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Ukraine: Government Faces Dire Decision On Gas Pipeline Control

As tumultuous events unfold in Ukraine, the government is reportedly considering a plan that could allow a new measure of Russian control over the country's gas pipelines. The move could mark a major step toward easing Ukraine's energy problems but may also have serious implications for the future. RFE/RL's correspondent Michael Lelyveld looks at the issue in this report.

Boston, 28 August 2000 (RFE/RL) -- Russia and Ukraine have displayed contrasting images of calm and chaos over the issue of Kyiv's gas debts in the past week amid reports of plans to give Moscow a new measure of control.

Developments in Ukraine reached the height of confusion with the arrest of Aleksandr Tymoshenko and Valeri Falkovich of the country's Unified Energy Systems on charges of embezzlement. Tymoshenko is the husband of Deputy Prime Minister Yuliya Tymoshenko, who has been a controversial figure in Kyiv's attempts to deal with its energy debt problems.

Although details remain sketchy, Falkovich has been accused of helping to divert Russian gas which transits Ukraine, while Tymoshenko has so far been charged with "large-scale embezzlement of state property," Deputy Prosecutor-General Mykola Obykhod said.

Yuliya Tymoshenko, who formerly headed Unified Energy Systems, blamed corrupt elements in the energy sector for the charges and said she may soon face arrest herself.

The events came less than two weeks before a scheduled meeting on September 2, when Ukraine is expected to present a settlement plan for its $1.4 billion gas debt to Russia. The arrests were also announced shortly after a meeting on the gas issue between Presidents Leonid Kuchma of Ukraine and Vladimir Putin of Russia at the recent CIS summit, although no link has been established.

Russia has long complained about gas diversions and has publicized plans to build export pipelines bypassing Ukraine. Russia's payment of transit fees to Ukraine in the form of gas is a major source of the country's fuel.

The pressure on Kyiv has reportedly led the government to consider plans for sharing control of its pipelines with Moscow, despite a recent statement by Ukrainian Prime Minister Viktor Yushchenko that the country would never agree to give up its ownership. But Yushchenko has also said, "If we fail to find a compromise with the Russian side ... then we can say Ukraine will lose absolutely its ability to transit gas by 2006."

A more immediate concern is whether Russia will continue to provide gas this winter in the absence of a debt agreement, although Moscow appears to have no near-term alternative to transiting most of its gas to Europe through Ukraine.

In an interview last week, an official of Russia's Gazprom seemed to suggest that the problem now looks much less pressing from Moscow's side. Yuri Komarov, a Gazprom board member, said there is no rush to build new pipelines because European demand for gas has been "overestimated." Komarov told the Reuters news agency, "If there will be bigger demand, we'll construct it. If not, we'll wait. We're not in a hurry."

Komarov was referring to a plan to build a Baltic Sea pipeline to Germany, bypassing Ukraine. The project could cost $10 billion and take 10 years, Reuters said, quoting a Finnish company which has been working with Gazprom on the plan. Komarov also voiced confidence that Poland would eventually agree to building a new bypass line to Slovakia, but he gave no estimate on how soon that project could be done. Poland has so far refused to help Russia detour around Ukraine.

The evident alarm in Kyiv and the apparent composure in Moscow may be the result of Russia's increasing assurance that it is winning the struggle to gain control over Ukrainian pipelines and other assets.

According to Kievskiye Vedomosti, Ukraine has proposed a deal to create a joint venture between the state oil and gas company Naftohaz Ukrayiny and Gazprom to operate the transit pipelines for 25 years. Gazprom would control the majority share to prevent diversion and block gas to non-paying customers, while gradually paying Ukraine's debt from the profits. At the end of the period, control would return to Ukraine, allowing Yushchenko to claim that the country has not given up ownership.

Such a deal could ease the current crisis and ensure that Russian gas will keep flowing through Ukraine. Officials may also make the case that the joint venture does not signify a surrender of Ukrainian sovereignty.

But it seems clear that Gazprom's dominant role in the country would imply a major change in relations between Russia and Ukraine, particularly since Moscow seems to have no plans to end state control over Gazprom.

Ukraine may not be giving up its pipelines, but it does seem to be turning over its authority to enforce the rule of law over its own consumers on its own territory under Russian pressure. The decision is a serious step that goes far beyond the payment of debt.