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Russia: Ukraine Said To Divert Gas

Ukraine's electricity generators have reportedly been diverting Russian gas following Moscow's attempts to shut off their supply for non-payment of debts. The alleged thefts break Kyiv's pledge to halt the practice, which soured relations between the two countries until an agreement last month. RFE/RL correspondent Michael Lelyveld reports.

Boston, 24 January 2001 (RFE/RL) -- Despite a cutoff of gas and the firing of a top reformer, there seems to be a sense that Ukraine's latest energy crisis is only business as usual.

Since 16 January, four of Ukraine's major electricity companies have been coping with a shutoff of gas supplies from Russia. The Russian gas trading firm Itera says the Ukrainian generators owe it over $64 million. The power companies say they have not paid because their customers have been behind in their bills.

In some countries, the situation would have led to immediate blackouts. Not so in Ukraine, which has long experience in how to survive cuts in its gas supplies.

The Ukrainian News reported that "instead of stopping gas consumption, the power stations have only reduced it by 40 percent ... by diverting the gas illegally."

Itera has reacted with notable nonchalance. Itera spokesman Mykola Semenenko said, "Assume that they pay all the debts, and for what they took after the 16th, then the deliveries are taken into account. The second alternative -- they don't pay -- then they won't be sorting things out with us."

Both sides in this dispute have been through the same routine many times before. Since the Soviet breakup, Russia has continually tried to reduce or cut gas deliveries to Ukraine for non-payment. Kyiv has responded by tapping the pipelines that feed Russian gas to Europe instead.

The current reduction of 40 percent sounds like a compromise. Since the transit lines are on Ukrainian soil, the companies could probably divert 100 percent of the fuel they need.

Despite the familiarity of the situation, it was all supposed to change this year. An agreement signed by presidents Vladimir Putin and Leonid Kuchma in December was supposed to have guaranteed Russian gas shipments in exchange for Ukraine's promise to honor its bills as sovereign debts.

The government pledged to stop thefts of gas, and Russian officials agreed that no diversions had taken place since last August. The electricity generators now admit that they have started again.

Ukraine's deputy prime minister, Yulia Tymoshenko, was also supposed to have reformed the country's energy sector and increased its collection of bills from consumers. But Kuchma fired Tymoshenko last week after she was charged with an earlier scheme to steal and sell Russian gas. Tymoshenko has denied the allegations, but questions have been raised about whether her reforms have actually worked. At least one report from the current cutoff episode suggests they have not gone far enough.

An official of one of the Ukrainian generating companies, Donbassenergo, told the "Moscow Times" last week that it has not paid Itera because its customers owe it about 1 million hryvna ($185,000). But Donbassenergo reportedly owes Itera $9.4 million, or 50 times more than its unpaid bills.

Last week, the International Monetary Fund issued a positive report on Ukraine's economy after last year's gross domestic product rose 6 percent, marking its first gain since independence. One factor cited by the IMF was "increased gas imports from Russia in the 1999/2000 winter season, despite continued non-payment problems, which enabled a strong industrial rebound."

But the non-payment problem raises doubts about whether the economy is turning over a new leaf. It is hard to say how much economic growth is due to gas that has not been paid for, or whether such growth can be viewed as sustainable.

The IMF statement also did not address the issue of good governance that has previously been one of its core concerns in the region. It may be difficult to inspire confidence in the rule of law or any economic course, as long as the government allows diversions of gas to take place.

So far, the agreement between Putin and Kuchma appears only to have assured Itera that thefts of gas can be counted as debts of the Ukrainian government. But the understanding may actually make it easier to justify diversions in the interests of providing power to Ukrainian consumers and industry. The result may be a hidden subsidy in the form of mounting government debt.

For the moment, the Russian government does not seem to have made an issue of Ukraine's continuing diversions. In the past week, the two countries have renewed their military ties with a joint command in the Black Sea and an agreement on arms exports.

The new spirit of strategic cooperation is a far cry from the frictions of last fall, when Russia sought control of Ukraine's transit pipelines and threatened to build a bypass through Poland to isolate Kyiv. The new spirit may be prompting Moscow to overlook the latest gas problems. But it seems unlikely that Ukraine can escape the cost of its debts for long.