http://english.pravda.ru/main/18/89/357/15822_gas.html
Ukraine steals gas from Russia and sells it to the West
07/19/2005 12:13
The Yushchenko team is holding Ukraine's population hostage for carrying
out its audacious experiments
Russia and Ukraine is no longer in conflict over 7.8 billion cubic meters
of natural gas that Ukraine "ripped off" from Russia, as Russian President
Putin put it. Ukrainians will be paying for all the losses at a price that is
close to the market one. Besides, Ukraine will have to buy gas from other
suppliers to keep its economy running. The sale price will be mostly on an
arm's length basis too.
Paying the price for their own mistakes seems to be something unfair and
inappropriate to the new Ukrainian authorities. Therefore, the Ukrainian
consumer will have to pay. A hike in gas and electricity prices has been
approved, the tariff change date to be announced sooner or later.
The plans of the Ukrainian government to increase gas and electricity
prices came to light even before the latest gas dispute between Russia and
Ukraine broke out. A similar controversy over natural gas arose between
Tukmenistan and Ukraine shortly before it.
The story of the stolen gas
The gas problem became an item on the agenda of the bilateral relations
way before the dispute arose over the Russian gas stored in Ukraine's gas
underground storage tanks (USTs). It is Ukraine that set the ball in motion
trying to revise the relations in the gas sector. Back in March this year,
during the talks with Gazprom, Ukraine came up with a proposal by offering to
switch from the barter terms of deal to cash payments for gas supplies and
transit fees. As a result, Gazrom responded to the offer of the Ukrainian
government and decided to make its own revision of the gas relations between
the two countries. After all, transparency is transparency.
Late March Gazprom CEO Alexei Miller advised the Ukrainian President
Viktor Yushchenko that the Russian gas reserves stored in the Ukrainian USTs
might be used for increasing the amount of gas to be delivered to West European
countries at the peak of consumer demand. At least such a possibility was
considered by Gazpom. From last year's late October up to March this year the
Russian side forwarded 40 requests to Ukraine as to gas in stock in the USFs.
No answer came from Kiev. Apparently, Mr. Yushchenko did not see the issue
worthy of his attention and therefore no instructions were given to clarify the
situation. When the Russian side raised the issue yet another time in June, the
Ukrainian side kept silence for a while. Then the Ukrainians began furnishing
"conflicting testimonies."
Within a few days they put forth several mutually exclusive versions of
the situation while the Russians were already smelling a rat.
The main versions are as follows:
Natural gas is fully available yet can not be returned to Russia due to
technical (technological) reasons. In other words, the full volume of Russian
gas is in stock in the USTs but it can be pumped back to Russia only if
squeezed out by additional gas. Therefore, Russia should supply new gas to
Ukraine to squeeze out the old one. The above are the most plausible reasons
often cited by the Ukrainian authorities.
The new authorities also put the blame on their predecessors. Blaming the
has-beens is the most surefire version of the story for Kiev to stick to in
terms of politics. But only unofficial sources cite it as an explanation while
the official ones vaguely hint at the possibility of such a scenario. For
example, energy company Naftogaz Ukrainy CEO Alexei Ivchenko made a statement
on July 1st about gas that was allegedly in stock in Ukranian USTs. He also
said that his company was pumping enough gas to the underground storage tanks.
In the same statement he claimed that around 150 million of cubic meters of
natural gas had been found in stock in the USTs when he had taken over the
company. The figures are in contradiction to 8 billion bcm of gas reportedly
signed for by the old management, said he. "As of today, we have practically
resolved the problem and now we are pumping the gas storages with respective
amount of gas," said Mr. Ivchenko. He also said that a contract for the
additional purchase of gas was in the works. He was confident the Ukrainians
would be able to resolve the gas dispute with the Russians within a year citing
the latest success of the Ukrainian government which managed to resolve the
dispute with Turkmenistan over the gas sales to Ukraine, Podrobnosti reports
citing Ukrainski Noviny.
The former head of Naftogaz Ukrainy Igor Boiko strongly objects to the
above viewpoint, according to his yesterday's interview in the newspaper
Zerkalo Nedeli.
Among other things, Mr. Boiko commented on the situation around the gas
dispute with Turkmenistan. "The point is that no goods whatsoever have been set
off as payment for Turkmen gas delivered to Ukraine since the start of the
year, and no offset ratio has been agreed upon so far," said Mr. Boiko. He
claimed that Turkmenistan had officially warned Naftogas Ukrainy of a potential
debt ranging from $400 million to $500 million that the Ukrainian side would
run up should it fail to deliver goods for payment within three weeks, and the
Turkmen side will consequently transfer the commodity sum of the debt into
cash. Mr. Boiko said that when he was at the helm the company made every effort
to pay back the Ukrainian debt incurred in the 1990s so that Turkmenistan might
have no reason for blackmailing Naftogaz Ukrainy with the debt amassed.
According to Mr. Boiko, the Turkmen side will definitely charge late payment
fee and interest up to the complete debt redemption date should the debt
agreement come into being. Mr. Boiko believes Turkmenistan will also demand a
hike in price for natural gas it sells to Ukraine. On the level, the Ukrainians
have no achievements to be proud of in this case. Perhaps Alexei Ivchenko has
different evaluation criteria for failure and success.
Ukraine sold natural gas to the West at a European price. According to
Dmitry Kulikov, expert of the State Duma Committee for Relations with
Compatriots, Ukraine most probably used up the reserves of gas in the USTs to
the max. He believes the remainder of gas formally labeled as the Russian stock
can not be pumped out of the storage tanks without the risk of causing damage
to normal operation of the storage facilities. In other words, Ukraine used up
its own natural gas (it was sold and the money was wired to respective
accounts) while maintaining the safety of its USTs with the help of Russian
gas. Mr. Kulikov is confident that one of the re-export schemes can be clearly
seen in Mr. Ivchenko's interviews. According to Mr. Kulikov, Mr. Ivchenko
openly disclosed the business scheme used for Russian gas dealings. Mr.
Ivchenko is opposed to the ban on gas re-export because it is the most viable
part of the Naftagaz operations with profitability reaching up to 100% and
above. It is a very smart move when you sell gas to Europe for 100% and pay
back to Russia at a 50% basis some time later. That is the method used
repeatedly by Ukraine when it took more Russian gas out of the pipeline than
the contract stipulated. Subsequently, Ukraine produced debt agreements with a
grace period based on a $50 price. In the meantime, Ukraine was selling gas to
the West at a double price with immediate cash settlement.
Gazprom management opted to skip the bunch of "murky" patterns. Instead,
Gazprom made a truly Solomonic decision and agreed to transfer the amount of
reported gas to Nafrtogaz as part of Gazprom's 2005 transit fee payments
regardless of actual availability of gas in the USTs.
Should the gas is really available in its storage tanks, Ukraine is free
to use it for domestic consumers or sell it to Western Europe.
Kiev's reaction can indicate that even if the Russian gas was stored in
full volume in the USTs some time ago, say six months ago, it can not be
extracted anyway. Hence a breach of the contract. If a shortfall took place
some time ago yet the reserves were replenished as of today, the gas in the
USTs is still unavailable at the moment and can not be used even for domestic
purposes. But the situation is of no concern to Gazprom, it is Ukraine's
internal matter. Judging by the statement of the Ukrainian Prime Minister Yulia
Tymoshenko made earlier this June, the gas can not be extracted from the
storage facilities. She said that gas exports might be put on hold due to
reported lack of gas for domestic needs amounting to 8 bcm in the year 2005.
In the same statement Mrs. Tymoshenko said that Naftagaz Ukrainy assured
the government that contracts for the purchase of additional 8 bcm of gas would
be signed until July 1st. The new contracts should enable the Ukrainian
government to continue the gas export operations estimated at 5 bcm, reported
Interfax-Ukraine at the end of June. As far as we know, no contracts were
signed until July the 1st.
In light of the above developments, President Putin of Russia made a
statement which the Ukrainians took as an insult. Speaking to the journalists,
President Putin said: "We are planning to expand our cooperation with
Ukrainians if they do not rip off our gas." Mr. Putin also said that Russia
intended to strengthen cooperation with Belarus and Poland with regard to the
development of gas transit routes. "We are holding talks now with Norway, it
has a good pipeline network which will be running out of gas in some ten years,
Norway seems to be a very convenient partner to us for that matter," added Mr.
Putin. It is noteworthy that President Putin voiced his position on the issue
only after the Ukrainians said that the Russian company's export operations
could be at risk due to the decision on the setoff taken by Gazprom. In other
words, Kiev hinted that it would take as much gas as needed from the pipeline
network, and the remainder would make it to Europe. The Ukrainian authorities
threatened to take action even though they just bluffed. Therefore, both the
wording and the main point of President Putin's statement are quite adequate.
The one who foots the bill
The gas dispute between Russia and Ukraine came to an end last Sunday.
The new Ukrainian authorities will be tackling all the problems related to
natural gas that Gazprom said had gone missing.
Gazprom and Naftogaz Ukrainy said Sunday they had resolved a dispute over
7.8 billion of cubic meters of Russian natural gas stored in Ukrainian
underground storage tanks. Part of the gas amounting to 2.55 bcm will be
transferred to Naftagaz as part of Gazprom's transit fee payments. Gazprom
agreed to sell the remaining amount to Rosukrnergo, a joint venture between
Austria's Reiffeisen Investment and Russia's Gazprombank. Rosukrenergo is an
operator of Turkmen gas supplies to Ukraine. According to the contract,
Naftagas Ukrainy will supply gas to Rosukrenergo. And Gazprom will receive $800
million under the deal (around $150-$160 per 1,000 cubic meters).
Besides, Naftogaz will have to fill the gap at the domestic market. The
Ukrainians cut a deal with a Russian independent trader ZAO Transnafta
regarding the supply of 6 bcm. Rusukrenergo will supply Ukraine with another 5
bcm after receiving the "missing gas" from them.
The Ukrainian authorities will undoubtedly find a scapegoat to be held
responsible for the shady dealings involving the Russian natural gas. The
present management of Naftagaz is likely to take some heat. However, the "team
of honest professionals" will get away with the monkey business. It is the
Ukrainian economy that will have to pay the full price. Metallurgy and chemical
industry, consumers of public utilities i.e. all Ukrainians will have to pay
the price.
No matter how complicated and unclear the settlement patterns were under
the "old regime," all of them boil down to soft payment terms applicable to
Ukraine. The transit fee payments across Ukraine and the price of Russian
natural gas made no difference since Gazprom used a non-cash payment system.
Increasing nominal price for the Gazprom gas by three times can be compensated
by a 4-5 time hike in transit fees to reach the previous amount. For every
action there is an equal and opposite reaction. So Russia would have the right
to charge Turkmenistan the same transit fees for pumping Turkmen gas though the
Russian pipelines to Ukraine as the latter does with regard to the Gazprom gas
flowing to the West though the Ukrainian pipelines. And why should not
Turkmenbashi increase his natural gas prices up to East European level? The
price of gas both for the industrial companies and public utilities will rise
in any case. Taking into the account the above, we would say that the
Yushchenko team is holding Ukraine's population hostage for carrying out its
audacious experiments.
Alexei Kovalev
Read the original in Russian:
http://www.pravda.ru/economics/2005/7/24/74/20345_ukrgaz.html (Translated by:
Guerman Grachev)
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