In line with Vladimir Putin's instructions, Naftogaz Ukrainy and Gazprom signed documents in Moscow yesterday to seal the agreement between the Russian and Ukrainian Prime Ministers on the volumes of Russian gas supplies next year and dropping of fines for failure to take all the contracted fuel this year. The agreements were reached on Friday. Because the order to solve all the problems had come from Putin personally, the success of the talks was a foregone conclusion. It is equally clear that Moscow is using concessions in the gas sphere to help Yulia Tymoshenko to displace Ukrainian President Viktor Yushchenko.
Pipeline decisions
A delegation from Ukraine's Naftogaz arrived in Moscow yesterday morning. The head of Naftogaz, Oleg Dubina, said that Ukraine sought to sign two documents, an additional agreement on cutting gas supplies in 2009 to 25 billion cubic metres, and another on cutting gas consumption next year. Dubina declined to indicate by how much he expects to cut gas purchases in 2010, but according to our source at the Ukrainian Ministry of Fuel and Energy, it was to be 33 billion cubic metres. Under an agreement signed between Moscow and Kiev on January 19, Ukraine was to buy at least 33 billion cubic metres this year and not less than 41 billion cubic metres next year. However, industrial gas consumption this year dropped from 30 billion to 17.6 billion cubic metres because of the crisis, according to the Fuel and Energy Ministry. In the evening Gazprom announced that amendments had been signed to the gas purchase and sale contract of 19t January and that the contracted volume for 2010 was 33.75 billion cubic metres.
The agreements also state that no fines will be imposed for Ukraine's failure to take all the gas contracted for 2009. That's about 14 billion cubic metres short of the amount contracted for 2009. After the talks between Russian Prime Minister Vladimir Putin and Ukrainian Prime Minister Yulia Tymoshenko in Yalta, Russia agreed not to impose fines for failure to take all the gas. On Friday, Putin ordered Gazprom to introduce corresponding amendments to the agreements with Naftogaz.
Gazprom obliged, but it exacted a price: Ukraine has promised that Gazprom would be allowed to take part in the modernisation of its gas transportation system (GTS). A member of the Ukrainian parliament's fuel and energy committee, Sergey Tulub, told Kommersant that Putin had agreed to meet Tymoshenko halfway, thanks to a compromise over the GTS. "This was a key issue for the Kremlin: he who finances the GTS theoretically can count on managing it in the future," Tulub said. This was effectively confirmed by the Russian Energy Minister Sergey Shmatko, who said that the Russian side was prepared to take part in the modernisation of Ukraine's GTS. "Ukraine has taken a very constructive position on the issue by declaring that Russia could take part in the modernization of the GTS on terms that are not worse than those offered to European companies;" Shmatko says.
Gazprom proposed to sign only an additional agreement on gas supply cuts in 2009, a source at the Ukrainian company told Kommersant on condition of anonymity. "As for the agreement for next year it was proposed to us that we sign it based on the results of next year. This is not very good for the company, because it would keep us in a suspended state throughout the year. It could also be prejudicial for obtaining loans from European banks," the source said. Earlier the board of directors of the European Bank for Reconstruction and Development indefinitely postponed the issue of lending Naftogaz Ukrainy $300 million to boost its working capital for purchase of natural gas. However, Ukraine eventually prevailed.
Angry opponents
Considering that it was the Prime Minister himself who had ordered all the gas problems with Kiev to be settled, there was no doubt that the talks between Gazprom and Naftogaz would be successful. Especially if one remembers that Russian-Ukrainian gas relations are as much about politics as about commerce and Ukraine is less than two months away from the presidential election. Kiev has long noticed that the Prime Minister has been showing great benevolence to his Ukrainian counterpart, whereas Moscow broke off all contacts with the Ukrainian president back in August.
Not surprisingly, Tymoshenko's recent achievements on the gas front give the jitters to her main rivals in the presidential elections: President Viktor Yushchenko and, more importantly, Viktor Yanukovich, the leader of the Party of Regions. Before yesterday's talks between Naftogaz and Gazprom, Yushchenko's secretariat warned the Ukrainian gas managers who had gone to Moscow against borrowing from Russia. "The most worrying piece of information is about alleged Russian loans for Naftogaz Ukrainy. If a $1 billion loan is discussed in Moscow, that would amount to surrendering the Ukrainian gas transportation system," Bohdan Sokolovsky, the Ukrainian President's representative on international aspects of energy security, said yesterday.
However, Sokolovsky praised the Naftogaz attempts to negotiate with Russia the cancellation of the fine for failure to take all the gas this year and cut purchases next year. The presidential spokesman noted that because of Yulia Tymoshenko's slow-moving government, Naftogaz had incurred more than $2 billion in debt. It was all because the Prime Minister was too late in realising that President Yushchenko was right in urging the need to amend the gas contracts.
But Tymoshenko's fiercest critic was her main rival in the presidential race, Viktor Yanukovich. In a BBC interview on the Yalta talks between the Russian and Ukrainian Prime Ministers, he said he understood why Putin had said that he was comfortable working with Tymoshenko. "I understand Putin well. I understand why he feels comfortable. They raised the gas price to the European level now, whereas we set that target for 2012. We said that we needed time," the Party of Regions leader said. In effect, he accused Tymoshenko of making unilateral concessions to Russia.
In an attempt to denigrate Tymoshenko's achievements in the gas relations with Russia, Yanukovich said that his party, too, saw no alternative to a revision of gas contracts with Moscow. "You cannot find anyone who would say he is pleased with the situation in the gas market. Much of what has been done, was done in a highly selective manner and the aim was political and not economic. All that will need to be changed," Yanukovich says.
Most Ukrainian experts approached by Kommersant are convinced that gas agreements between Prime Ministers Putin and Tymoshenko, which effectively averted another gas war, would hardly have been possible if Ukraine was not in the throes of an election campaign. "It is a very good mechanism for influencing policy in Ukraine," says the President of the Kiev International Energy Club, Alexander Todiichuk.
The head of the Kiev Global Strategies Institute, Vadim Karasev, also notes the political implications of the friendship between Putin and Tymoshenko as against the Kremlin's pointed snubbing of Viktor Yushchenko. "Tymoshenko needs Putin in order to send a clear signal to her pro-Russian electorate that she is on their side. By the same token, it is a signal to the West that she is a compromise contender for presidency because she occupies the center position between the pro-Western Yushchenko and the pro-Russian Yanukovich. Finally, it is a signal to the Ukrainian business elite as to who has control of the gas tap that supplies fuel to their enterprises," Karasev said.
Moscow too had an axe to grind in making concessions to Kiev because it thus demonstrated that it was open to compromise, Karasev that. "Putin is quite satisfied with Tymoshenko's readiness to make agreements. The question is what concessions she made to Moscow in return," Karasev added. This will be revealed after Gazprom and Naftogaz negotiations end.