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Ukraine: Turkmen Gas Accord May Also Benefit Russia

Turkmenistan could replace Russia as the main source of gas for Ukraine under an agreement signed last week. But the deal may also benefit Moscow, which has been trying to collect $2 billion in Ukrainian gas debts. RFE/RL correspondent Michael Lelyveld reports.

Boston, 21 May 2001 (RFE/RL) -- Russia's gas giant Gazprom could be a silent beneficiary of Turkmenistan's decision to become the prime gas supplier to Ukraine.

Last week in Kyiv, Turkmen President Saparmurat Niyazov signed an accord with President Leonid Kuchma that will provide Ukraine with 250 billion cubic meters (bcm) of gas over the next five years. Kuchma called the agreement "an historic event," saying that it would "ensure the needs of [the] economy and of the Ukrainian population for a stable energy supply."

This year, Turkmenistan is expected to export 30 bcm of gas to Ukraine. That amount could double by 2006, covering up to three-fourths of Ukraine's gas demand. Although Ukraine is the world's sixth-largest gas consumer, it produces only about 18 bcm per year. The remainder has come from Russia's gas monopoly, Gazprom.

The agreement with Turkmenistan would reduce Ukraine's reliance on Russia and could alter the mutual dependence which has been at the heart of the region's energy security problems for years.

About 90 percent of Russia's gas exports to Europe pass through Ukrainian pipelines. Gazprom pays Kyiv 30 bcm a year as a transit fee. But Ukraine has regularly diverted even more fuel to meet its needs. Kyiv now owes Russia about $2 billion in gas debts, giving Gazprom a strong motive for seeking control over the transit pipelines.

Russia could object to the Turkmen deal on several grounds.

First, the alternate gas supply could lessen Russia's leverage over Ukraine and make it less likely that it will ever get repayment of its debt. Russia's reduced influence as a supplier might also make it more likely that Ukraine could divert gas with impunity.

In addition, more Turkmen gas for Ukraine could mean less available for Russia. Last year, Russian President Vladimir Putin reached a preliminary accord with Niyazov to buy 50 bcm of Turkmen gas a year. But the deal fell through because of disputes over the price. Now, it seems that the gas will go to Ukraine instead.

Moscow may also find reason to be unhappy about how much Ukraine has agreed to pay. Turkmenistan will charge Kyiv $42 per thousand cubic meters, allowing Ashgabat to impose its second price increase in recent months. In February, Russia reluctantly agreed to pay $40 after Turkmenistan halted its deliveries at the start of the year.

But despite all the drawbacks, there could be significant advantages for Russia. So far, Moscow has done nothing to block the Turkmen deal, which relies on transit through Russian pipelines to Ukraine.

One possible benefit is that it may reduce Russia's risk that Ukraine will pile up more debts for gas. That risk may now shift to Turkmenistan as Ukraine's new primary supplier.

Kyiv already owes Ashgabat some $400 million. Reportedly, it has been paying for half of the gas with cash in advance, with the rest in goods and services. But the real value of the barter is unknown, raising doubts about how much has been paid and how much is owed.

In addition, more Turkmen supplies may lower rather than raise the risk that Ukraine will divert Russia's transit gas since Kyiv will now have more gas to satisfy its needs.

"Petroleum Argus," an industry newsletter, says Gazprom may also profit because its trading partner Itera will take 40 percent of the gas as a transit fee. The provision makes the increase for Ukraine far smaller than most reports suggested last week.

Perhaps most important, the deal may make it possible to separate the gas flow through the region into two stages. Turkmen gas will supply Ukraine, while Russian gas will flow through Ukraine to Europe to be sold at a higher price.

If the plan works, Russia will benefit at least as much as Turkmenistan and Ukraine. And if it fails, Moscow's new ambassador to Ukraine, Viktor Chernomyrdin, can renew Russian efforts to gain control over the pipelines.