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Ukraine Set To Pay Much More For Gas In 2008

Yulia Tymoshenko has attacked the deal as "brainless" (AFP) December 5, 2007 (RFE/RL) -- Ukraine's outgoing government has agreed to a significant price hike in a deal for supplies of natural gas from Russia, sparking an immediate denunciation from the incoming prime minister, Yulia Tymoshenko.

But she and other opponents of the agreement appear less concerned about the nearly 40 percent price rise than the specifics of the deal, which include the services of a murky intermediary, RosUkrEnergo.

Prime Minister-designate Tymoshenko called the government's continued use of the middleman company's services part of a "corrupt" and "brainless policy."

If she is confirmed at the head of a new government, however, Tymoshenko will have little alternative but to comply with the deal, which appears to have the consent of Ukrainian President Viktor Yushchenko.

Russian monopoly gas provider Gazprom announced after the conclusion on December 4 of negotiations with Ukrainian Fuel and Energy Minister Yuriy Boyko that it will charge Kyiv $180 per 1,000 cubic meters for gas supplies next year, up from the current $130.

The EU was watching the talks closely for signs of a repeat of a price dispute in 2006 that led Gazprom to briefly shut off supplies to Ukraine -- through which 80 percent of Europe's Russian gas supplies travel.

In October, a similar crisis was averted when Ukraine and Russia came to an agreement on unpaid gas debts that had led Moscow to threaten to cut supplies again. Ukraine eventually paid RosUkrEnergo nearly $920 million to end that dispute.

History Of Shady Middlemen

The potential involvement of the Swiss-based intermediary in supplying Russian gas in 2008 had also placed the recent negotiations under intense scrutiny in Ukraine.

Tymoshenko had urged Boyko during negotiations to cut RosUkrEnergo out of any new deal, and in the run-up to September 30 parliamentary elections, Yushchenko was highly critical of the company's role as intermediary.

RFE/RL analyst Roman Kupchinsky says this is because RosUkrEnergo's services "will cost Ukraine about $1 billion a year."

When negotiations began in the fall, Gazprom Chairman Dmitry Medvedev said that "we will probably revise the scheme of our relations [with Ukraine] and give up any intermediary structures that are not clearly understandable -- at least those structures whose existence is not quite clear to us and who were proposed by our partners in a certain historical context."

During negotiations for the 2006 supplies, Yushchenko supported the entry of RosUkrEnergo into the arrangement, over the objections of Tymoshenko.

Kupchinsky explains that the company receives a commission -- in the form of gas -- on transit fees for the 50 billion to 55 billion cubic meters of Turkmen natural gas that Ukraine buys from Gazprom.

"They then resell [that gas] in Europe and make even more money," Kupchinsky says. The market rate for gas imported to Europe is about $230 per 1,000 cubic meters.

Moscow's Least-Favorite Prime Minister Returns

It took nearly two months of maneuvering after Ukraine's recent parliamentary elections for a coalition to emerge of the Yulia Tymoshenko Bloc and President Yushchenko's Our Ukraine party.

The same day Gazprom announced the gas deal, Tymoshenko's bid for confirmation as prime minister got a boost with the election of former Foreign Minister Arseniy Yatsenyuk to the post of parliament speaker. Our Ukraine member Yatsenyuk received 227 votes in the 450-member parliament.

"What is very strange is that they tried, and they succeeded, in signing the deal before the new government comes in -- which will lock either Tymoshenko or whoever becomes prime minister into this deal," Kupchinsky says. He says it's a "bad deal" to which RosUkrEnergo "does not add any value."

During Tymoshenko's seven-month stint as prime minister following the 2004 Orange Revolution, Kyiv's relations with Moscow fell to an all-time low. Moscow previously sought her extradition relating to corruption charges that stemmed from her role as president in 1995-97 of Unified Energy Systems of Ukraine -- which served at the time as middleman for Russian gas imports.

The new agreement was not unexpected, as it follows a jump in the price that Gazprom pays Turkmenistan for imported gas. Last month, it was announced that the Russian company would pay $130 per 1,000 cubic meters of Turkmen gas for the first six months of 2008, and $150 for the second half of the year.

Ukraine is the end user of much of the Turkmen gas imported by Gazprom.

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