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Russia: Ukraine Seeks Exchange -- Pipelines For Debt Relief

As Ukraine considers a plan to trade pipelines for debt, Russia may be nearing its goal of controlling its transit of gas to Western Europe. The move would have profound consequences for both countries, but it could leave Ukraine with little control over its future and even fewer assets to sell. Correspondent Michael Lelyveld reports:

Boston, 8 August 2000 (RFE/RL) -- Ukraine has returned to an old and desperate idea in suggesting it may trade some of its pipelines to Russia in exchange for its gas debt.

Last Tuesday, Prime Minister Viktor Yushchenko said the government is considering a swap of some of Ukraine's oil and gas lines, as well as more strategic bombers, to settle its gas arrears.

The proposal is the latest in a series of plans floated by Ukraine to ease Russian pressure for payment of at least $1.4 billion for gas. Although Kyiv has owed vast sums for years, the crisis atmosphere may be a sign of concern that Moscow will cut off supplies as winter nears.

In the past, Russia has proved unable to stop its gas deliveries because its pipelines to Western Europe must transit Ukraine. But the government of President Vladimir Putin has been looking for ways to detour around the country, which could be left in the cold.

Russia has also shut off electricity to its own domestic industrial users that do not pay their past bills. Such harsh measures could be hard to justify in Russia unless it enforces similar discipline on Ukraine.

Last month, Yushchenko met with Russian Prime Minister Mikhail Kasyanov in Moscow in an effort to solve the arrears problem. But Kasyanov was not receptive to plans for restructuring the debt and trading transit fees for the amount owed.

The refusal may have left Yushchenko with little to offer except the pipelines. But the proposition could have obvious drawbacks for Ukraine. Russia has frequently sought just such a deal to gain ownership of the Ukrainian gas infrastructure in the years since the Soviet breakup. Control would mean that Russia would no longer have to pay Ukraine for transit of 30 billion cubic meters of gas annually, since it would own the lines itself.

Moscow would also be able to put a stop to the chronic thefts of gas which have taken place on Ukrainian territory. Russia has complained that the problem has disrupted supplies to other countries, harming its reputation as a reliable supplier. But such a solution implies that Russia would also be able to guard the pipelines on Ukrainian soil, an infringement of sovereignty that Kyiv has resisted until now.

Russia could be given ownership of selected lines in the Ukrainian network, such as those to industrial users that have presented payment problems in the past. Such a plan for limited control could relieve the Ukrainian government from the political burden of providing energy subsidies. But it would do little to prevent a compromise of sovereignty.

Despite all the reasons against it, the idea of Russian control could have one advantage, other than settlement of the old debt. Ukraine has so far shown little ability to manage its own energy problems or reform its high consumption rates for gas.

A transfer of ownership would be a one-time solution, leaving Ukraine with essentially nothing more to sell. Discipline would be not only necessary but unavoidable, putting the country on an irreversible track for reform. But failure could be disastrous, leaving Ukraine without power or leverage as a bankrupt client state. There may be little new in these scenarios. Ukraine has faced the same problems in some form for years. The difference now seems to be the determination of President Putin to put an end to Russia's dependence on transit for its gas.

Yet, Ukraine has continued to seek ways around the problem, just as Russia is looking for ways around Ukraine. A tentative deal to buy gas from Turkmenistan apparently fell apart last month, after President Leonid Kuchma learned that Russia would more than double the price with delivery fees.

Ukraine has tried to ally itself with Poland to prevent Russia from building a bypass pipeline. It now seeks to join Poland in buying gas from Norway, although it is unclear whether it would pay its new suppliers while putting Russia off indefinitely.

These desperate measures give little confidence, either for this winter or the future of Ukraine. It seems unlikely that Kyiv will solve its problems by turning from country to country and running up more bills. Ukraine's only recent progress has come from enacting and implementing energy sector reform measures on its own.

Relying on Russia for both gas and the control over using it could be the country's last desperate step.