Ukraine seeks huge gas discount.
Ukrainian Prime Minister Mykola Azarov has asked Russia to lop $4 billion off its payments for Russian gas supplies in 2010. In exchange, Russia could take part in building two units of the Khmelnitsky nuclear power plant, which will subsequently sell electricity to Ukraine and the EU market, and also integrate Ukrainian aerospace companies into Russia's state-run United Aircraft Building Corporation (UABC). The establishment of a gas pipeline consortium with Gazprom's participation is no longer the main subject of talks for the Russian side.
Russian Prime Minister Vladimir Putin met with Azarov at Moscow's Vnukovo Airport on Saturday, just before Putin's flight to Smolensk, to the site of the air crash in which Polish President Lech Kaczynski died early that morning. For this reason, Putin was only able to devote half an hour to his Ukrainian counterpart.
After the meeting, Putin said Azarov "made proposals on some issues related to the gas sphere". "The proposals are interesting and must be thoroughly examined. We have to calculate everything and consider all pros and cons," the prime minister added.
Dmitry Peskov, Putin's press secretary, explained that Azarov asked Russia to cut gas prices for Ukraine in exchange for certain concessions. "We will reply to these proposals soon," he assured.
Azarov discussed Kiev's proposals on the Ukrainian Inter TV broadcast Friday night.
"We ask Russia to reduce our gas supply payments by $4 billion a year", he said. "If Moscow agrees to cut the gas price from the second quarter of this year, Russia may lose about $3 billion in the third quarter, and about $4 billion by the year's end". During the second quarter, the gas price for Ukraine was $330 per 1,000 cubic metres, against $305 in the first quarter.
A Kommersant source from Ukraine's Naftogaz national joint-stock company said the average annual price of imported Russian gas without a discount will be $334 per 1,000 cubic metres.
Maxim Shein of BrookerCreditService calculated that if Moscow accepts Kiev's proposal, Gazprom will have to cut the gas price for Ukraine to $245 per 1,000 cubic metres.
Meanwhile, Sergei Kupriyanov, a Gazprom spokesman, refused to comment on the talks, but said that Yury Boiko, Ukraine's fuel and energy minister, promised on April 8 to increase gas purchases this year by 8.3% of their contract volume to 36.5 billion cubic metres.
To compensate for the discounted gas price, Ukraine offers Moscow "mutually advantageous projects and cooperation in nuclear power engineering and other sectors". In particular, the proposal includes Russia's possible investment (of $5-$6 billion) in building the third and fourth units of the Khmelnitsky NPP. The sides are also looking into possibilities to build a nuclear fuel production plant in Ukraine and negotiating a nuclear fuel supply contract.
A source from Ukraine's Energoatom told Prime-TASS on Friday that the sides are discussing a draft five-year contract (instead of the earlier planned ten-year agreement). Ukraine signed a contract in 2008 with the rival US company Westinghouse for nuclear fuel supplies in 2011-2015, which led to a conflict with Moscow.
Additionally, Russia is interested in obtaining assets in the Ukrainian aircraft-building sector. The UABC told Kommersant yesterday that the integration of Ukrainian aircraft plants into the UABC has been discussed lately at nearly every meeting of the two countries' prime ministers, sometimes with the participation of UABC President Alexei Fyodorov.
Meanwhile, Ukraine will have to make corporate its state-run companies, which account for a considerable part of the Ukrainian aircraft-building sector. Afterwards, they could be evaluated and talks could commence on a concrete plan for their incorporation into the UABC.
However, Alexander Kiva, the chief designer of the Antonov Aircraft Design Bureau, and Vyacheslav Boguslayev, the chairman of the Motor Sich group, said in recent interviews that Ukraine was not prepared to give Russia more than 49% of its aircraft-building companies, while the UABC is interested in a controlling stake.
Meanwhile, Russia has cooled down in terms of the consortium project to manage Ukrainian gas transportation system, which earlier was a key element in the Russian-Ukrainian talks.
"We are still interested in this project", Gazprom CEO Alexei Miller said on Friday. "However, when we were signing the memorandum (in 2002 – Kommersant), the situation in the gas market was different, as well as the market temperature. Now the gas market is becoming more global. Gazprom supplies fuel to the most distant markets through replacement transactions".
Azarov admitted that, "by and large, Russia does not need the Ukrainian gas pipeline system. They are now building two bypass pipelines (Nord Stream and South Stream – Kommersant), and they have a ten-year gas transit contract signed by the previous government. Why have a headache then connected with the need to modernise our gas pipeline system?"
At the same time, Mikhail Korchemkin of East European Gas Analysis is sure that political issues will come to the fore in upcoming gas talks.
"The issue of the Russian military base on the Black Sea has not been settled yet, and there are some international initiatives to deal with, such as Kiev's support for Russia's entry into the WTO, the return of Russian businesses to the Ukrainian oil market, and others", he said.
Natalia Mironenko, Pyotr Stepanov