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Russia: Moscow Seeks Large Stake In Ukrainian Gas Pipeline

Russia's natural-gas monopoly Gazprom is said to be forming a lobby in Ukraine to win approval for joint control of the country's pipelines to Europe. Ukrainian opposition leader Yuliya Tymoshenko has vowed to resist the agreement, but powerful industrial forces may be aligned to profit from the billions of dollars in investment for the transit lines.

Boston, 26 June 2002 (RFE/RL) -- Russia appears prepared to become involved in Ukrainian politics in order to pursue its plans for joint control of the country's gas pipelines to Europe.

The industry newsletter "Petroleum Argus" reported last week that Russia is trying to create a lobby of powerful Ukrainian interests to fight political opposition to its pipeline plans.

On Friday, Prime Ministers Mikhail Kasyanov of Russia and Anatoliy Kinakh of Ukraine met in Kharkiv to conclude a series of agreements, including a 10-year transit accord to handle Russian gas deliveries through 2013.

The deal signed by Russia's Gazprom and Naftohaz Ukrayiny will allow Russia to ship at least 110 billion cubic meters of gas through Ukraine annually. Officials said prices and other terms would be settled by 1 July.

The prime ministers also pledged quick implementation of a decision reached two weeks ago by Presidents Vladimir Putin and Leonid Kuchma with German Chancellor Gerhard Schroeder in St. Petersburg to create a consortium for managing and developing the pipelines.

Kasyanov said, "Special working groups will soon work through an intergovernmental agreement to bring the will of our presidents into fruition," Interfax reported.

Putin has said the consortium could attract $2.5 billion in investment to Ukraine for upgrading the aging pipelines and $15 billion more in the next decade for developing the gas network.

Ukraine hopes the deal will also end Russia's plans to build bypass routes around the country to handle the expected growth in gas exports to Europe over the next 20 years.

In a market comment, the Moscow investment firm United Financial Group gave the pact good reviews, saying, "Having resolved the Ukrainian transit problem, Gazprom will not only reduce current gas losses, but will also be able to abandon its expensive plans to build alternative export routes across Poland or the Baltic Sea."

UFG said the agreement would also "provide Gazprom with control over gas [siphoning] by Ukrainian consumers." The Russian monopoly has long sought such control because of unauthorized diversions of its gas shipments in the past. The diversions have left Ukraine with an unsettled $1.4 billion in debt.

But the pact may also produce a political struggle because Ukraine has resisted all previous variations of Russian control over its pipelines for years.

Opposition leader Yuliya Tymoshenko, a former deputy prime minister, has vowed to fight the agreement, which requires legislative approval in Ukraine.

"Petroleum Argus" said Russia is preparing to counter the resistance by forming a Ukrainian "Gazprom lobby." The group is said to include industrial interests that would benefit from the massive investment in the gas network.

The newsletter said, "Ukrainian pipeline producers -- united into the so-called 'Donetsk clan' -- appear keen to support the proposed consortium." The newsletter named the Industrial Union of Donbass, which controls the Khartsiz pipe plant, and the Interpipe Corporation, based in Dnipropetrovsk. It listed metallurgy groups and equipment makers as "likely backers," saying, "All these companies offered to support the joint venture if it chooses Ukrainian rather than foreign pipes."

Russia may have just the man to lead such a lobbying effort in former Prime Minister Viktor Chernomyrdin, now Moscow's ambassador to Ukraine and a past chairman of Gazprom.

Ironically, the same Ukrainian manufacturing sector has been embroiled in a near-trade war with Russia for the past two years. Russian charges of dumping and threats of 40 percent tariffs led to an agreement on quotas for Ukrainian pipes last year.

But the matter refused to stay settled as Russia imposed duties and Ukraine retaliated with tariffs on a range of other Russian goods in March. Last year, the "Kyiv Post" quoted economists as saying that Russia was using the dumping issue to pressure Ukraine on accepting control of its transit lines.

The economic stakes for Ukraine are high. The paper said that steel exports accounted for 15 percent of the country's gross domestic product two years ago.

Since the start of the controversy, reports have suggested that Gazprom was a reluctant participant in protectionist measures for Russian pipe makers. As a main customer of the Ukrainian factories, Gazprom is said to have preferred its less costly pipes. Despite the flap over tariffs and quotas, the old links could make the current alliance a formidable force.

The report of the lobbying effort seems to be a sign of problems to come on the transit accord. While political leaders have portrayed the gas agreements as an end to the disputes, they may only be the start.