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Turkmenistan: Ashgabat Plans Rise In Gas Exports To Kyiv

President Saparmurat Niyazov said last week that Turkmenistan is about to sign a major gas agreement with Ukraine. But Russia's reaction will be crucial to whether the deal goes through. Our correspondent Michael Lelyveld reports.

Boston, 3 May 2001 (RFE/RL) -- Turkmenistan plans a sharp rise in its gas sales to Ukraine over the next five years, but the deal could increase Ashgabat's economic risk.

Speaking in Istanbul last week, President Saparmurat Niyazov told a news conference that Turkmenistan will sign an agreement this month to nearly double its gas exports to Ukraine. The accord is expected to be signed with President Leonid Kuchma during Niyazov's two-day visit to Kyiv starting 13 May.

The plan calls for raising gas exports to Ukraine from the current level of 30 billion cubic meters to 50 billion annually. Last February, the national petroleum company Naftogaz Ukrainy said that it wanted to buy up to 60 billion cubic meters of Turkmen gas per year.

Turkmenistan's gas sales to Ukraine can be seen as one of Niyazov's most successful trade policies. Despite widespread doubts about its record, Ukraine has reportedly kept its pledge to make payments to Turkmenistan on time since last year. Kyiv is required to pay for half of the gas in cash, with the rest in goods and services.

Increased gas sales to Ukraine helped to drive a 17.6 percent jump in Turkmenistan's gross domestic product last year. This year, the economy is forecast to grow by another 16 percent, the Economist Intelligence Unit said.

Ukraine has also been participating in an increasing number of Turkmen projects as part of its barter arrangement. Kyiv has been helping to build a bridge over the Amudarya River, as well as civil works in Ashgabat, compressor stations, and a fertilizer plant.

Last month, Turkmenistan said it would award several Caspian oil and gas blocks to Ukraine for exploration. The two sides are scheduled to sign a 10-year economic pact.

But the involvement with Ukraine is not without problems.

Kyiv is in crisis after a no-confidence vote against Prime Minister Viktor Yushchenko and demonstrations against Kuchma. The turmoil could raise questions about any new agreements that Ukraine signs.

Barter trade also makes it hard to place a value on Ukraine's total payments. Turkmenistan has already rescheduled the country's past debts twice, giving sales to Ukraine a higher real cost.

Ukraine has become Turkmenistan's biggest customer, following the failure to renew a gas agreement with Russia at the same level as last year. With the latest increase, Ukraine may account for over 70 percent of Turkmenistan's gas exports. Yet, the gas must be piped through Uzbekistan, Kazakhstan, and Russia, making the deal potentially dependent on priorities in Moscow.

Since Ukraine owes Russia nearly $2 billion for gas, Moscow could take the position that any payments to Turkmenistan are at Russia's expense. Over the winter, the Russian gas trader Itera threatened to stop deliveries from Turkmenistan unless Ukraine's bills for Russian gas were paid.

The question for Turkmenistan is whether Russia will allow its trade with Ukraine to flourish, using Russian pipelines. If the deal goes through, Turkmenistan would replace Russia as Ukraine's biggest supplier, perhaps making it even less likely that Kyiv will pay its debt to Moscow.

While Russia is working on alternatives, it continues to ship 90 percent of its gas to Europe through Ukrainian pipelines. It has agreed to pay 30 billion cubic meters of gas to Ukraine for transit this year.

With the addition of 50 billion cubic meters from Turkmenistan, Ukraine would have more gas than it needs, freeing it to sell some in Europe, where it could compete with Russia's Gazprom.

Moscow seems unlikely to tolerate such a possibility, particularly when it may need more Turkmen gas for itself to meet its export commitments to Europe. Niyazov insisted last week that his country can supply "any amount" of gas to other countries like Turkey. But in reality, export capacity is limited. More Turkmen gas for Ukraine is likely to mean less available for Russia, and perhaps for Turkey and Iran.

So far, Niyazov has succeeded in boosting exports and recovering much of the growth that was lost during a dispute with Russia over pipeline transit in 1997. But the deal with Ukraine could lead to a new conflict unless it wins approval from Moscow.