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Ukraine: Russia Persists In Seeking New Gas Routes To Europe

Russia is continuing to pursue plans for new gas routes to Europe through Poland and Finland, despite its recent accords with Ukraine. The pacts seem to have done nothing to promote the country's energy security, while its electricity companies have gone back to the practice of diverting Russian gas.

Boston, 1 February 2001 (RFE/RL) -- Despite a new era in relations that was declared between Russia and Ukraine in December, Moscow is pressing ahead with its pipeline plans to reduce its reliance on Kyiv.

Last week, a top official of Russia's Gazprom said that two separate initiatives were going forward to build gas pipelines to Europe that would bypass Ukraine.

Yurii Komarov, a member of Gazprom's management committee, said that a feasibility study for one bypass route through Poland and Slovakia would be completed within three months, Reuters reported. Gazprom also expects to form a consortium within two months to build a pipeline through Finland across the Baltic Sea to Germany, Komarov said.

Both plans are aimed at getting gas to Western Europe without crossing Ukraine, which currently carries about 90 percent of Russia's exports of the fuel. The government in Kyiv has been scrambling since last July when Gazprom first announced plans for the bypass through Poland. Russia blamed Ukraine's diversions of transit gas and rising debts for the gas it consumes.

But the conflicts were supposed to have been resolved in December when Russia and Ukraine signed agreements on gas supplies, transit, and collaboration in the gas sphere. Russia said it was willing to restructure over $1.4 billion of Ukraine's gas debts and delay payments for 10 years.

Russian President Vladimir Putin was effusive in his statements, saying, "The fact that specific agreements have been reached has changed the attitude to Ukraine." He added that "Ukraine and Russia will enter the European gas market together, Russia with its product and Ukraine as an independent partner supplying this product." Putin promised he would persuade Gazprom to help upgrade Ukraine's pipelines to carry even more Russian gas to Europe.

But one month later, there are few signs that the agreements have helped.

On January 16, the Russian gas trader Itera announced it was cutting off supplies to four Ukrainian power companies after they ran up $64 million in debts. The companies responded by diverting Russian gas again, reducing their use but refusing to shut it off.

On January 24, Ukrainian Prime Minister Viktor Yushchenko pledged to come up with new proposals to settle the debt issue within two days. But as of last Friday, the electricity generators were still taking Russian gas without paying, the Ukrainian News reported, quoting a source in the country's Fuel and Energy Ministry.

On Tuesday, Yushchenko announced that the companies had started paying Itera again and that gas supplies would be resumed soon. But the premier did not address the issue of gas diversions, which Ukraine had previously promised to stop.

It is uncertain whether Gazprom's announcement on bypass routes is a response to Ukraine's latest diversions or simply a sign that the Russian monopoly always meant to pursue its strategy, whether accords were signed or not. Either way, it may have little trouble justifying its plans in light of Ukraine's actions.

On Monday, Yushchenko said the government may replace the management of some electricity companies because of poor collections from consumers. But the Financial Times also reported that some local Ukrainian officials have been borrowing against town buildings and assets in order to pay for gas.

Gazprom's Komarov appears to have made a point of discussing not one bypass line to Europe, but two. His purpose may be to overcome reluctance in Poland to allow a new pipeline on its territory that would leave Ukraine out. By threatening to move the route even farther north to Finland, Gazprom seems to be sending a message that resistance to its plans would be futile.

Both pipeline plans will need European partners and investment. The proposals have drawn intense interest since last October, when the European Union announced it would study plans to double energy imports from Russia over the next 20 years.

In the case of the line through Poland, Gazprom has been working with Germany's Ruhrgas and Wintershall, ENI of Italy, and Gaz de France, all of which are Gazprom customers. The northern route would be developed with Fortum of Finland, as well as Ruhrgas and Wintershall. The Finland option has been questioned because of estimated costs of at least $3 billion.

But Gazprom may also be considering moves to give it control over connections to the Polish route. The Financial Times reported last week that Gazprom may bid on an interest in Slovakia's gas network when it is privatized this year. Other bidders include the same European customers and partners of Gazprom.

None of these possibilities bodes well for Ukraine.

The government's success in increasing collections for electricity bills has proved to be short lived. Ukraine's agreement to treat the arrears for Russian gas as a sovereign debt has apparently served as a green light for generating companies to take whatever they need. The power companies also know that accounts can eventually be settled against gas that Russia pays to Ukraine as a transit fee, leaving the governments to straighten it out.

Meanwhile, Ukraine seems to be back in the same insecure situation as it was months ago, with not enough cash, not enough gas and rising gas debts, as Russia presses forward with plans that could leave it without its major source of supplies.