmen gas to Ukraine from the previous 4.5 billion cubic meters to 5 billion cubic meters in 2005 and 6 billion cubic meters in 2006. The "investment" gas, in contrast to the above-mentioned "commercial" gas, is delivered by Turkmenistan in exchange for services of Ukrainian companies in that country, which are provided primarily in road and industrial construction.

Ivchenko announced on 24 June that Niyazov accepted Ukrainian President Yushchenko's invitation to visit Kyiv in September, when both countries are planning to sign a 25-year accord on Turkmen gas supplies to Ukraine. Ivchenko said Niyazov made a statement to the Turkmen press denying the reports in Russian newspapers that last week he slammed Ukraine for "fooling" Turkmenistan in payments for gas. According to Ivchenko, the Russian newspapers utilized pronouncements made by Niyazov "a few years ago." And Ivchenko revealed that Russia did not allow his plane on the way back from Ashgabat to Kyiv to enter its airspace, which was the first such occurrence in the history of Ukrainian official delegations' flights to Turkmenistan. "I think this was connected with the documents we signed today in Turkmenistan," Ivchenko noted.

Warming Up Relations

Some Ukrainian commentators have speculated that Niyazov's apparent goodwill in signing the new gas contract with Ukraine was cunningly cajoled by Yushchenko, who without making much publicity in Ukraine, awarded Atamurat Niyazov, the president's father, with the Yaroslav the Wise Order of the Fifth Degree to mark the 60th anniversary of the victory over Nazi Germany in World War II. "Ukraine honors the combat services of Atamurat Niyazov, whose immortal image personifies the heroism of the 740,000 Turkmen heroes who sacrificed their lives on the battlefields of the Great Patriotic War," Ivchenko reportedly said while presenting the award to the Turkmen president on Yushchenko's behalf in Ashgabat in May.

And on 21 June, reported that Yushchenko congratulated Niyazov on the 13th anniversary of his presidency, paying homage to the "wise policy of Saparmurat Niyazov," thanks to which Turkmenistan "has won great respect and taken a worthy place in the international arena."

Has Yushchenko any such moves in store for the Kremlin? Because Ukraine, which consumes annually some 24 billion cubic meters of Russian gas obtained as payment for transit of Russian gas across Ukraine to Europe, is now facing tough talks with the Russian gas monopoly Gazprom. Gazprom executives announced earlier this month that the price of Russian gas for Ukraine might soar from the current $50 for 1,000 cubic meters to $160 in 2006, in connection with switching to cash payments under European-level tariffs. Ivchenko said that Ukraine, which prices Russian gas transit at $1.09 per 1,000 cubic meters per 100 kilometers, does not intend to revise the current payment arrangements with Gazprom.

See also:

Ukraine, Russia Spar Over Turkmen Gas

Talking Gas In Turkmenistan

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