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Ukraine: Latest Russian Proposal On Gas Debts Turned Down

Ukraine's Prime Minister Anatoliy Kinakh has rejected Russia's latest formula for settling gas debts. Despite earlier commitments, Kyiv is resisting pressure to finance the arrears with a sovereign guarantee. Our correspondent Michael Lelyveld reports.

Boston, 3 July 2001 (RFE/RL) -- Ukraine has rebuffed Russia's latest bid to settle their nagging problem of gas debts by refusing to accept arrears as a responsibility of the state.

Speaking at a press conference last week, Ukrainian Prime Minister Anatoliy Kinakh said his government opposes Russia's plan to end the dispute over the debts of the national energy company, Naftogaz Ukrainy, Interfax reported.

Russian Deputy Prime Minister Viktor Khristenko had proposed that the debt for 1998 and 1999 be restructured by issuing Eurobonds that would be guaranteed by Ukraine. Kyiv's failure to pay for Russian gas has been one of the biggest controversies between the two countries for the past decade, leading to a series of reschedulings and debt deals in the past.

Khristenko voiced confidence to reporters in Moscow last Thursday (28 June) that the matter would be settled after meeting with Ukrainian First Deputy Prime Minister Oleh Dubyna. The officials indicated that Ukraine was ready to issue 1.4 billion in Eurobonds to restructure the debt, Interfax said.

But one day later in Ukraine, Kinakh rejected the idea. He acknowledged that "there is an agreement to convert until 30 April 2001 this corporate debt into securities against government guarantees," but he noted that the pact was negotiated by officials who no longer hold their posts.

Kinakh was referring to the government of former Prime Minister Viktor Yushchenko, who was ousted by the Ukrainian parliament two months ago. Last December, Khristenko and a Ukrainian counterpart signed two agreements to assure Russian supplies of gas for the winter by converting some obligations into sovereign debt.

Despite Kinakh's suggestion, the pacts were signed on behalf of presidents Vladimir Putin and Leonid Kuchma, who had agreed on the principles two months before and then authorized the deal.

But the new Ukrainian government seems to have surprised Russia by rejecting the principle that the state should ultimately be responsible for uncollected bills. Officials have argued that the arrears are those of private firms, although it is unclear that this distinction is anything more than a cover.

In one sense, this latest episode is typical for a dispute in which sincerity has been in even shorter supply than fuel. Ukraine has stalled for years on the problem of wasting Russian gas, much of which is supplied by Moscow as a fee for pipeline transit to Europe, which pays cash.

For its part, Russia has tried to use the gas debt as a way to gain control of the transit lines, while threatening to build bypasses through Poland and across the Baltic Sea to cut Ukraine off.

Kinakh's hard line on the debt was unexpected because Ukraine has seemed at a disadvantage. The recent appointment of former Prime Minister Viktor Chernomyrdin as Moscow's envoy to Kyiv came at a time when Kuchma was under fire and was glad for Putin's support.

Russia's gas monopoly, Gazprom, also seemed to be winning the battle of bypass strategies by combining with its European partners on feasibility studies for the new routes. Much of the activity has been based on the European Union's goal of doubling energy imports from Russia over the next 20 years.

But the latest figures on Russian exports to Europe suggest that the trend has turned down rather than up. Interfax reported last week that gas deliveries to Europe fell sharply in the first five months of this year, a possible sign of problems in Russia and the threat of recession in Germany. Gazprom said its output dropped more than 3 percent in the first quarter, which it blamed on declining resources in west Siberian fields.

Poland may also have blocked Russia's plan for a Baltic pipeline to Germany by committing to build its own Baltic line to Denmark first. Two lines may be unable to cross undersea, easing the threat that Russia would be able to bypass both Poland and Ukraine. Warsaw has yet to agree to a plan that would isolate Kyiv.

Over the years, the gas struggle between Russia and Ukraine has also been seasonal. Unless Russia can build a bypass immediately, it will have to rely on Ukraine again for 90 percent of its exports to Europe through another winter heating season. That problem could give Kyiv a temporary edge in negotiations.

Despite all of Russia's maneuvers the gas game goes on, while Ukraine keeps trying to put distance between itself and its debts.