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Russia: Moscow Moves Closer To Resolving Ukraine's Gas Debt

Russia has offered Ukraine an eight-year delay in payments on its gas debts. But while the two countries seek a solution to their conflict, problems in Central Asia may mean a new source of trouble for them both.

Boston, 21 November 2000 (RFE/RL) -- Russia and Ukraine moved again toward resolving their differences over gas debts last week, but the elements of conflict may continue to affect many countries from Central Asia to Western Europe.

On Friday, Russian Prime Minister Mikhail Kasyanov offered Kyiv an eight-year delay in its debt payments for gas. The proposal followed a meeting in Moscow with Ukrainian Prime Minister Viktor Yushchenko to negotiate at least $1.4 billion in overdue fuel bills.

The understanding appears to be similar to one reached between Presidents Vladimir Putin and Leonid Kuchma in the Black Sea resort of Sochi last month. As with the earlier agreement, Kasyanov's terms would require Ukraine to honor the country's gas arrears and any further purchases as state sovereign debts. So far, it is unclear whether Kyiv will accept the deal. Further talks are needed to settle the debt figure, which Russia's Gazprom claims is over $2 billion.

Reports also suggest that Russia could trade the sovereign debt for shares in Ukrainian privatized enterprises. The subject is sensitive, in part, because of proposals to privatize Ukraine's pipelines that carry Russian gas to Western Europe. Moscow has been pursuing plans to build a bypass pipeline around Ukraine through Poland after years of seeking control over the Ukrainian transit lines.

The bypass plan has drawn the interest of Western European countries and their gas companies, which could help Russia with investments in its gas fields and secure transit routes. Ukraine has also reportedly agreed to impose a tariff on its own gas exports to help prevent thefts of Russian gas and re-exports to Europe for illicit profit. The practice has been of special concern to Gazprom, because it undercuts Russian exports to the European market.

But so far, there seems to be no resolution to another simmering conflict. Last week, Russian Deputy Prime Minister Viktor Khristenko reportedly vowed to block deliveries of gas from Turkmenistan to Ukraine, which the country has sought as an alternative to Russian supplies. According to the Russian newspaper Kommersant, Khristenko said that "no parallel supplies of Turkmen and Russian natural gas will be effected to the Ukraine."

The statement appeared to violate Putin's agreement with Kuchma at Sochi to allow the transit of Turkmen gas to Ukraine over Russian territory. The reasons for the conflict seem obvious, however. Turkmen President Saparmurat Niyazov has allowed gas deliveries to Ukraine only on the condition of advance payments each week.

Under those terms, Turkmenistan has been getting paid before Russia. Gazprom's trading partner Itera has been handling both the Turkmen and Russian deliveries to Ukraine. Itera has periodically cut off the Russian supplies due to non-payment. But as long as Turkmen gas gets through, Ukraine has less incentive to pay Russia. Gazprom has also been concerned that it may suffer even more thefts of its transit gas if Ukraine cannot pay for Turkmen supplies.

The issue could tie relations among the three countries in knots at a time when Russia is also negotiating with Turkmenistan for its own gas purchases. Turkmenistan has already pledged to supply both Russia and Ukraine with 30 billion cubic meters of gas next year. While Ukraine has already agreed on a price, Russia is expected to negotiate terms with Turkmenistan next month.

But last week a further complication for the three countries emerged because of developments in Kazakhstan. At a press conference in Almaty, a top energy official disclosed that the country's decaying pipelines are no longer able to carry the promised volumes of gas from Turkmenistan to Russia.

Uzakbai Karabalin, the president of KazTransGaz, told a press conference that the Central Asia-Center gas pipelines can only handle about 35 billion cubic meters of gas per year. He pledged that the company would invest $360 million in the network over the next five years. But it is unclear whether the work will come soon enough to help Russia, Ukraine, and Turkmenistan next year.

It seems unlikely that any significant amount of work can take place this winter in time to meet the demand in these countries for heat and electric power. The pipeline limit may mean that Turkmenistan will only be able to honor its commitment to either Russia or Ukraine, but not both, even if Kyiv proves able to pay for more gas.

The trouble could aggravate an international situation that is already delicate, as shortages of electricity and gas begin to plague many countries in the region. It is unclear whether countries will use the problems to gain political advantage over one another or cooperate on pipeline capacity and resources to get through this winter.