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Ukraine: Kazakhstan Cuts Off Gas Deliveries

Ukraine is said to be dealing with a new gas cutoff by Kazakhstan after failing to settle its debts to the Russian gas trader Itera. The move may be part of a strategy to pressure Kyiv by interrupting its fuel supplies from Turkmenistan. Our correspondent Michael Lelyveld reports.

Boston, 13 July 2001 (RFE/RL) -- Kazakhstan has reportedly reduced the flow of gas from Turkmenistan to Ukraine in the latest dispute over Kyiv's refusal to honor the debts of its energy companies.

This week, Vadym Kopylov, the head of the state energy company Naftogaz Ukrainy, told the Interfax news agency that Kazakhstan has cut gas deliveries from Turkmenistan by almost half. Pipeline routes from Turkmenistan run through Uzbekistan, Kazakhstan, and Russia on their way to Ukraine.

Kazakhstan's move is the result of a chain of events that started in January when the Russian gas trader Itera announced that it was stopping gas supplies to Ukraine because its power companies owed $64 million in overdue bills.

The power companies claimed that their customers were not paying them. Naftogaz Ukrainy and the government declined to take responsibility for the debts.

Itera soon found that a complete cutoff was impossible, because the power companies simply diverted the gas they needed out of the flow of Russian deliveries to Europe, which run through Ukrainian lines.

At the time, Itera said that Russia's Gazprom was the source of the gas that was delivered to the Ukrainian generators. The unpaid bills were only a fraction of the $1.4 billion that Russia has been trying to collect for past supplies to Ukraine.

But at the same time, Itera was also handling Turkmenistan's gas exports to Ukraine. Ashgabat had agreed to supply Kyiv as long as it paid in advance. Itera continued to carry the Turkmen gas to Ukraine, presumably because it could profit from the separate deal.

It now appears that Itera has shifted its tactics by delaying payment to the Kazakh pipeline company Intergaz for Ukraine's supplies of Turkmen gas. According to Interfax, Kazakhstan threatened to cut the gas transit unless Itera paid for earlier services to Ukraine.

Itera in turn has blamed the Ukrainian power companies for failing to pay their debts, which it now estimates at $56 million. Itera seems to be implying that the Ukrainian generators were using Turkmen rather than Russian gas when they stopped paying their bills. The effect is to make Ukraine's nonpayment a problem for Turkmenistan and Kazakhstan rather than Russia.

That strategy could prove successful over time. Ukraine may be able to endure the reduction during the summer, when gas demand is low. But as winter approaches, it may have to pay the debts or find another solution. Turkmenistan may also bring pressure to bear on Ukraine, which now accounts for about half of its gas exports.

The situation will test the policy of the Ukrainian government, which has steadfastly refused to take on the debts of either Naftogaz Ukrainy or the power companies as its own.

Last month, Ukrainian Prime Minister Anatoliy Kinakh spurned a Russian proposal to restructure the energy company's gas debts by issuing Eurobonds that would be guaranteed by the state. The position was quickly supported by President Leonid Kuchma.

Last week, Kuchma said: "This question cannot be put this way at all. Corporate debts will never become state ones," Interfax reported. The government has also rejected a Russian plan to swap the debt for stakes in Ukrainian companies or control of the country's pipelines.

Last January, both Kuchma and former Prime Minister Viktor Yushchenko negotiated with Itera in an effort to avoid a gas shutoff. But Kinach has since refused to honor the commitments that Yushchenko made.

Russia may now have found a more effective way of pressuring Ukraine by shifting some of the debt burden onto other suppliers. If the strategy works, Turkmenistan and Kazakhstan may soon apply more pressure of their own.