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Ukraine: Gas Crisis Averted, But Underlying Problems Remain

Prime Minister Yulia Tymoshenko has attacked the role shady intermediaries play in the gas trade (epa) Russia on March 5 resumed natural-gas supplies to Ukraine, ending the latest gas feud between the ex-Soviet neighbors.

Gazprom, Russia's state-controlled gas monopoly, halved shipments to Ukraine earlier this week over what it claimed was $600 million Kyiv owed it for gas delivered this year. The gas giant threatened further cuts unless Ukraine settled its debt and agreed to a gas-price hike.

But the last-minute deal, clinched after telephone negotiations between the two countries' leaders, appears to be little more than a temporary bandage. Moscow and Kyiv have yet to iron out the deep-running differences underlying their gas disputes.

A key sore point is the involvement of middleman companies in the gas trade between the two countries -- RosUkrEnergo, half-owned by Gazprom; and UkrGazEnergo, owned by RosUkrEnergo and Ukraine's state gas company, Nafothaz.

Ukraine's prime minister, Yulia Tymoshenko, has been campaigning for the elimination of what she says is an opaque mechanism to embezzle vast fortunes at the expense of Ukrainian consumers.

Moscow has consistently demurred, a stance widely seen as dictated by a small group of elites profiting directly from the scheme. Roman Kupchinsky, an RFE/RL energy analyst, says Moscow could also be using the intermediaries as a bargaining chip with Ukraine.

"The intermediaries are not in Russia's interest either, as a country. Russia loses taxes because of intermediaries, it gives away money for no good reason to intermediaries, and it doesn't really fulfill any role," Kupchinsky says, adding that there must be a reason why Russia insists on the intermediaries.

"Gazprom wants to get into the Ukrainian domestic market, it wants 50 percent of the market," Kupchinsky notes. But he says that "Ukrainians won't allow that," because it would bankrupt their own Naftohaz.

Playing Politics

Gazprom has spared no effort to convince the world that its recurrent gas standoffs with Kyiv are purely economic. In reality, few doubt they have strong political overtones.

The latest dispute dealt a blow to the already fragile coalition between President Viktor Yushchenko and Tymoshenko, who both rose to power in the 2005 Orange Revolution after reversing the presidential victory of Moscow's anointed candidate.

Despite their shared Western leanings, the former allies have adopted conflicting strategies in their dealings with Gazprom. Yushchenko this week ordered his firebrand prime minister to immediately return to the negotiation table with Moscow.

The president in February reached a deal on Ukraine's debts with his Russian counterpart, Vladimir Putin. But the agreement appears to have gone amiss following Tymoshenko's subsequent visit to the Russian capital.

The row has also prompted fresh charges that Moscow is using its vast energy resources as a political weapon. Federico Bordonaro, a Rome-based analyst with the "Power And Interest News Report," an independent organization studying international relations, says: "Gazprom's moves are not entirely due to business problems. I think Gazprom is striking back at Europe, firstly because Europe recognized Kosovo's independence without listening to Russia's concerns, and secondly because Ukraine is heading toward NATO integration."

European Fears

The gas cuts revived European fears of new disruptions in the gas flow to EU markets, a quarter of whose gas comes from Russia -- most of it via Ukrainian pipelines.

In the midst of this week's dispute, Gazprom claimed that Ukraine was diverting some of the transit gas earmarked for Europe, bringing back echoes of a similar gas row in 2006 that triggered energy shortages in parts of Western Europe. Recent events reflect badly on Russia, too, by casting doubt on its reliability as energy supplier.

Bordonaro says the bad blood between Moscow and Kyiv is pushing Europe to seek alternative energy routes. This includes efforts to breathe new life into the Nabucco project, a pipeline that would bypass Russia by pumping gas from the Caspian and Central Asian regions to Europe via Turkey and the Balkans.

"Europe has been aware for a couple of years that too much dependence on Gazprom is dangerous for its energy security," Bordonaro says. "In my opinion, Europe will try to push for new key agreements with Libya, Algeria, and it may also try to revive the Nabucco pipeline."

In the meantime, Europe must brace for further rows, cutoffs, and disruptions. In his new role as Russian leader, President-elect Dmitry Medvedev seems unlikely to soften the strong-armed energy policy he has overseen as Gazprom chairman.

RFE/RL Belarus, Ukraine, And Moldova Report

RFE/RL Belarus, Ukraine, And Moldova Report

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