Naftogaz and Gazprom sign gas contracts
The road for Russian gas to Europe is open: Gazprom and Naftogaz signed two ten-year contracts yesterday. The two parties are now counting the gains and losses of the gas war.
As a result of intense and prolonged negotiations, a line has been drawn under the gas conflict. "I hope so," Prime Minister Vladimir Putin said yesterday after viewing Gazprom and Naftogaz sign two ten-year contracts, one for gas transit to Europe and the other for gas supply to Ukraine. Also present was the Ukrainian Premier Yulia Tymoshenko who promised that from now on there won't be any "annual problems" facing her country until 2019.
Transit to Europe, blocked on January 7, will be restored, and consumers will start getting gas as soon as it enters the Ukrainian pipeline system, Ms Tymoshenko assured. In the evening she went to Gazprom headquarters to discuss the technicalities of restoring gas transit. At 10:15 p.m. the results of these talks were still not announced.
THE PRICE ISSUE
The price for Ukraine in 2009 will be 20% lower than the average price for Europe, and will stand at less than $250 per 1000 cubic metres, Ms Tymoshenko announced yesterday. She estimated that this would save Ukraine $5 billion. In exchange, Russia will retain the former transit tariff of $1.7 until the end of the year (pumping 1000 cubic metres over a distance of 100 km). The market price is about $3, said Mikhail Korchemkin, Director of East European Gas Analysis. So, Gazprom will save approximately $1.7 billion a year, according to Vedomosti's estimates.
Ms Tymoshenko had the average annual price in mind, a source close to the Ukrainian Premier has explained The source added that in reality what is known for certain is only the price in the 1st quarter, which will reach $360 per 1000 cubic metres, a record high for Ukraine. These pieces of information have also been confirmed by a source close to Gazprom management and a member of the Russian Government (White House) staff.
Thereafter the price would be cut every quarter to match the falling oil prices. Gazprom forecasts an average price for Europe for 2009 at $280 per 1000 cubic metres; with a 20% discount it works out at $224. Ukraine imported 55 billion cubic metres in 2008, which means that the total discount is $3 billion. However, it does not make sense to calculate the gas price yet, said Alexander Gudyma, Ms Tymoshenko's adviser on gas matters. The crucial aspect is that Russia and Ukraine have both adopted market principles of pricing.
Beginning from 2010, no discounts will be made either for Naftogaz or for Gazprom, all the prices will be European, Vladimir Putin promised yesterday.
The mood at Viktor Yushchenko's Secretariat is grim; the Ukrainian President's adviser Bohdan Sokolovsky is angry that the price for Ukraine has been calculated proceeding from the European rate of $450 per 1000 cubic metres (while the price for neighbouring Hungary is $403). If the Hungarian formula were to be applied, the average price for Ukraine in 2009 would be set at $199. At the same time, the transit tariff for Gazprom should be $3.2, Mr Sokolovsky has claimed.
FRATERNAL AID
Ukraine will make up for the high price in the first quarter through its exports to Europe, according to former Naftogaz chief Igor Bakai, who was advising the Ukrainian delegation at the negotiations. Ms Tymoshenko would be allowed to re-export gas to Europe, a member of one of Gazprom's subsidiaries has confirmed (this scheme was in place with Ukraine before 2005). The Premier will explain everything to her electorate "wonderfully," a source for Vedomosti said. Ukraine hardly needs Russian gas itself in the first quarter, the little that it needs to purchase will be compensated for by re-export; in the second quarter, the price will fall to remain generally acceptable throughout the year so that internal prices for industry will remain the same, about $320 per 1000 cubic metres. Naftogaz will buy gas from Gazprom on the Russian-Ukrainian border, deliver it to Ukrainian consumers, possibly at a discount, and then re-export part of the gas through Russia's Gazprom Export, Mr Bakai explained. Gazprom will not give up its consumers, it would rather repurchase gas from Naftogaz with a small margin, $3-5 per 1000 cubic metres - on the Western border of Ukraine, a member of Gazprom staff added. As Mr Putin and Ms Tymoshenko announced yesterday, there will be no more mediators between Gazprom and Naftogaz. This means that the Swiss-registered RosUkrEnergo (owned 50% by Gazprom and 50% by Dmitry Firtash and Ivan Fursin) which had a turnover of $10 billion in 2007, has lost its main source of revenue (you can read about what revenue remains for the company at www.vedomosti.ru).
AFTER THE BATTLE
The standoff between Kiev and Moscow had an ultimate effect on 18 European countries. "We still do not know when transit will be restored," said Ferran Tarradellas, a spokesman for the European Commission. "Technically the [European] systems are ready, we are waiting for the Russian gas, but no official information has been made available yet", said Atanas Seikov, the head of the crisis management headquarters at the Bulgarian Ministry of Economy.
The country's economy has seriously suffered, Mr Seikov has said. However, neither he nor Mr Tarradellas were able to assess the extent of the damage. The EU spokesman blames both Russia and Ukraine. The European Commission has already urged national companies to sue them for compensation. However, they did not tell Vedomosti whether the governments of Austria, Bulgaria, Slovakia, the Czech Republic, Romania, Hungary and other countries were preparing to do so. Meanwhile Gazprom filed a lawsuit against Naftogaz with the Stockholm Arbitration Court last Friday. Russian Vice Premier Igor Sechin had warned about it, and two Gazprom officials have said that the lawsuit has been filed. (The Court's representative declined to comment). The lawsuit does not state the size of the claim, one of the officials has said: it merely contains the demand to resume transit, to charge Ukraine for the stolen gas (86 million cubic metres in January, says Gazprom) payable in fuel or a cash equivalent and to compensate the damage due to breach of the former transit contract (which was to be in force until 2013). RosUkrEnergo and Emfesz (the company owned by Dmitry Firtash) also sued Naftogaz with the Stockholm Arbitration Court demanding a resumption of transit. The fate of the lawsuits is unclear. Ms Tymoshenko said that "at this moment" all the claims are deemed to have been settled and "[the parties] will claim no damages."
"The main thing is that gas will start flowing within days [...] both Russia and Ukraine know what the European partners expect from them," the Austrian Chancellor Werner Faymann told Vedomosti through his press service. To avoid a repeat of the crisis in the future, it is "critical" to have reliable partners and a higher degree of legal certainty; to this end, legality in energy trade must be strengthened at the European level and contracts should be made more transparent, the Chancellor stressed: "The crisis clearly demonstrates that it is dangerous to rely on any one source of energy. From now on, diversification of supplies will be my government's priority."
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Thanking Putin
Yulia Tymoshenko, the Prime Minister of Ukraine
"I am very grateful to Vladimir Putin and his team for offering special terms to Ukraine in 2009: a 20% discount on gas compared with world prices." January 19, 2009
Yelena Reznik