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Turkmenistan: Russia Makes A Deal For Gas

Turkmenistan has agreed to new gas supplies for Russia at an increase in price. The deal suggests that Russian President Vladimir Putin may no longer be in a strong position as he tries to satisfy the country's export commitments and its domestic energy needs. RFE/RL correspondent Michael Lelyveld looks at the issues in this report.

Boston, 6 September 2000 (RFE/RL) -- A deal reached by Russia for additional gas supplies from Turkmenistan seems to show the practicality but also the weakness of President Vladimir Putin in meeting his country's energy needs.

Last Friday, Russia agreed to buy 10 billion cubic meters of gas from Turkmenistan in addition to the 20 billion cubic meters that is already covered by a contract for this year. Russia will pay $38 per 1,000 cubic meters, which is more than the $36 that Turkmenistan charges for current supplies.

For months, the Russian side insisted that it would pay only $32, while Turkmenistan President Saparmurat Niyazov floated demands for $40 or more. In the end, Russia compromised by giving more ground than the Turkmen side and agreeing to pay a higher price than it bargained for in 1999.

The process was a waiting game for Niyazov, who seems to delight in endless negotiation. An agreement was to have been ready for Putin's trip to Ashgabat in May, but the deadline passed without a deal. Russia may have calculated that Turkmenistan would run out of cash, because its export options are few. Niyazov seems to have counted on Russia's need to meet its export commitments to Europe and its domestic demand. This time, Niyazov played the better hand.

Over the past month, Niyazov has shown his independence by disagreeing with Russia over a legal division of Caspian resources and voicing new interest in a trans-Caspian gas pipeline, which is backed by the United States.

Last week, Putin called Niyazov and committed Gazprom head Rem Vyakhirev to settle the supply issue with a visit to Ashgabat. Instead, Gazprom's trading partner Itera concluded the agreement in what looks like a foregone conclusion to the deal.

While Niyazov has assured Turkmenistan of more income this year, Russia may also be getting a bargain, even at the higher price. As with earlier agreements, Russia will only have to pay 40 percent in cash with the remainder in goods. The latest agreement for 10 billion cubic meters is for more than the 8 billion that Gazprom said it wanted only two weeks ago.

The deal comes as Gazprom is selling more gas to Europe at higher rates, allowing it to make a substantial profit on Turkmen supplies.

According to the SKRIN Issuer news service, Gazprom's average price for gas in Europe rose to $90 per thousand cubic meters in the first half of this year, up 32 percent from the comparable period in 1999. Gazprom's volume of exports to Europe also rose 2.5 percent in the first seven months of this year.

The profit from exports will help Russia cover the losses from subsidized domestic rates for gas. During a stop in the Russian Far East on Sunday, Putin noted that gas is being sold for as little as $12 per thousand cubic meters at home, suggesting that rates may be raised. The situation may be a sign that Putin felt unable to maintain the upper hand with Turkmenistan for long. Without new Turkmen supplies, Gazprom might have been stretched thin by the combination of higher exports to Europe and winter needs in Russia, where prices are still low.

Putin may also have saved the hardest bargaining for last. Although the two sides previously discussed an increase in Turkmen deliveries to as much as 50 billion cubic meters a year, no long-term agreement has been reached. Russia will soon have to open talks on winter gas to come after the end of this year.

The outcome could keep other countries guessing. Developers of the trans-Caspian pipeline from Turkmenistan to Turkey feared that a big long-term deal with Moscow would keep Ashgabat from supplying enough gas for the competitive project.

Ukraine has also been hoping to negotiate a deal for Turkmen gas that would ease its concerns over its debt to Russia and a possible cutoff this winter. Russia's agreement may ensure that Kyiv can only look to Moscow for supplies.

If nothing else, the deal maintains Russia's primary relationship with Turkmenistan and keeps it as a dependable supplier. That advantage alone may make it worthwhile for Russia to pay a few dollars more.