Conflict
Russia, Ukraine cannot divide gas again
Russia has started 2009 with another gas war. The results of the campaign are as follows: Ukraine is left without gas, Russia without gas transit, and both countries are quickly ruining their reputation in the face of freezing Europe.
Though Naftogaz of Ukraine and Russian gas giant Gazprom conducted intensive negotiations, they failed to sign a direct contract on gas supplies to Ukraine in 2009 before the New Year. There were three stumbling blocks: gas prices for Ukraine, tariffs for Russian gas transit to Europe, and Naftogaz's debts to Gazprom. On New Year's Eve, the Ukrainian delegation left Moscow, and on January 1 Gazprom stopped gas supplies to Ukraine. After that, the sides' stories differ.
UKRAINE'S VERSION
By the end of the year, Naftogaz had paid all its debts to Gazprom, amounting to $1.5 billion. Nevertheless, Gazprom cut off export supplies in order to make Ukraine buy Russian gas at a higher price while paying a low price for its transit to Europe. It thus left the republic without gas and discredited it in the eyes of its Western partners. These are the main points in a series of statements made by high-ranking Ukrainian officials and Naftogaz top managers during the past ten days.
"In 2008, Naftogaz imported gas at $179.50 per 1000 cubic metre, and Gazprom paid $1.60 for the transit of the same amount of gas per 100 km to Europe. At first, Gazprom proposed a rise in gas price to $250 and in gas transit tariff to $1.70. Our proposal was $235 per 1000 cubic metres and $1.80 for gas transit. We did not come to terms, and each side agreed to differ," said Oleg Dubina, Chairman of the Naftogaz board, on January 1.
Starting January 1, Gazprom reduced gas supplies to Ukraine by the exact amount needed by the country. Russian gas transit to the EU continued in the amount of 318 million cubic metres a day. Naftogaz admitted that it siphoned off a part of this gas (about 21 million cubic metres) for technical needs, in order to pump gas to Europe.
Naftogaz does not plan to use its own reserves for this purpose, Dubina explained, asserting that only Ukrainian gas and Naftogaz's own stocks from underground gas storages (about 16 billion cubic metres of gas) were used for domestic consumption. By January 6, the amount of "technical" gas pumped out of the transit pipe reached 86 million cubic metres. Gazprom accused Naftogaz of stealing gas "in unprecedented amounts" and reduced gas transit volume to 60 million cubic metres by January 6 (according to Naftogaz's data). Early in the morning on January 7, Gazprom fully stopped gas supplies to Ukraine. In order to prevent a fall of pressure in its pipe, Ukraine turned its tap off, Valentin Zemlyansky, a Naftogaz spokesman, said.
The Ukrainian side no longer wants to pump gas for $1.60 per 100 km. The Kyiv economic court of appeals examined Naftogaz's claim and invalidated the appendix to its contract with Gazprom for the 2006-2013 period, which contained the above figure.
RUSSIA'S VERSION
Gazprom did not receive the $1.5 billion transferred by Naftogaz at once; besides that, Naftogaz still owes over $600 million to Russia, a Gazprom spokesman said.
According to Prime Minister Vladimir Putin's statement on Thursday, at first Gazprom offered Ukraine a super preferential price for 2009 - $250 per 1000 cubic metres. Meanwhile, the average purchasing price of Central Asian gas, which goes to Ukraine in the amount of about 55 billion cubic metres a year, has been raised to $340 per 1000 cubic metres. Considering gas transportation to Ukraine, the price comes to $375. However, Ukraine would not agree even to the cut price, following Yushchenko's personal instructions (according to Putin).
On December 31, the Naftogaz delegation suspended negotiations with Gazprom and left Moscow (Dubina denies that he received such instructions from Yushchenko). Starting January 6, Ukraine began to reduce gas transit (gas was pumped into its pipe but did not go to Europe), and on January 7, Naftogaz completely stopped Russian gas transit to the EU. "When we saw during the day that no gas was going to Europe from Ukraine, we cut off gas supplies to Ukraine at 5.40 p.m.," the Prime Minister explained. Simultaneously, Gazprom increased gas transit via Belarus and Turkey, and intended to compensate for consumers' losses from European gas depots and through spot transactions, the gas concern's representatives explained.
Gazprom Deputy CEO Alexander Medvedev says that Ukraine should now pay $450 per 1000 cubic metres of the stolen gas. According to him, Naftogaz itself should provide gas for technical needs, as its cost is included in the transit tariff. The same price is offered for gas supplies to Ukraine in January, Gazprom CEO Alexei Miller added.
The Kyiv court's verdict on the transit contract is "unheard off", Gazprom comments. Putin recalled that the transit contract was concluded in keeping with Swedish law and the Russian gas concern had already appealed to the Court of Arbitration in Stockholm demanding that Ukraine be forced to meet its contract obligations. The contract will be valid until 2013 and there is an appendix to it that fixes the current transit rate through December 31, 2010.
WHAT NEXT?
The main condition for the resumption of gas supplies to Europe as set by Gazprom is the monitoring of Russian gas flows via Ukraine by independent inspectors. Ukraine must resume gas transit and sign the document on setting up an international monitoring mission to record gas volumes supplied by Gazprom and those received by Europe, said Dmitry Peskov, Putin's press secretary.
Yesterday, the protocol on the establishment of such a mission was signed by Russian Deputy Prime Minister Igor Sechin and Gazprom CEO Alexei Miller, on Russia's behalf, and by Prime Minister of the Czech Republic (which holds the rotating presidency of the EU now), Mirek Topolanek, on behalf of the EU. For the document to take effect, it must be signed by a Ukrainian representative (Topolanek was expected in Kyiv last night) and the EU Energy Commissioner, Andris Piebalgs.
According to calculations made by Mikhail Korchemkin, Director of East European Gas Analysis, in the first week of the gas war Gazprom's direct losses were not great: losses from Ukraine's unsanctioned gas siphoning from January 1 to 6 amounted to $40 million. However, starting January 7, the concern's daily losses come close to $120 million (to compare: the Gazprom group's daily revenues in the first half of last year amounted to about $200 million). This is not the first case of gas theft by Ukraine, and therefore the suspension of gas supplies is an adequate response by Russia to Ukraine's actions, a Gazprom spokesman said.
Image losses may prove substantial for both Russia and Ukraine. According to Jose Manuel Barroso, President of the European Commission, it makes no difference to European consumers where the problem originated - in Russia or Ukraine. Politically, both Kyiv and Moscow are losers in this conflict, said Alexander Rahr from the German Council on Foreign Relations. It is most likely that the conflict will strengthen the European Union's desire to look for energy sources in places other than Russia and Ukraine, perhaps resulting in additional gas purchases in Africa or investments in alternative energy sources, such as nuclear power plants, Alexander Rahr thinks.
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Rosukrenergo controls 75% of gas sales in Ukraine
Dmitry Firtash, who controls 45% of Rosukrenergo (RUE), may become one of the victims of the gas war. Before January 1, 2009, RUE supplied all Central Asian gas to Ukraine (buying it from Gazprom Export), and part of Russian gas to Europe. If Gazprom and Naftogaz sign a direct contract, RUE will find itself on the losing end. However, Firtash told Vedomosti on the phone that he was not afraid of such developments.