MOSCOW, 5 January 2006 — Russia and Ukraine reached agreement yesterday on restoring natural gas supplies to Ukraine, ending — for now, at least — a dispute that ripped an even larger chasm between the two former Soviet republics, rattled European consumers of Russian gas and called into question Moscow’s reputation as a reliable energy provider to the West.
Almost a week after negotiations collapsed amid accusations of blackmail, sabotage and thievery, both Moscow and Kiev claimed victory in the complicated, five-year deal that involves a complex pricing plan, gas from the Central Asian nation of Turkmenistan and a mysterious Russian-Swiss trading business.
“Two nations won - Russia and Ukraine; Europe won; it is common sense that won,” Ukrainian Prime Minister Yuriy Yekhanurov told reporters in Kiev.
Russian President Vladimir Putin said the deal would reflect positively on the whole range of relations between Moscow and Kiev, saying it would create “stable conditions for deliveries of Russian energy carriers to our Western European partners many years into the future.” Europe gets about a quarter of its gas from Russia, some 80 percent of that arriving in pipelines that cross Ukraine. While Ukraine buys a third of its gas from Russia, Moscow is also its key supplier.
Analysts had mixed reactions to the deal, which has Ukraine buying gas from the RosUkrEnergo trading company for almost twice what it had been paying, but still lower than the fourfold increase Russia originally sought.
The deal is “a very powerful blow which threatens Ukraine with catastrophe,” said Mykhaylo Pohrebinsky, a Kiev-based analyst.
Chris Weafer, chief strategist with Alfa Bank in Moscow, called it a “face-saving compromise” for both countries, but he blamed Russia’s state-controlled gas monopoly, OAO Gazprom, for the impasse.
“What started out as a commercial dispute turned into a political dispute, because it was badly handled,” he said.
The heads of Gazprom and the Ukrainian state-controlled company Naftogaz announced the deal in Moscow on Wednesday, three days after Russia stopped gas deliveries to Ukraine and two days after European customers reported a sharp drop-off in their own gas supplies, which cross Ukraine.
Under the complex deal, Gazprom will sell gas to RosUkrEnergo for the same price it had demanded Ukraine pay beginning Jan. 1 - $230 per 1,000 cubic meters. Ukraine will then buy gas from the company for $95 - nearly twice what it had previously been paying Gazprom.
The deal also makes RosUkrEnergo the sole provider of gas to Ukraine. Little is known about the company, however, except that it is owned by a Gazprom bank and a Swiss subsidiary of Austria’s Raiffeisen Bank. It was unclear who the beneficiary owner of the Austrian bank’s share was.
No one answered the repeated phone calls to RosUkrEnergo’s offices in Zug, Switzerland.
The two companies also agreed on a 47 percent increase in the transit fee Gazprom pays to Ukraine to send its gas through the pipelines - to $1.60 per thousand cubic meters to travel 100 kilometers. Ukraine will also pay cash for gas deliveries and Russia will pay cash for transit, Gazprom spokesman Sergei Kupriyanov said, ending a barter system that had displeased Russia.
RosUkrEnergo can pay and charge the different prices because it also buys gas from Turkmenistan that will be added to the mix, Kupriyanov said. According to Ukrainian President Viktor Yushchenko, Turkmen gas sells for about $50 per 1,000 cubic meters.
Overall, the deal appears to be a greater win for Russia. Ukraine will remain subject to market prices and also Turkmenistan’s idiosyncratic president, Saparmurat Niyazov, who has been trying to raise his country’s gas prices. Turkmenistan is Ukraine’s main gas provider, but its gas runs through Russian pipelines. Kupriyanov said the agreed price for Russian gas was $230 as of Jan. 1, but it would fluctuate with the market. He did not indicate how often the price would be adjusted.
