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Ukraine: Gas Deal With Turkmenistan Reveals Russian Influence

Ukraine will receive Turkmen gas this winter under terms of a 15-month contract signed this week in Ashgabat. The deal will allow Ukraine to pay for much of the gas in goods and services, but it is smaller than a 10-year contract proposed earlier this year. RFE/RL's Ron Synovitz reports that deal demonstrates the strong hold that Russia still exerts over the former Soviet republics.

Prague, 5 October 2000 (RFE/RL) -- Ukraine's new gas deal, signed yesterday in Ashgabat by Ukrainian President Leonid Kuchma and his Turkmen counterpart Saparmurat Niyazov, allows Kyiv to buy 35 billion cubic meters of gas during the next 15 months.

Niyazov has cut gas deliveries to Ukraine in the past because of Kyiv's failure to pay its debts. But this time he has insisted on weekly advance payments totaling $16 million in cash and barter trade. Altogether, about 40 percent of Ukraine's payments will be in cash while the rest will be in the form of barter trade and investment. Ukraine also agreed to pay the Russian pipeline operator, Itera Group, for transporting the gas across Uzbekistan, Kazakhstan, and Russia.

In exchange for Ukrainian concessions on advance payment and transport costs, Niyazov reduced his asking price from $42 for 1,000 cubic meters to under $40.

But the contract is a short-term deal -- far smaller than a 10-year proposal initialed by Ukrainian Deputy Prime Minister Yulia Tymoshenko in July. That contract was rejected by Kuchma because it did not include transport costs.

Before traveling to Ashgabat this week, Kuchma met in Kyiv with the president of Itera Group, presumably to discuss the upcoming Turkmen deal. Itera, which is partly controlled by the Russian government, serves as a financial and technical operator for large segments of the Soviet-era pipeline network. The company operates the only pipelines that can make deliveries between Ukraine and Turkmenistan -- a line known as the "Northern Route," which passes through Uzbekistan, Kazakhstan, and Russia.

RFE/RL Moscow correspondent Arkady Dubnov reports Ukraine's transport costs under yesterday's agreement will be less than what Kyiv has owed for previous deliveries because Itera will take a share of its fees in gas rather than cash.

"For now, Ashgabat doesn't have too many clients with the functioning pipeline system. The price, in reality, is much lower [for Ukraine than in the past] because [some of] the deliveries will be made on barter conditions."

Through Itera, Russian interests have once again played a critical role in talks about Turkmen gas exports. Both Russian gas monopoly Gazprom and Itera remain in a strong negotiating position with Ukraine and Turkmenistan.

Ukraine still owes Russian interests more than $1.4 billion for previous gas deliveries, and Kyiv will be hard-pressed this year to import the gas it needs to make it through the winter.

Turkmenistan desperately needs hard currency and is heavily dependent on Russian pipelines to deliver gas, its main hard-currency export.

To reduce his country's dependence on Russia, Niyazov has attempted to strengthen its position with a flurry of announcements on plans to build competing export routes.

One proposal, backed by Chinese president Jiang Zemin, calls for the construction of a $15 billion gas pipeline to China. But there has been no concrete progress since the economic viability of the project was questioned in a 1998 study by energy multinationals Exxon and Mitsubishi, and the China National Petroleum Corporation.

Meanwhile, prospects appear to be fading for a U.S.-backed plan to build a gas pipeline beneath the Caspian Sea to link Turkmenistan with Turkey's Mediterranean coast.

That $2 billion project has been on hold since June when Niyazov demanded $500 million in pre-financing as a condition for his cooperation. PSG International, a U.S. partner in the consortium created to develop the Trans-Caspian Pipeline, has refused Niyazov's request and withdrawn from the project. Steven Sestanovich, a special adviser to the U.S. secretary of state who discussed the pre-financing demand with Niyazov, says there are differences in the way that the two sides develop business relations and partnerships.

Wayne Merry, a critic of Niyazov who works for the Washington-based think-tank Atlantic Council, has accused the Turkmen president of demanding, in his words, "a bakshish" -- a Turkic word meaning a private gift paid in order to win a favor.

"Some of the recent problems on the Trans-Caspian pipeline, I think, are characteristic, [such as,] when the Trans-Caspian Pipeline Company received a demand from Mr. Niyazov for a $500 million bakshish."

Niyazov responds to such criticism by saying western companies and analysts do not understand the culture of doing business in Central Asia.

But analysts at Britain's Economist Intelligence Unit conclude that Niyazov has allowed the Trans-Caspian Pipeline to become increasingly unattractive by letting time elapse, and that he has no choice but to stay within Russia's trading sphere in the short term.