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Russia: Questions Linger About Moscow's Natural Gas Plans

The prime ministers of Russia and Ukraine said in early April that they are preparing to sign a 10-year gas transit deal by June. The agreement may calm concerns in Kyiv about the effects of Moscow's plans for bypass pipelines through Poland and Slovakia.

Boston, 12 April 2002 (RFE/RL) -- Fears have risen again in Ukraine over Russia's plans to find other transit routes for natural gas exports to Europe. But all signs suggest that Moscow cannot afford to pursue major pipeline projects for now.

Russia's decade-old effort to secure outlets for its vital gas exports seemed to be moving on several fronts at once this week with talks in Moscow, Warsaw and Weimar, Germany.

The problem of access for gas exports has been a preoccupation for Russian leaders ever since the Soviet breakup left the main Progress pipeline system in the hands of Ukraine. Since taking office two years ago, Russian President Vladimir Putin has been relentless in pursuing strategies to gain control of the transit pipelines through Ukraine or to bypass the country with new lines through Poland and Slovakia.

Aside from oil, gas is Russia's biggest hard-currency earner. Russia supplies one-fourth of Europe's gas, while 90 percent of the flow goes through Ukraine. The route has been a source of both cheap gas for Ukraine and endless disputes with Moscow. Charges of pilfering from the pipeline and Ukraine's $1.4 billion gas debt were supposed to be settled in October, when a deal was reached to restructure the debt over 12 years. But Ukraine's anxiety has continued over Russia's long delay in accepting bonds to back the debt scheme and its continued campaign to find bypass routes.

On 9 April, an energy expert warned Ukrainian officials in Kyiv that the country could lose over $1 billion in transit fees if Russia succeeds in building an alternate pipeline through Poland, AP reported. Volodymyr Saprykin of Ukraine's Razumkov Center for Economic and Political Research said, "It means the loss of Ukraine's monopoly for gas transit." He added, "It may not happen today, but it's possible in five to seven years."

But the possibility may be less threatening after a meeting in Moscow between Prime Ministers Anatoliy Kinakh of Ukraine and Russia's Mikhail Kasyanov. Kinakh said after the meeting on 10 April that the two countries will sign a 10-year gas transit deal by June. Kasyanov confirmed the plan, saying that the sides were also considering ways of making the pipelines secure.

Kasyanov said, "By June, specialists of the two countries will have provided a set of measures to become the foundation of the bilateral document," the Russian official news agency RIA-Novosti reported. Kasyanov also said the debt problem was "practically solved," a phrase that has prompted worries in the past because Russia has yet to explain the reason for delays in approving the bonds. He said there is only one legal "snag" left, without elaborating.

But according to RIA-Novosti, Ukraine has agreed to honor the debts if the national gas company Naftogas Ukrainiy fails to pay them off. That point has been critical for Moscow in the past.

While the terms of the transit deal are unknown, the 10-year commitment suggests that Russia may be resigned to Ukrainian transit, even if it develops other routes in the long term. The Progress system still has vast unused capacity, which would be costly to recreate somewhere else. The biggest hindrance may be that Russia's Gazprom lacks the funds to fulfill its bypass plans. In March, Gazprom joined with Germany's Ruhrgas and Gaz de France in a $2.7 billion deal to buy 49 percent of the Slovensky Plynarensky Priemysel, the Slovakian gas system known as SPP. The move again stirred fears in Ukraine of a pipeline detour. But Gazprom's partners supplied all of the cash, because the company's finances are strapped.

In March, the industry newsletter "Petroleum Argus" quoted an unnamed official of the Polish Oil and Gas Company as saying that "Gazprom has dropped its plan for a pipeline bypassing Ukraine" due to lack of funds. A link to Slovakia would cost an estimated $1 billion. Russia has also delayed plans for building a second branch of its Yamal Peninsula gas line through Poland, because the first already has unused capacity, "Petroleum Argus" said.

In Poland, the gas issue is both financial and political. On 11 April, Gazprom Chairman Aleksei Miller held talks with officials in Warsaw about their demands to ease the terms of a 1993 take-or-pay contract because Poland's gas consumption has lagged. Gazprom has been pressing Poland to spend $200 million to finish the first Yamal line.

But the government has also been sensitive about the effect of a bypass on Ukraine. In addition, the daily "Gazeta Wyborcza" reported on 11 April that prosecutors in Gdansk have opened a probe into Poland's losses from construction of the Yamal project.

During Putin's talks on 10 April with German Chancellor Gerhard Schroeder in Weimar, the issue of gas exports also surfaced. Putin voiced concern to a business audience over new European Union competition rules that limit the share of energy that a member nation can import from a non-member to 30 percent. "If we are talking about a common economic space, we should take measures and change the rules, and put Russia in the picture, too," RIA-Novosti quoted Putin saying.

Russia has been highly critical of the EU regulations, arguing that they threaten Gazprom's long-term contracts. The issue may be one more reason why Moscow may be turning more cautious about new investments to build pipelines around Ukraine.