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Ukraine: Terms Of New Gas Deal Unclear

Many in Ukraine believe Moscow is using gas prices as a weapon (ITAR-TASS) Officials in Kyiv announced on 2 February the finalization of a gas deal from January, under which Ukraine is now to receive gas from Russia at $95 per 1,000 cubic meters. According to Kyiv, the price of $95 is to remain unchanged for five years. However, RosUkrEnergo, a Swiss-based company that was made the monopolist of gas supplies to Ukraine, signals that this is not quite so. Does this mean that the Russian-Ukrainian gas war has not yet ended?

On 2 February, Naftohaz Ukrayiny, Ukraine's gas transportation company, signed an accord with the Swiss-based gas trader RosUkrEnergo in Kyiv on the creation of a joint venture to sell gas in Ukraine. Both companies were obliged to do so by a framework gas agreement of 4 January, under which RosUkrEnergo became the monopolist of gas supplies to Ukraine for the next five years.

Ukrainian Prime Minister Yuriy Yekhanurov praised the five-year accord as advantageous for Ukraine. But he told journalists that he is also fully aware that the document may be bitterly criticized by his political opponents: "My future political career is not important here. It is important that it will be warm in your apartments tomorrow. In summer you may curse me to your souls' content. But in winter you may find a good word for me."

January Deal

On 4 January, Naftohaz Ukrayiny, RosUkrEnergo, and Gazprom signed a deal whereby Ukraine is to obtain 34 billion cubic meters of gas in 2006 from Russia for $95 per 1,000 cubic meters -- up from $50 in previous years. The deal also provided for the creation of a joint venture between Naftohaz Ukrayiny and RosUkrEnergo to sell gas in Ukraine and share profits from it.

Critics of the deal said it was valid for only the first six months of the year as regards the gas price for Ukraine, simultaneously pointing out that it set the gas transit tariff for Gazprom for five years. Such critics also slammed the government for making RosUkrEnergo -- a murky intermediary created by Gazprom -- the monopolist responsible for gas supplies to Ukraine.

On 10 January, Ukraine's parliament, the Verkhovna Rada, passed a no-confidence motion in Yekhanurov's cabinet over the gas deal. Yekhanurov and his ministers, however, have remained in office due to a constitutional reform that took effect on 1 January and effectively prevents the current legislature from appointing a new cabinet.

The joint venture created on 2 February, named UkrGazEnergo, has a charter capital of 5 million hryvnyas ($1 million) with stakes shared evenly between its founders. The same day UkrGazEnergo and RosUkrEnergo signed a contract under which Ukraine is to obtain 34 billion cubic meters of gas in 2006 and some 60 billion cubic meters annually in 2007-2010.

Naftohaz Ukrayiny spokesman Eduard Zanyuk told journalists in Kyiv on 2 February that neither gas storage facilities nor gas pipelines in Ukraine will be included in UkrGazEnergo's charter capital. Zanyuk was thus addressing the common fears in Ukraine that Moscow is using gas price as a weapon to gain control over Ukraine's gas transportation network.

Disagreement Over Five-Year Term

In a no less important statement Zanyuk announced that the new gas price for Ukraine will remain stable for five years: "Responding to questions from skeptics in Ukrainian political circles, we announce that the gas price defined in this contract is fixed for five years and is $95 for 1,000 cubic meters."

If this is really so, then the new contract represents a major victory for Kyiv, which had initially been promised the price of $95 per 1,000 cubic meters just for the first half of 2006. The victory seems to be even more significant if one takes into account that the gas price for Ukraine is lower than that charged by Gazprom for all other post-Soviet countries except Belarus. For example, Gazprom set the new gas price for Moldova and Georgia at $110 per 1,000 cubic meters.

However, the same day, RosUkrEnergo managers, Konstantin Chuichenko and Oleg Palchikov, cast doubt on Zanyuk's words. Chuichenko said the price may be changed depending on the price of Russian gas for RosUkrEnergo. In his turn, Palchikov asserted that there is no "price formula" included in the contract, adding that the price for Ukraine will depend on the price of Central Asian gas in the total gas volume supplied to the country.

And Andriy Halushchak, Naftohaz Ukrayiny's representative on the UkrGazEnergo supervisory board, admitted that a change of the gas price may actually take place, but only after mutual consent from both sides. If there is no such consent, he added, the sides should appeal to court.

Thus, it seems that the deal does not end the gas supply controversy between Kyiv and Moscow and may lead to a renewed row in the longer run, particularly if Turkmenistan, a major gas source for Ukraine, moves to increase its price for RosUKrEnergo.

It should also be expected that the gas supplies will continue to be a topical issue for the opposition in the ongoing parliamentary election campaign in Ukraine. There is still a mystery surrounding the owners of RosUkrEnergo, which came into the global spotlight on 4 January. And this latest gas contract, instead of dispelling this mystery, has added some of its own.

Russia's Gas Strategy

Russia's Gas Strategy

RUNNING HOT AND COLD The crisis over Russian supplies of natural gas to Ukraine that erupted on New Year's Day has implications that spread well beyond these two countries and will impact both economic and political policymaking throughout Europe. On January 19, RFE/RL's Washington, D.C., office hosted a briefing the examined the ramifications of the natural-gas conflict.

CLIFFORD GADDY, a senior fellow at the Brookings Institution, outlined Russia's "grand energy strategy," in which Ukraine is perceived as merely an obstacle frustrating Russia's energy ambitions in Western Europe and therefore a nonentity in Russia's broader strategic planning. According to Gaddy, Russia's strategic goal regarding energy is to maximize the role of its own energy resources in the world energy markets, so as to increase its geopolitical influence. To do this, it must reduce competition and maximize dependency on its own energy resources, as well as ensure a stable supply.

TARAS KUZIO, a visiting assistant professor at George Washington University, rebutted Gaddy's argument, claiming that Russia's actions evidenced a complete lack of geopolitical strategy and resulted in strong denunciations by Western countries and a loss of political allies in Ukraine. According to Kuzio, Russian President Vladimir Putin's desire to have a deal signed by the January 4 European Union energy summit outweighed his hope of reinforcing opposition to Ukrainian President Viktor Yushchenko during the run-up to Ukraine's March 26 parliamentary elections.

RFE/RL Coordinator of Corruption Studies ROMAN KUPCHINSKY did not fully agree with Kuzio's assessments of Yushchenko or Ukraine. He outlined three major problems that are feeding the conflict between Russia and Ukraine. The biggest, he argues, is that the state-controlled Russian gas giant Gazprom holds a monopoly on natural-gas sales outside the CIS. Kupchinsky also decried Ukraine's consumption of natural gas, terming it "out of control." Corruption is also a major factor in the conflict, Kupchinsky said, although the extent to which it taints the deal struck between Russia and Ukraine remains unknown.


Listen to the complete panel discussion (about 90 minutes):
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Moscow's New Energy Strategy

Moscow And Energy Leverage

Russia's New Imperialism

Who's Afraid Of Gazprom? Controlling Gas Pipelines

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