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Ukraine: Solution To Energy Problems Not In View Yet

An agreement between Presidents Vladimir Putin of Russia and Leonid Kuchma of Ukraine has altered the terms of Kyiv's gas debts to Moscow, but it seems to have done little to change the problems that Ukraine faces at the start of the winter heating season. RFE/RL correspondent Michael Lelyveld reports.

Boston, 19 October 2000 (RFE/RL) -- A cordial meeting Monday between the presidents of Russia and Ukraine has eased some anxieties over winter fuel supplies for Kyiv, but there are few signs that a real solution to its problems of energy and debt are in sight.

Speaking in Russia's Black Sea resort of Sochi, Russian President Vladimir Putin said he had reached "a consensus" with Ukrainian President Leonid Kuchma on the question of how to handle future debts if, as seems likely, Ukraine proves unable to pay for all of the Russian gas it uses with cash.

Under the agreement, Ukraine would treat any deficit in its payments as a sovereign debt of the state. That understanding may be a minor breakthrough, in light of Kuchma's previous argument that his government was not responsible for private gas users that fail to pay bills.

But in reality, the Ukrainian government had already abandoned that argument months ago after Russia threatened to build a new gas pipeline around the country to reach its paying customers in Western Europe. Ukraine responded by launching a program to reform its energy sector and increase its collections in cash.

In any case, Russia has already been holding Ukraine responsible for gas that is used or lost on its territory. Ukraine concedes that it owes $1.4 billion. Russian claims run as high as $2.5 billion. There was no announcement at the meeting that an agreement on a debt figure was reached. Nor was there any indication that Ukraine would apply the debt formula to past obligations, as well as future deliveries.

In 1995, Russia and Ukraine agreed to restructure Kyiv's previous debt of $1.4 billion for gas. It was unclear how much Kuchma's agreement would add to Ukraine's foreign debt, which stood at over $12 billion at the start of this year.

Many other major details were also left to be worked out after the meeting at Sochi.

Putin said Russia would allow the transit of gas to Ukraine from distant Turkmenistan, where Kuchma traveled two weeks ago in search of an alternate source of supplies. But there was no final word on how much the transit through Russia or the delivered gas would cost. Turkmenistan is charging Ukraine $38 per thousand cubic meters for the rest of this year, but estimates of the total price including transit have varied widely from $60 to $102 per thousand cubic meters.

The deal could prove costly for Russia, as well as Ukraine, because Turkmenistan has succeeded in raising its charge to $40 starting next year for sales to Kyiv. The amount and the terms of 50 percent in cash are more than Russia now pays to Turkmenistan for gas, putting pressure on Moscow to pay more next year.

If the deal with Ukraine fails, it could put Russia back in a better bargaining position with Ashgabat, giving Moscow an incentive to keep Ukraine's transit terms high.

Also unsettled was the future of Russia's possible interest in Ukraine's pipelines. Putin said a commission would study Kyiv's plan to privatize its gas network and offer shares to Russia's Gazprom. The Russian leader called it "a good idea." But it remained to be seen whether Gazprom would be content with one-third of the shares or whether it would press for controlling interest in exchange for Ukraine's debt.

And on Wednesday, Gazprom and four European companies signed an agreement in Moscow to "study and develop" a new pipeline through Poland and Slovakia that would bypass Ukraine, the Italian oil company ENI said.

In the past, Russia has sought control of Ukraine's gas lines to put an end to thefts. Although diversions have been going on for years, Kuchma reportedly ordered this month that the practice be stopped after suggesting in an interview with Germany's Der Spiegel magazine over the summer that the Ukrainian government had condoned diversions of gas.

The Russian side was seen as insisting that any diversions be subject to fines that would also be charged as a sovereign debt. While it is unclear whether Kuchma consented, Putin said Kuchma had "agreed with me that unsanctioned, unjustified re-export of Russian gas will be terminated."

But perhaps the greatest problem is that the agreement assumes that Ukraine must continue using more gas than it can pay for. As a result, the government may see little reason to reform or promote conservation in a country that is the sixth-largest consumer of gas in the world. As long as the government can keep piling up debt, Ukrainian users will have a sense that the country can go on as before, leading to another energy crisis at a later date.

Russia and Ukraine have frequently faced the same issues at the start of each winter, only to put off tough decisions once the cold weather starts. Because Russia's major gas route to Europe runs through Ukraine, it cannot shut off Kyiv without turning off European customers. Russia may seek new routes for the future, but neither country now seems likely to find new ways to solve the gas problem this year.