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Ukraine: Kyiv Piling Up Debts For Fuel, Despite New Gas Deal With Turkmenistan

Despite a new gas deal to be signed on 26 October by Turkmenistan and Ukraine, Kyiv is continuing to pile up debts for its imports of fuel. Ashgabat has hailed the higher prices it is charging for its gas exports, but even President Saparmurat Niyazov has complained that the country is not being paid.

Boston, 25 October 2002 (RFE/RL) -- Turkmenistan has succeeded in raising its gas prices in a new export deal with Ukraine, but there are doubts about whether the trade will produce higher profits or debt.

The two countries are scheduled to sign an agreement on 26 October in Ashgabat for gas supplies to Ukraine next year, providing Turkmenistan with an increase in both volume and price.

On the surface, the deal coinciding with the 11th anniversary of Turkmenistan's independence would mark a step forward for the country's economy, which is highly dependent on gas and its main export market in Ukraine.

Kyiv has agreed to buy 36 billion cubic meters (bcm) of Turkmen gas next year as part of its five-year deal to import 250 bcm by the end of 2006. Next year's volume would grow by 2 bcm, while the price would rise from $42 to $44 per thousand cubic meters.

That should mean extra revenue for Turkmenistan's cash-strapped economy in a total trade worth nearly $1.6 billion. But it is likely that the deal will bring the country much less than it expects.

Under its long-term agreement, Ukraine is required to pay for only half of the gas in cash, with the remainder to be covered by goods and services. Turkmenistan has made clear in the past week that Ukraine has not even paid all of the cash.

In a telephone call on 21 October, Turkmenistan President Niyazov reminded President Leonid Kuchma that the Ukrainian state oil and gas company has already run up a debt of $150 million for fuel supplies this year. Niyazov asked Kuchma to personally control the payments in the future, the ITAR-TASS news agency reported. Kuchma promised unspecified "additional measures" to speed up Ukraine's repayments and the projects it has undertaken in Turkmenistan.

But the buildup of debt appears to be a violation of Kuchma's previous pledge in October 2000 that Ukraine would pay for gas deliveries in advance on a monthly basis. Niyazov had required prepayment as a condition of resuming supplies after a cutoff due to earlier debts.

It is hard to reconstruct a total of all the debts that Ukraine owes for Turkmen gas because different amounts are owed for different periods. In April, Kuchma acknowledged a debt of $282 million for gas imports in 1993 and 1994. In June, the Naftohaz Ukrayiny company signed an agreement to repay $65 million owed for gas used in 1999. The company also agreed on a schedule to repay $46 million for gas provided this year, but the sudden rise to the current figure of $150 million suggests that payments have fallen into arrears.

The figures indicate that Ukraine now owes a total of some $500 million, greatly reducing the benefit of the $2 increase that Turkmenistan won in its rates for next year. But the country may have little choice for its exports because it has yet to agree on terms for gas sales to Russia, despite a 15-year accord that was initialed in September and would start in 2005.

Until then, Russia has agreed to import the residual amounts of gas that can fit in the old Soviet-era pipelines from Turkmenistan after commitments to Ukraine and the gas trader Itera are fulfilled. That amount may not be much, since the lines have deteriorated. And Russia has balked at the price that Turkmenistan wants it to pay.

Aside from small volumes for Iran, Ashgabat has no other current options. It has hopes for a pipeline through Afghanistan to Pakistan, but the date remains uncertain. A plan to export gas to Europe through Ukraine appears to be bogged down in disputes between Moscow and Kyiv, while the capacity of pipelines seems likely to keep any trade small.

Even worse, Turkmenistan's figures on its exports to Ukraine this year seem especially suspect. Separate reports by the Interfax news agency this month paint a conflicting picture of how much gas trade has actually taken place.

According to Interfax in Ashgabat on 16 October, Turkmen gas exports in the first nine months of the year amounted to almost 30 bcm, of which 90 percent went to Ukraine. That would make sales to Ukraine equal to roughly 27 bcm. But according to an Interfax report from Kyiv one day later, Ukraine imported 14.4 bcm from Turkmenistan, or a little more than half of what Turkmenistan claimed.

Unless the extra gas was taken by Russia as a transit fee, Turkmenistan's exports would appear to be much less than it has said. In any case, Ukraine's rising debt calls the benefit into question.

The report from Ukraine also shows that the country has decreased its gas consumption by 4.3 percent while increasing its imports by a similar amount, a sign that it is meeting more of its needs with unpaid import debt.

Even assuming that Turkmenistan's higher figures are correct, the country seems likely to fall far short of Niyazov's announced goal of exporting 57 bcm of gas in 2002. In order to reach that target, Turkmenistan would have to more than triple its rate of exports in the last three months of the year.