Accessibility links

Breaking News

Turkmenistan: Ashgabat Gains Partial Victory in Russian Gas Deal

A new gas deal between Russia and Turkmenistan will give Ashgabat the higher tariff that it has been seeking for months. But Turkmenistan's position as an exporter remains highly dependent on Ukraine at a time when Kyiv has a mixed record of paying its bills. Our correspondent Michael Lelyveld reports.

Boston, 21 February 2001 (RFE/RL) -- Turkmenistan won a partial victory in a dispute with Russia last week as gas trader Itera agreed to pay a higher price for a limited amount of Turkmen gas.

After the Turkmen government cut supplies to Russia seven weeks ago, it reached a deal with Itera, the trading partner of Russia's Gazprom, to resume pumping 10 billion cubic meters of gas, according to Agence France Presse and the BBC.

The agreement may be a boost for the strategy pursued by Turkmenistan President Saparmurat Niyazov, who called an abrupt halt to gas deliveries at the start of the year, saying that Russia had not signed a contract for 2001.

Itera had previously criticized Turkmenistan's terms as too costly. But the company said last week that it would pay Ashgabat's demands for $40 per thousand cubic meters, half of which is to be in barter and the other half in cash.

Although no reason was cited for Itera's change of mind, the move may be a sign that Russia is feeling the effects of a gas shortage brought on by its own export policies and lagging investment.

Last year, Russia increased its gas exports to Europe by 1.8 percent to take advantage of higher energy prices. But Russia's gas production fell 1.3 percent, squeezing its domestic supplies. Russia may now need gas from isolated Turkmenistan to make up the difference.

The new agreement means that Turkmenistan has succeeded in raising its tariffs to Russia twice in the course of the past year. In December 1999, Ashgabat concluded a deal to supply 20 billion cubic meters to Russia at $36 per thousand cubic meters. Last September, Itera agreed to pay a $38 rate for an additional 10 billion cubic meters. Now Russia will pay $40. In both of last year's contracts, Russia made only 40 percent of its payments in cash. The new deal raises both the price and the proportion of cash.

Although Niyazov originally demanded $42 last September, he has now succeeded in increasing the tariff for Russia to the same level that he is charging Ukraine. Kyiv recently offered to double its gas imports from Turkmenistan to 60 billion cubic meters per year.

The proposal could spark a mix of concern and anger in Moscow, since Ukraine has fallen behind in its payments to Itera for the Russian gas it uses at its power plants. Turkmenistan has only agreed to supply Ukraine as long as it pays in advance. Itera handles both the Russian and Turkmen gas deliveries to Kyiv. The situation has allowed Ukraine to scrape by without paying Russia, as long as it pays Turkmenistan.

A major increase in gas for Ukraine could also come at Russia's expense because the pipelines through Uzbekistan and Kazakhstan may be limited in capacity. Russia appears to be reserving at least 10 billion cubic meters in case Ukraine succeeds in negotiating for more Turkmen imports.

But the benefits for Turkmenistan remain questionable. The amount of the Russian deal is less than the 30 billion cubic meters that the two sides tried to negotiate for this year. It is also far less than the 50 billion cubic meters a year that Russian President Vladimir Putin discussed with Niyazov when he visited Ashgabat last May.

At the time, Putin's bid to sign a 30-year agreement for major supplies from Turkmenistan was seen as a strategy to monopolize the country's exports in order to block a trans-Caspian pipeline project that was backed by the United States.

Although the pipeline plan has languished, the Russian deal also never materialized because of the tariff dispute. Niyazov eventually rejected the idea of any long-term contract with Russia as a ploy to lock in low prices for years to come.

But Turkmenistan has now been left in a precarious position with Ukraine as its primary customer. And despite high hopes for increasing gas sales to Iran, Turkmenistan's exports to the south remain relatively small and have grown only slowly.

Kyiv's record of paying for energy imports is hardly reliable, while Turkmenistan must depend on Russian transit for any sales to Ukraine at all. In late January, Itera sent a letter to Ukrainian President Leonid Kuchma, threatening to halt the transit of Turkmen gas unless Kyiv paid for the Russian gas it received. While Itera has yet to make good on its threat, the possibility shows the risk of relying on Ukraine.

A commitment to double gas exports to Kyiv would leave Ashgabat twice as vulnerable. If Itera does stop carrying Turkmen gas to Ukraine, Moscow could give itself far greater bargaining power with Ashgabat over the tariff issue.

The situation may explain why the latest Russian deal with Turkmenistan is so small. Russia may need gas, but it is unlikely to sign a big deal if it can get better terms later on.