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Turkmenistan: Russia May Come To Terms On Gas Deal

Russia has announced new plans for a long-term gas deal with Turkmenistan, although previous agreements have stalled over Ashgabat's price demands. This time, larger forces may be in play as Ukraine holds talks with Russia to re-export Turkmen fuel to Europe and Moscow seeks a settlement on division of the Caspian Sea.

Boston, 24 September 2002 (RFE/RL) -- Turkmenistan may be taking a step toward Russia with the outlines of a long-term gas deal, but it remains unclear how far the agreement will go.

Previous attempts to craft contracts have repeatedly failed since Russian President Vladimir Putin visited Ashgabat in May 2000 and declared Russia's plans to buy huge volumes of Turkmen gas for the next 30 years.

Last week, after meeting with Turkmen President Saparmurat Niyazov in Ashgabat, Energy Minister Igor Yusufov said Russia would buy 10 billion cubic meters of Turkmen gas annually starting in 2005 and more than 20 billion beginning in 2008, Interfax reported. The figures fell far short of the 50 billion cubic meters that Putin and Niyazov discussed two years ago.

It was also less than the 30 billion cubic meters that Turkmen officials announced last October after talks on a gas partnership agreement with Russia. In December, the two countries reached a 10-year pact calling for deliveries of 10 billion cubic meters in 2006 and up to 80 billion on 2011, Platts news service reported. But so far, no contracts have been signed.

The offers have often seemed more plentiful than the gas. As recently as June, Niyazov again told Putin he could sell Russia up to 50 billion cubic meters, according to Interfax. In July, the official newspaper "Neitralnyi Turkmenistan" reported that Russia's Gazprom wanted to buy 30 billion cubic meters, "and in the future, up to 60 billion cubic meters."

But in the near term, the numbers have had to conform to reality. The capacity of the decaying former Soviet pipelines between the two countries is crimped and largely taken up with Turkmen supplies to Ukraine, which Moscow sanctioned to limit its exposure to Kyiv's energy appetite and debt.

Yusufov said last week that Russia would buy Turkmen gas "on the residual principle" during the next two years, the official Russian news agency RIA-Novosti reported. In other words, Russia's gas monopoly Gazprom will buy leftover gas from the pipeline after the needs of Ukraine and the independent gas trader Itera are met. Those amounts are likely to be small. Instead of the 10 billion cubic meters that Turkmenistan planned to export to Russia last year, the country supplied only 2 billion, according to Platts.

Gazprom plans to rebuild one of the lines in the transit system from Turkmenistan, the company's deputy chief executive, Yurii Komarov, told Interfax last week.

But a major missing factor in the latest announcements continues to be the price. The two countries have argued for years over gas tariffs, and there have been some signs that they could be getting even further apart. In August, Interfax reported that Turkmenistan insisted on selling gas to Russia for "not less than $44-$45 per 1,000 cubic meters," while Russia planned to buy it for $32 to $33. In the past, Russia has paid as much as $42, but only half in cash.

Niyazov has often spoken about prices in terms that make clear how much he resents how much more Moscow charges for the gas it sells in Europe and how much less it paid Turkmenistan in Soviet times.

But two new factors may now be coming into play in the negotiations. The first is a possible transit agreement that could allow Turkmen gas to reach Europe through Ukraine.

Early this month, the head of the Ukrainian oil-and-gas company, Yuriy Boyko, announced that the country would start re-exporting its surplus of Turkmen gas to Europe next year. Gazprom has previously raised loud protests over the idea because Naftohaz Ukrayiny's sales have undercut Russia's prices in Europe. But this time, the sides are still talking about re-exports.

Last week, spokesman Kostiantyn Borodin said Naftohaz Ukrayiny will form a venture with Gazprom to sell Turkmen gas to Hungary's MOL oil company, Bloomberg News and the "Budapest Business Journal" reported. It is unclear how much Turkmenistan will share in the profits, but the arrangement could be part of a compromise on Russia's cost for Turkmen gas.

A second factor may be Russia's campaign for an agreement on dividing the Caspian Sea. As a last holdout along with Iran, Turkmenistan may hold the key.

Russia has been trying to sell its formula on splitting the seabed as a way to end a decade-old standoff on the post-Soviet boundaries of the five shoreline states. Iran has resisted, in part because the median-line plan would leave it with 13 percent instead of the equal 20 percent that it claims. So far, Russia has signed two border pacts: one with Kazakhstan in May and another with Azerbaijan yesterday during President Heidar Aliev's visit to Moscow.

If Russia can reach a similar border accord with Niyazov, Iran could effectively be left with the remaining share. The alternative would be to negotiate the issue separately on its northern borders with Azerbaijan and Turkmenistan, rather than continuing to argue that a five-way agreement is the only way to legitimize any bilateral deals.

In recent days, Iran has sent mixed signals on its flexibility. Last week, Iran's Caspian envoy Mehdi Safari tried to counter speculation that recent talks are leading to a compromise, telling IRNA that the country's position remains "unchanged." Safari said Iran "intends to defend its right to 20 percent of the surface and the seabed," IRNA reported.

But in a commentary, the official English-language "Iran Daily" said Sunday that Tehran's claims may not be recognized by its neighbors and that the country lacks "sufficient technological means" for Caspian development. The argument suggests that a joint venture could provide a basis for compromise, after all.

Russia may now see a chance to advance its energy agenda on more than one front by coming to terms with Turkmenistan. If that is its plan, then it may also prove more flexible in meeting Niyazov's price for Turkmen gas supplies.