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ACTION UKRAINE REPORT - AUR
An International Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary
In-Depth Ukrainian News, Analysis and Commentary
Ukrainian History, Culture, Arts, Business, Religion, Economics,
Sports, Government, and Politics, in Ukraine and Around the World
RUSSIA-UKRAINE 'COLD WAR' GRIPS EUROPE
ACTION UKRAINE REPORT - AUR - Number 923
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer
WASHINGTON, D.C., THURSDAY, JANUARY 8, 2009
INDEX OF ARTICLES ------
Clicking on the title of any article takes you directly to the article.
Return to Index by clicking on Return to Index at the end of each article
1. RUSSIA-UKRAINE 'COLD WAR' GRIPS EUROPE
Natalia A. Feduschak in Kiev, The Washington Times, Wash, D.C. Thu, Jan 8, 2009
Analysis & Commentary: By Jonathan Elkind and Edward Chow
International Herald Tribune, Paris, France, Wed, Jan 7, 2009
3. A CAPITALIST REVOLUTION
Gazprom's executives are ruthless politician-businessmen of the sort Britain once produced
Analysis & Commentary: by Mark Almond, history lecturer at Oriel College, Oxford
The Guardian, London, United Kingdom, Wednesday 7 January 2009
Gazprom's executives are ruthless politician-businessmen of the sort Britain once produced
Analysis & Commentary: by Mark Almond, history lecturer at Oriel College, Oxford
The Guardian, London, United Kingdom, Wednesday 7 January 2009
The Washington Post, Washington, D.C., Tue, Jan 6, 2009
FT Reporters, Financial Times, London, UK, Thursday, January 8 2009
6. EU CALLS CRISIS TALKS AS FLOW OF GAS STOPS
By Tony Barber in Prague, Charles Clover in Moscow & Roman Olearchyk in Kiev
Financial Times, London, UK, Thursday, January 8 2009
By Tony Barber in Prague, Charles Clover in Moscow & Roman Olearchyk in Kiev
Financial Times, London, UK, Thursday, January 8 2009
7. GAS FEUD MET WITH CHILL IN EUROPE
Analysis: Stefan Nicola, United Press International (UPI)
Berlin, Germany, Thursday, January 8, 2009
Analysis: Stefan Nicola, United Press International (UPI)
Berlin, Germany, Thursday, January 8, 2009
Analysis: By Sabina Zawadzki, Reuters, Kiev, Ukraine, Wed, Jan 7, 2009
9. THE BATTLE OF THE OLIGARCHS BEHIND THE GAS DISPUTE
Analysis & Commentary: By Jérôme Guillet and John Evans
The Financial Times, London, Tuesday, January 6 2009
Analysis & Commentary: By Jérôme Guillet and John Evans
The Financial Times, London, Tuesday, January 6 2009
10. UKRAINE SETS GAS OFFER BUT WANTS NO MIDDLEMAN
By Pavel Polityuk, Reuters, Kiev, Ukraine, Wed, January 7, 2009
By Pavel Polityuk, Reuters, Kiev, Ukraine, Wed, January 7, 2009
11. PUTIN, PIPE DOWN ON UKRAINE
The Russian leader points to Ukraine and the US for his economic woes. He should look in the mirror.
Editorial Board, Christian Science Monitor, Boston, MA, Thursday, January 8, 2009
The Russian leader points to Ukraine and the US for his economic woes. He should look in the mirror.
Editorial Board, Christian Science Monitor, Boston, MA, Thursday, January 8, 2009
12. GAZPROM BATTLES TO RESTORE REPUTATION
Analysis & Commentary: Ed Crooks, Financial Times, London, UK, Wed, Jan 7 2009
Analysis & Commentary: Ed Crooks, Financial Times, London, UK, Wed, Jan 7 2009
ABOUT MUCH MORE THAN ECONOMICS
Analysis & Commentary: By Tammy Lynch
Senior Fellow Institute for the Study of Conflict, Ideology and Policy
Behind the Breaking News, Volume VII, Number 1
Boston University, Boston, MA, Friday, January 2, 2009
Analysis & Commentary: By Tammy Lynch
Senior Fellow Institute for the Study of Conflict, Ideology and Policy
Behind the Breaking News, Volume VII, Number 1
Boston University, Boston, MA, Friday, January 2, 2009
Christopher Boian, Agence France-Presse (AFP), Moscow, Russia, Wed, Jan 7, 2009
Russian gas theories abound
By Rupert Wingfield-Hayes, BBC News, Moscow, Fri, Jan 2, 2009
By Rupert Wingfield-Hayes, BBC News, Moscow, Fri, Jan 2, 2009
Heard on the Street: By Liam Denning, The Wall Street Journal
New York, New York, Wednesday, January 7, 2009
17. THE WINTER GAS WAR BETWEEN RUSSIA AND UKRAINE
Putin's latest power play, and a lesson for Barack Obama.
Opinion Journal, The Wall Street Journal, New York, NY, Wed, Jan 7, 2009
Editorial: The Financial Times, London, UK, Tue, Jan 6 2009
Editorial, The Financial Times, London, UK, Tue, Jan 6 2009
As Ukraine’s politicians bicker, the economy slides
The Economist print edition, London, UK, Tue, Dec 30, 2008
The Economist print edition, London, UK, Tue, Dec 30, 2008
Oxford Analytica, United Kingdom, Forbes, NY, Tue, Jan 6, 2009
STRATFOR, Austin, Texas, Tuesday, January 6, 2009
23. UKRAINE REJECTS GAS THEFT CLAIM AND CALLS ON EU
Inform, BYuT Newsletter Issue 98, Kyiv, Ukraine, Mon, Jan 5, 2009
Inform, BYuT Newsletter Issue 98, Kyiv, Ukraine, Mon, Jan 5, 2009
Editorial, Lex Team, Financial Times, London, UK, Mon, Jan 5, 2009
RBS EM Strategy Update, by Timothy Ash, Head of CEEMEA research
Royal Bank of Scotland, London, UK, Friday, January 2, 2009
Royal Bank of Scotland, London, UK, Friday, January 2, 2009
26. BEHIND THE RUSSIA-UKRAINE GAS CONFLICT
Economics and politics drove Gazprom's decision to shut off gas to its neighbor
By Miriam Elder, Business Week, New York, NY, Sat, Jan 3, 2009
Economics and politics drove Gazprom's decision to shut off gas to its neighbor
By Miriam Elder, Business Week, New York, NY, Sat, Jan 3, 2009
===================================================
1. RUSSIA-UKRAINE 'COLD WAR' GRIPS EUROPE
Natalia A. Feduschak in Kiev, The Washington Times, Wash, D.C. Thu, Jan 8, 2009
KIEV - Schools closed, heating shut down and nearly a dozen European nations reported a cutoff of natural-gas supplies in one of the coldest winters in recent memory. Russia and Ukraine blamed each other in a dispute as bitter as the temperature with a cold front blanketing Europe. Thermometers fell to minus 13 degrees Fahrenheit in some capitals.
"We can´t transit anything if there is nothing to transit," said Ihor Didenko, assistant chairman of Ukraine's Naftogaz, which operates pipelines that deliver 80 percent of Russia's natural gas to the rest of Europe.
On a day when Orthodox Christians celebrated Christmas, Romania declared a state of emergency. Thousands of households in the Bosnian capital, Sarajevo, went without heat and Bulgaria turned off heating on buses and trains in Sofia.
Russian Prime Minister Vladimir Putin ordered the state-owned energy giant Gazprom to cut all deliveries to Ukraine, and Ukrainian officials said the pipelines ran dry shortly after 7 a.m.
Mr. Putin said gas would be turned on if international observers were in place to prevent Ukraine from stealing gas destined for the rest of Europe.
Russia supplies about 40 percent of Europe's natural gas.
U.S. SIDED WITH UKRAINE
The U.S. sided with Ukraine. "Cutting off these supplies during winter to a vulnerable population is just something that is unacceptable to us," State Department spokesman Robert Wood said.
National Security Adviser Stephen J. Hadley warned Russia that using gas for leverage over its neighbors could backfire. "A Russia that continues to threaten its neighbors and manipulate their access to energy will compromise any aspirations for greater global influence," he said.
Supply disruptions were reported as far west as France. European leaders called on Moscow and Kiev to resolve the conflict, while energy ministers planned to meet in Brussels on Thursday.
"Russia will resume its deliveries when the observer groups are in place," Czech Prime Minister Mirek Topolanek told reporters in Prague. The Czech Republic holds the rotating presidency of the European Union.
Ukrainian President Victor Yushchenko called on Russian President Dmitry Medvedev to end the energy embargo, which began Jan. 1 over a commercial dispute between the two nations over the price of gas.
In a letter to the Kremlin, Mr. Yushchenko said Russia must "immediately renew the operative daily transit [of gas] to European countries." He also said he was "deeply concerned" by the worsening conflict between the two nations.
"Without prior warning to the Ukrainian side, the Russian side closed the last crossing of Russian gas to Ukraine ... and in that way stopped the export of Russian gas to Europe," Oleh Dubina, head of Naftogaz, told reporters.
Alexei Miller, head of Russia´s Gazprom, said the move was necessary because, he said, Ukraine was siphoning gas meant for European customers.
"Unfortunately, there has been an open stealing of gas," he told journalists during a news conference in Brussels. "Russia has become a prisoner of Ukraine´s blame game."
This is not the first time Kiev and Moscow have been at loggerheads over gas prices. Russia cut supplies to Ukraine in January 2006, causing similar supply disruptions throughout much of Europe.
But that suspension only lasted a day, and since then both countries have tried to present themselves as reliable partners to the West - Russia as a gas supplier and Ukraine as a transporter. The current crisis has gone further than both sides anticipated. Neither has been able to agree on the price Kiev should pay Moscow for gas, or what Russia should pay Ukraine in transit fees.
1. RUSSIA-UKRAINE 'COLD WAR' GRIPS EUROPE
Natalia A. Feduschak in Kiev, The Washington Times, Wash, D.C. Thu, Jan 8, 2009
KIEV - Schools closed, heating shut down and nearly a dozen European nations reported a cutoff of natural-gas supplies in one of the coldest winters in recent memory. Russia and Ukraine blamed each other in a dispute as bitter as the temperature with a cold front blanketing Europe. Thermometers fell to minus 13 degrees Fahrenheit in some capitals.
"We can´t transit anything if there is nothing to transit," said Ihor Didenko, assistant chairman of Ukraine's Naftogaz, which operates pipelines that deliver 80 percent of Russia's natural gas to the rest of Europe.
On a day when Orthodox Christians celebrated Christmas, Romania declared a state of emergency. Thousands of households in the Bosnian capital, Sarajevo, went without heat and Bulgaria turned off heating on buses and trains in Sofia.
Russian Prime Minister Vladimir Putin ordered the state-owned energy giant Gazprom to cut all deliveries to Ukraine, and Ukrainian officials said the pipelines ran dry shortly after 7 a.m.
Mr. Putin said gas would be turned on if international observers were in place to prevent Ukraine from stealing gas destined for the rest of Europe.
Russia supplies about 40 percent of Europe's natural gas.
U.S. SIDED WITH UKRAINE
The U.S. sided with Ukraine. "Cutting off these supplies during winter to a vulnerable population is just something that is unacceptable to us," State Department spokesman Robert Wood said.
National Security Adviser Stephen J. Hadley warned Russia that using gas for leverage over its neighbors could backfire. "A Russia that continues to threaten its neighbors and manipulate their access to energy will compromise any aspirations for greater global influence," he said.
Supply disruptions were reported as far west as France. European leaders called on Moscow and Kiev to resolve the conflict, while energy ministers planned to meet in Brussels on Thursday.
"Russia will resume its deliveries when the observer groups are in place," Czech Prime Minister Mirek Topolanek told reporters in Prague. The Czech Republic holds the rotating presidency of the European Union.
Ukrainian President Victor Yushchenko called on Russian President Dmitry Medvedev to end the energy embargo, which began Jan. 1 over a commercial dispute between the two nations over the price of gas.
In a letter to the Kremlin, Mr. Yushchenko said Russia must "immediately renew the operative daily transit [of gas] to European countries." He also said he was "deeply concerned" by the worsening conflict between the two nations.
"Without prior warning to the Ukrainian side, the Russian side closed the last crossing of Russian gas to Ukraine ... and in that way stopped the export of Russian gas to Europe," Oleh Dubina, head of Naftogaz, told reporters.
Alexei Miller, head of Russia´s Gazprom, said the move was necessary because, he said, Ukraine was siphoning gas meant for European customers.
"Unfortunately, there has been an open stealing of gas," he told journalists during a news conference in Brussels. "Russia has become a prisoner of Ukraine´s blame game."
This is not the first time Kiev and Moscow have been at loggerheads over gas prices. Russia cut supplies to Ukraine in January 2006, causing similar supply disruptions throughout much of Europe.
But that suspension only lasted a day, and since then both countries have tried to present themselves as reliable partners to the West - Russia as a gas supplier and Ukraine as a transporter. The current crisis has gone further than both sides anticipated. Neither has been able to agree on the price Kiev should pay Moscow for gas, or what Russia should pay Ukraine in transit fees.
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
2. EUROPE'S GAS CRISIS: DON'T ACT SURPRISED
Europeans and Americans alike called the gas war of January 2006 a wake-up call, a needed warning to increase the security of gas supply on the Continent. But three years later, the causes of the chronic gas war remain firmly in place - an utter lack of coherent energy policy in Ukraine, malicious decision-making in Russia, and passive acquiescence by Western countries.
Now it is critical to press Russia and Ukraine for a cease-fire in the gas war - a short-term agreement that allows time for commercial negotiations. Then Kiev - with support from major European capitals and Washington - must finally ensure that future crises are prevented.
In the nearly two decades since the breakup of the Soviet Union, Russia and Ukraine have failed to stabilize their commercial relationship in the gas sector.
Russia's Gazprom seeks to dominate Ukraine's gas sector in order to gain effective control over its transit pipelines and storage systems. Ukraine is a vital link for Gazprom to transport 110 billion cubic meters per year to Gazprom's best-paying customers - providing roughly 40 percent of the European Union's gas imports, and more than two-thirds of Gazprom's total revenues.
Russia's leaders apparently intend to exploit their leverage over Ukraine as long as they can. Gazprom executives are lobbying European capitals to explain why they cut the gas supply.
Successive Ukrainian officials have treated the country's energy industry as a political trophy. Sound policy has been subordinated to personal and business-clan interests. The good of Ukraine - and particularly the consumer's need for predictability, transparency and dependability in gas supply from Russia - have never been decisive in Ukrainian energy policy.
Instead, Ukraine has welcomed fictional pricing that does not reflect real costs and shady intermediary companies like the infamous RosUkrEnergo. The result is dirty money for Ukrainian political elites, excessive gas consumption, massive debts due to underpayment, and the underdevelopment of Ukraine's significant gas reserves.
Sadly, the Orange Revolution of 2004 did not yield any improvement in this regard, and Ukraine's Western partners have sat idle. The European Union and its key member states view Ukraine with skepticism on gas issues, even though a stabilized Russian-Ukrainian gas trade would enhance the security of gas supplies for European consumers. And increases in gas transit across Ukraine would be far less expensive than white elephants like the Nord Stream gas pipeline under the Baltic Sea.
Energy policy in Ukraine has been such a black hole that European energy companies and governments, and to a slightly lesser extent the European Commission, have treated Ukraine as Russia's problem to manhandle as it sees fit. Why wade into the swamp? Better to pay the high price of new pipelines to bypass Ukraine.
Meanwhile Washington, entranced by the pro-democracy symbolism of the Orange Revolution, has also shied away from Ukraine's energy problems. Despite clear evidence that President Viktor Yushchenko and other leaders were failing to address the gas issue - which is so central to Ukraine and to the energy security of America's most important economic and trade partners - President Bush met with the Ukrainian president three times in 2008.
Never once did the White House apply real pressure on Ukraine to end the excuses and introduce real energy reform. Instead the Bush team allowed itself to be distracted by the longer-term goal of Ukraine's entry into NATO.
If Ukraine is to become part of the Euro-Atlantic community, which we would welcome, the arena in which the country can contribute most concretely to European stability, security and harmony is energy security. The matter is also existential for an independent Ukraine.
Kiev can push ahead with gas sector reform - transparent supply and transit relations, international-standard gas contracts, real prices and higher energy efficiency, promotion of domestic production, and restructuring of its bankrupt state energy company Naftohaz. And if it pursues this path, it should seek and receive urgent, intensive and coordinated support from Western friends.
Or Ukraine can wring its hands and let the current situation continue with short-term fixes that only weaken its position with Russia. If the country chooses the latter course, no one in Kiev - or in Berlin, Paris, Brussels, or Washington - should act surprised that gas crises and energy insecurity become a recurring nightmare for Europe.
NOTE: Jonathan Elkind is a senior fellow with the Brookings Institution in Washington and served previously on the staff of the U.S. National Security Council. Edward Chow is a senior fellow at the Center for Strategic and International Studies in Washington and a former international oil industry PUTIN,
2. EUROPE'S GAS CRISIS: DON'T ACT SURPRISED
Analysis & Commentary: By Jonathan Elkind and Edward Chow
International Herald Tribune (IHT), Paris, France, Wednesday, January 7, 2009
The West has sleep-walked once again into a Russia-Ukraine gas crisis, with another cutoff of natural gas supply in the middle of winter.
The West has sleep-walked once again into a Russia-Ukraine gas crisis, with another cutoff of natural gas supply in the middle of winter.
Europeans and Americans alike called the gas war of January 2006 a wake-up call, a needed warning to increase the security of gas supply on the Continent. But three years later, the causes of the chronic gas war remain firmly in place - an utter lack of coherent energy policy in Ukraine, malicious decision-making in Russia, and passive acquiescence by Western countries.
Now it is critical to press Russia and Ukraine for a cease-fire in the gas war - a short-term agreement that allows time for commercial negotiations. Then Kiev - with support from major European capitals and Washington - must finally ensure that future crises are prevented.
In the nearly two decades since the breakup of the Soviet Union, Russia and Ukraine have failed to stabilize their commercial relationship in the gas sector.
Both sides bear responsibility, while Europe behaves as if it is an unaffected bystander, despite the fact that 80 percent of its gas imports from Russia transit through Ukraine. Repeatedly, Europe has been willing to take Moscow and Kiev's empty words as assurance that its gas supply is secure.
Russia's Gazprom seeks to dominate Ukraine's gas sector in order to gain effective control over its transit pipelines and storage systems. Ukraine is a vital link for Gazprom to transport 110 billion cubic meters per year to Gazprom's best-paying customers - providing roughly 40 percent of the European Union's gas imports, and more than two-thirds of Gazprom's total revenues.
Russia's leaders apparently intend to exploit their leverage over Ukraine as long as they can. Gazprom executives are lobbying European capitals to explain why they cut the gas supply.
Successive Ukrainian officials have treated the country's energy industry as a political trophy. Sound policy has been subordinated to personal and business-clan interests. The good of Ukraine - and particularly the consumer's need for predictability, transparency and dependability in gas supply from Russia - have never been decisive in Ukrainian energy policy.
Instead, Ukraine has welcomed fictional pricing that does not reflect real costs and shady intermediary companies like the infamous RosUkrEnergo. The result is dirty money for Ukrainian political elites, excessive gas consumption, massive debts due to underpayment, and the underdevelopment of Ukraine's significant gas reserves.
Sadly, the Orange Revolution of 2004 did not yield any improvement in this regard, and Ukraine's Western partners have sat idle. The European Union and its key member states view Ukraine with skepticism on gas issues, even though a stabilized Russian-Ukrainian gas trade would enhance the security of gas supplies for European consumers. And increases in gas transit across Ukraine would be far less expensive than white elephants like the Nord Stream gas pipeline under the Baltic Sea.
Energy policy in Ukraine has been such a black hole that European energy companies and governments, and to a slightly lesser extent the European Commission, have treated Ukraine as Russia's problem to manhandle as it sees fit. Why wade into the swamp? Better to pay the high price of new pipelines to bypass Ukraine.
Meanwhile Washington, entranced by the pro-democracy symbolism of the Orange Revolution, has also shied away from Ukraine's energy problems. Despite clear evidence that President Viktor Yushchenko and other leaders were failing to address the gas issue - which is so central to Ukraine and to the energy security of America's most important economic and trade partners - President Bush met with the Ukrainian president three times in 2008.
Never once did the White House apply real pressure on Ukraine to end the excuses and introduce real energy reform. Instead the Bush team allowed itself to be distracted by the longer-term goal of Ukraine's entry into NATO.
If Ukraine is to become part of the Euro-Atlantic community, which we would welcome, the arena in which the country can contribute most concretely to European stability, security and harmony is energy security. The matter is also existential for an independent Ukraine.
Kiev can push ahead with gas sector reform - transparent supply and transit relations, international-standard gas contracts, real prices and higher energy efficiency, promotion of domestic production, and restructuring of its bankrupt state energy company Naftohaz. And if it pursues this path, it should seek and receive urgent, intensive and coordinated support from Western friends.
Or Ukraine can wring its hands and let the current situation continue with short-term fixes that only weaken its position with Russia. If the country chooses the latter course, no one in Kiev - or in Berlin, Paris, Brussels, or Washington - should act surprised that gas crises and energy insecurity become a recurring nightmare for Europe.
NOTE: Jonathan Elkind is a senior fellow with the Brookings Institution in Washington and served previously on the staff of the U.S. National Security Council. Edward Chow is a senior fellow at the Center for Strategic and International Studies in Washington and a former international oil industry PUTIN,
LINK: http://www.iht.com/articles/2009/01/07/opinion/edelkind.php
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--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
------------------------------------------------------------------------------------------------
U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
A Strong Voice for Business Since 1995, Now 100 Members
Promoting U.S.-Ukraine business relations & investment
==============================================================
3. A CAPITALIST REVOLUTION
Gazprom's executives are ruthless politician-businessmen of the sort Britain once produced
Analysis & Commentary: by Mark Almond, history lecturer at Oriel College, Oxford
The Guardian, London, United Kingdom, Wednesday 7 January 2009
Russia's energy giant, Gazprom, is at the heart of a new cold war pitting the Kremlin against Washington. In the old cold war, Soviet gas still flowed west at the height of rows between Reagan and Brezhnev - but postcommunist Russia is proving less pliant than the "evil empire".
Gazprom is at the heart of modern Russia. Its former chairman is the country's president, and many key executives work part-time in the Kremlin. It is, above all, not only Russia's biggest company but the world's biggest energy supplier. Back in the sleepy Brezhnev days it was run like the gas board here under Harold Wilson, and with as much geopolitical significance.
Now the west's fear is that Gazprom is beginning to play a role like that of America's oil companies or BP in the days when the west's energy interests
determined who ran countries such as Iran.
Gazprom's dispute with Ukraine is multilayered. The west prefers to focus on the strategic significance of Russia's desolate neighbour, while the
Russians put money first. It makes sense for Washington to see the issue solely in great power terms because America doesn't depend on Gazprom like
the EU. Last month, in the dying days of the Bush administration, Kiev signed a "strategic partnership" with Washington.
Keeping Russia hemmed in is why Ukraine matters to America. Apart from its status as a geopolitical pawn, Ukraine is little more than a pipeline route
for Gazprom's exports.
Washington's indignation about a Russian energy oligarch sitting in the Kremlin does not extend to Ukraine's energy oligarch, Yulia Tymoshenko, sitting as prime minister in Kiev. Qualifying as a market economy used to be about buying cheap and selling dear, but now politics trumps economics in western estimations.
Although its EU allies pay around $500 per unit, Washington wants Gazprom to subsidise the anti-Russian coalition government in Kiev by charging the poor Ukrainians only $175. Gazprom's response is market economics red in tooth and claw.
The west wanted Russia to be a market economy, but Russia never asked how countries become market economies. Is a political-economic juggernaut like
Gazprom just a relic of Soviet days? Didn't so-called chartered companies - monopolies in effect - like the East India or Hudson Bay companies play a
huge role in the development of Britain's model market economy?
3. A CAPITALIST REVOLUTION
Gazprom's executives are ruthless politician-businessmen of the sort Britain once produced
Analysis & Commentary: by Mark Almond, history lecturer at Oriel College, Oxford
The Guardian, London, United Kingdom, Wednesday 7 January 2009
Russia's energy giant, Gazprom, is at the heart of a new cold war pitting the Kremlin against Washington. In the old cold war, Soviet gas still flowed west at the height of rows between Reagan and Brezhnev - but postcommunist Russia is proving less pliant than the "evil empire".
Gazprom is at the heart of modern Russia. Its former chairman is the country's president, and many key executives work part-time in the Kremlin. It is, above all, not only Russia's biggest company but the world's biggest energy supplier. Back in the sleepy Brezhnev days it was run like the gas board here under Harold Wilson, and with as much geopolitical significance.
Now the west's fear is that Gazprom is beginning to play a role like that of America's oil companies or BP in the days when the west's energy interests
determined who ran countries such as Iran.
Gazprom's dispute with Ukraine is multilayered. The west prefers to focus on the strategic significance of Russia's desolate neighbour, while the
Russians put money first. It makes sense for Washington to see the issue solely in great power terms because America doesn't depend on Gazprom like
the EU. Last month, in the dying days of the Bush administration, Kiev signed a "strategic partnership" with Washington.
Keeping Russia hemmed in is why Ukraine matters to America. Apart from its status as a geopolitical pawn, Ukraine is little more than a pipeline route
for Gazprom's exports.
Washington's indignation about a Russian energy oligarch sitting in the Kremlin does not extend to Ukraine's energy oligarch, Yulia Tymoshenko, sitting as prime minister in Kiev. Qualifying as a market economy used to be about buying cheap and selling dear, but now politics trumps economics in western estimations.
Although its EU allies pay around $500 per unit, Washington wants Gazprom to subsidise the anti-Russian coalition government in Kiev by charging the poor Ukrainians only $175. Gazprom's response is market economics red in tooth and claw.
The west wanted Russia to be a market economy, but Russia never asked how countries become market economies. Is a political-economic juggernaut like
Gazprom just a relic of Soviet days? Didn't so-called chartered companies - monopolies in effect - like the East India or Hudson Bay companies play a
huge role in the development of Britain's model market economy?
Without their protected profits and ability to call on Westminster to back up their trading practices with power, would Britain's economy have taken off 300
years ago?
This spat at the gas tap has hit western Europe, but the region is yesterday's growth market so far as Gazprom is concerned. Apart from Britain, where the blinkered market-makers set free by Tony Blair failed to anticipate demand, let alone invest to meet it, there are no new importers from Russia in the EU.
New pipelines via the Baltic to Germany and through the Balkans to Italy are primarily to cut out the risk of destitute ex-Communist states "doing a
Ukraine" and siphoning off unpaid gas while demanding their rich EU partners stick up for them in Moscow.
Gazprom is looking for new clients, and US policy helps. American sanctions on Iran suit Russia well; Washington has pressed Turkey not to buy gas from
Iran, so Gazprom offers the alternative. Chaos in Afghanistan has hit the prospect of a pipeline from Turkmenistan to India - which, with Japan and
above all China, is tomorrow's market for Gazprom.
While western Europe sweats over whether to pressure Ukraine to pay so Russian gas can flow, or to fight Washington's new cold war by proxy, Moscow
is building new routes east and south. Medvedev announced a new pipeline to China on entering the Kremlin.
Western triumphalists marked Russia down for inevitable decline. Certainly so long as Yeltsin let his crony capitalists plunder the country and deposit
the loot in London and New York, pessimism was justified. Now, however, Russia's capitalist crew are not fly-by-night asset-strippers but ruthless
capitalist politician-businessmen of the sort Britain used to produce.
Gazprom's executives are the 21st-century equivalent of Britain's 18th-century pioneers of unscrupulous national power and wealth. Suddenly, yesterday's proponents of the unbridled free market have discovered a distaste for the brute realities of supply and demand.
Rather like poker players who have won all the chips on the table, western states recognise that the odds will turn sharply against them, so they
insist on the economic equivalent of a whist drive. But will the hard young men running Gazprom take up this granny's game?
NOTE: Mark Almond is a history lecturer at Oriel College, Oxford, mpalmond@aol.com
LINK: http://www.guardian.co.uk/commentisfree/2009/jan/07/gazprom-oil-russia
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
years ago?
This spat at the gas tap has hit western Europe, but the region is yesterday's growth market so far as Gazprom is concerned. Apart from Britain, where the blinkered market-makers set free by Tony Blair failed to anticipate demand, let alone invest to meet it, there are no new importers from Russia in the EU.
New pipelines via the Baltic to Germany and through the Balkans to Italy are primarily to cut out the risk of destitute ex-Communist states "doing a
Ukraine" and siphoning off unpaid gas while demanding their rich EU partners stick up for them in Moscow.
Gazprom is looking for new clients, and US policy helps. American sanctions on Iran suit Russia well; Washington has pressed Turkey not to buy gas from
Iran, so Gazprom offers the alternative. Chaos in Afghanistan has hit the prospect of a pipeline from Turkmenistan to India - which, with Japan and
above all China, is tomorrow's market for Gazprom.
While western Europe sweats over whether to pressure Ukraine to pay so Russian gas can flow, or to fight Washington's new cold war by proxy, Moscow
is building new routes east and south. Medvedev announced a new pipeline to China on entering the Kremlin.
Western triumphalists marked Russia down for inevitable decline. Certainly so long as Yeltsin let his crony capitalists plunder the country and deposit
the loot in London and New York, pessimism was justified. Now, however, Russia's capitalist crew are not fly-by-night asset-strippers but ruthless
capitalist politician-businessmen of the sort Britain used to produce.
Gazprom's executives are the 21st-century equivalent of Britain's 18th-century pioneers of unscrupulous national power and wealth. Suddenly, yesterday's proponents of the unbridled free market have discovered a distaste for the brute realities of supply and demand.
Rather like poker players who have won all the chips on the table, western states recognise that the odds will turn sharply against them, so they
insist on the economic equivalent of a whist drive. But will the hard young men running Gazprom take up this granny's game?
NOTE: Mark Almond is a history lecturer at Oriel College, Oxford, mpalmond@aol.com
LINK: http://www.guardian.co.uk/commentisfree/2009/jan/07/gazprom-oil-russia
--------------------------------------------------------------------------------
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
===================================================
4. UKRAINE, THE REAL CRISIS ON RUSSIA'S DOORSTEP
Energy Wire, By Steve Mufson, PostGlobal
A December report by the International Monetary Fund said, "Consumers in Ukraine now pay only 10-40 percent of the international price of gas. This
subsidization encourages overuse (Ukraine is among the world's least energy-efficient countries), expands the need for very costly imports, and
through the required budget subsidy (or unpaid taxes) distorts spending and taxation."
Ukraine uses more energy per unit of GDP than almost any other nation in the world and more than two and a half times as much as the average of the OECD nations. Now Ukraine has promised to bring domestic energy prices in line with international costs, but that will fuel inflation and will only be phased in over three years or so.
This energy mess couldn't come at a worse time for Ukraine's economy or the economies of Eastern Europe. In November, with the international financial
crisis hammering Ukraine, the IMF extended a $16.4 billion line of credit to help restore stability. But a recent note by Erik Berglof, Chief Economist
of the European Bank for Reconstruction and Development, warns that the IMF package might not be enough.
"Ukraine is heading toward a twin currency and banking sector crisis that could well bring down most of the economies of Eastern Europe," he writes.
Rapid currency depreciation is threatening the banking system because many firms borrowed in dollars. A few Western banks, mostly from the European
Union, have major exposure in Ukraine, he notes, and that could spread the ill effects around the region.
Moreover, Ukraine faces massive debt rollover perils in 2009. As much as $41.5 billion (roughly 35 percent of GDP) external amortization payments are
falling due,and refinancing in the current financial climate will be difficult, or at least costly.
Finally, Ukraine's GDP is expected to drop between 3 percent and 10 percent in 2009, Berglof says in the memo. And that could roil Ukraine's domestic
politics in ways that might not be favorable to democracy and rapprochement with the West.
"Securing a stable and democratic Ukraine, a country of 46 million people in the heart of Europe, is squarely in the interests of the United States and
Ukraine's European neighbors," he wrote. "The progress in political and economic transition since the Orange Revolution in 2004 is being put at
risk."
So this week's spat with Russia over natural gas supplies and prices may simply be the opening act in a year of pain and drama in Ukraine. And NATO
membership would be no cure.
LINK: http://newsweek.washingtonpost.com/postglobal/energywire/2009/01/ukraine_the_real_crisis
4. UKRAINE, THE REAL CRISIS ON RUSSIA'S DOORSTEP
Energy Wire, By Steve Mufson, PostGlobal
The Washington Post, Washington, D.C., Tuesday, January 6, 2009
ast month NATO allies met in Bucharest and talked about the membership applications from Ukraine and Georgia. It was the latest episode in an
11-year-old courtship between the Western military alliance and the two former Soviet republics that Russia still sees as part of its orbit.
But NATO would have done more for Ukraine's - and Europe's - security if it had insisted that Ukraine reform its energy sector. Just one month after the
Bucharest meeting, Ukraine is mired in its third annual natural gas contract dispute with Russia's state gas company, Gazprom, and the dispute is
threatening supplies for much of western Europe because Russia's main pipeline to Europe transits Ukraine.
Reports from Europe today say that gas deliveries to Europe may have come to a complete halt; Russia and Ukraine are blaming each other for the
ast month NATO allies met in Bucharest and talked about the membership applications from Ukraine and Georgia. It was the latest episode in an
11-year-old courtship between the Western military alliance and the two former Soviet republics that Russia still sees as part of its orbit.
But NATO would have done more for Ukraine's - and Europe's - security if it had insisted that Ukraine reform its energy sector. Just one month after the
Bucharest meeting, Ukraine is mired in its third annual natural gas contract dispute with Russia's state gas company, Gazprom, and the dispute is
threatening supplies for much of western Europe because Russia's main pipeline to Europe transits Ukraine.
Reports from Europe today say that gas deliveries to Europe may have come to a complete halt; Russia and Ukraine are blaming each other for the
disruption. This will undoubtedly bring a wry smile to the faces of conservatives who in the 1980s warned Europe against relying too heavily on Russia for natural gas supplies.
President Reagan tried to stop the pipeline project back then. Back in 1982, an American Enterprise Institute report warned that the Soviet pipeline
would be a "steel noose" that would create the potential for "economic blackmail."
Whether the current showdown is a contract dispute or economic blackmail isn't clear. It might be the former.
Nonetheless, if ever there were an example of how security cannot depend on military might alone, this is it. Ukraine's economy has been closed to outside investors eager to get into the natural gas supply and distribution business. Its dealings with Gazprom have been complicated by the role of RosUkrEnergo, a middleman company which appears to have little purpose other than siphoning off some of the money paid for natural gas.
Ukraine's energy-inefficient industries increase the need for supplies from abroad. And the country has done nothing to diversify supplies, preferring to rely on purchases from Russia at prices that remain below world market levels.
President Reagan tried to stop the pipeline project back then. Back in 1982, an American Enterprise Institute report warned that the Soviet pipeline
would be a "steel noose" that would create the potential for "economic blackmail."
Whether the current showdown is a contract dispute or economic blackmail isn't clear. It might be the former.
Nonetheless, if ever there were an example of how security cannot depend on military might alone, this is it. Ukraine's economy has been closed to outside investors eager to get into the natural gas supply and distribution business. Its dealings with Gazprom have been complicated by the role of RosUkrEnergo, a middleman company which appears to have little purpose other than siphoning off some of the money paid for natural gas.
Ukraine's energy-inefficient industries increase the need for supplies from abroad. And the country has done nothing to diversify supplies, preferring to rely on purchases from Russia at prices that remain below world market levels.
A December report by the International Monetary Fund said, "Consumers in Ukraine now pay only 10-40 percent of the international price of gas. This
subsidization encourages overuse (Ukraine is among the world's least energy-efficient countries), expands the need for very costly imports, and
through the required budget subsidy (or unpaid taxes) distorts spending and taxation."
Ukraine uses more energy per unit of GDP than almost any other nation in the world and more than two and a half times as much as the average of the OECD nations. Now Ukraine has promised to bring domestic energy prices in line with international costs, but that will fuel inflation and will only be phased in over three years or so.
This energy mess couldn't come at a worse time for Ukraine's economy or the economies of Eastern Europe. In November, with the international financial
crisis hammering Ukraine, the IMF extended a $16.4 billion line of credit to help restore stability. But a recent note by Erik Berglof, Chief Economist
of the European Bank for Reconstruction and Development, warns that the IMF package might not be enough.
"Ukraine is heading toward a twin currency and banking sector crisis that could well bring down most of the economies of Eastern Europe," he writes.
Rapid currency depreciation is threatening the banking system because many firms borrowed in dollars. A few Western banks, mostly from the European
Union, have major exposure in Ukraine, he notes, and that could spread the ill effects around the region.
Moreover, Ukraine faces massive debt rollover perils in 2009. As much as $41.5 billion (roughly 35 percent of GDP) external amortization payments are
falling due,and refinancing in the current financial climate will be difficult, or at least costly.
Finally, Ukraine's GDP is expected to drop between 3 percent and 10 percent in 2009, Berglof says in the memo. And that could roil Ukraine's domestic
politics in ways that might not be favorable to democracy and rapprochement with the West.
"Securing a stable and democratic Ukraine, a country of 46 million people in the heart of Europe, is squarely in the interests of the United States and
Ukraine's European neighbors," he wrote. "The progress in political and economic transition since the Orange Revolution in 2004 is being put at
risk."
So this week's spat with Russia over natural gas supplies and prices may simply be the opening act in a year of pain and drama in Ukraine. And NATO
membership would be no cure.
LINK: http://newsweek.washingtonpost.com/postglobal/energywire/2009/01/ukraine_the_real_crisis
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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5. LIGHTS GO OUT AS COLD WAR SENDS CHILL ACROSS SOUTH-EAST EUROPE
FT Reporters, Financial Times, London, UK, Thursday, January 8 2009
Ivan Yotov, a 24-year-old Bulgarian student, changed the venue for his Saint's day party yesterday, because the gas supply had been cut at the restaurant he booked in Sofia, the capital. The holiday atmosphere ended abruptly as Orthodox Christmas lights were turned off to save electricity.
"We were expecting about 20 people," Mr Yotov said. "Now we'll have the party at my family home - at least we have an open fireplace to burn logs and keep warm but there won't be any room for dancing."
Millions of people in south-east Europe are directly affected by the cut-off in Russian gas transported across Ukraine to southern, central and western Europe.
The first to suffer were consumers in countries with little domestic gas production and limited storage, including Bulgaria and Greece. But with reserves being used rapidly across the continent because of cold weather, it may not be long before other east European consumers find their pilot lights going out.
City heating utilities across Bulgaria cut output by a third to conserve gas supplies. At least 45,000 households were without central heating, Reuters reported, and about 80 schools asked for permission to close. With Sofia residents turning to electric heaters, power outages were reported because of overloading of the grid, even though the authorities ordered street lights and Christmas decorations to be switched off.
In Serbia, where Orthodox Christmas was celebrated yesterday, families bundled up warmly as they gathered to eat traditional roast pork.
Central heating systems, covering two-thirds of Belgrade along with much of the country, normally keep households heated to at least 20°C during the winter. The Belgrade heating utility capped the temperature at 16°-18°C to conserve gas and heating oil.
In the northern city of Novi Sad 80,000 people had their heating shut as gas supplies dwindled last night. "I don't want to spread panic but this is the most serious situation we have ever found ourselves in," said Dusan Bajatovic, director-general of Srbijagas, the state-run gas distributor.
In Romania, the government declared a state of emergency, even though it has considerable domestic gas production. Adriean Videanu, economics minister, said emergency powers would allow Transgaz, the partly state-owned distributor, to prioritise deliveries and minimise the effect on households, if necessary by cutting supplies to industry.
Ovidiu Chiorean, a Bucharest-based consultant, said: "Beyond the media fuss and agitation, there is no real panic for Romanian consumers. I can't feel the cold at home or in the office."
Industry is being asked to cut consumption in south-east and large swaths of eastern Europe. Manufacturers preparing for reductions include Wienerberger, the Austrian brickmaker with extensive east European investments; US Steel, which has a plant at Kosice in eastern Slovakia; and Slovnaft, the Slovakian refinery controlled by Hungary's Mol.
In Hungary, industry was urged to prepare for reductions. In Poland, where the reliance on the Ukrainian gas transit routes is limited because of alternative supplies coming from Russia via Belarus, Pulawy and Police, the big fertiliser companies, have reduced output.
NOTE: Reporting by Kerin Hope in Athens, Neil Macdonald in Belgrade, Thomas Escritt in Budapest and Stefan Wagstyl in London
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6. EU CALLS CRISIS TALKS AS FLOW OF GAS STOPS
By Tony Barber in Prague, Charles Clover in Moscow & Roman Olearchyk in Kiev
Financial Times, London, UK, Thursday, January 8 2009
The European Union has called in the heads of the Russian and Ukrainian gas companies for emergency talks in Brussels today in an attempt to end a spiralling energy dispute that has left more than 100,000 people without heating in eastern Europe.
The bloc's move followed the complete shutdown yesterday of Russian gas shipments through Ukraine to Europe as temperatures plunged, causing huge disruption in Bulgaria, Slovakia and other countries wholly dependent on Russian gas.
EU leaders hope the crisis talks with Alexei Miller, chief executive of Russia's Gazprom, the world's biggest gas company, and Oleh Dubyna, his counterpart at Ukraine's Naftogaz, will lead to the immediate resumption of supplies of Russian gas across Ukraine.
The talks mark the first time the EU has sought to use its influence as Russia's largest energy customer - and as a bloc that Ukraine seeks to join - to end such a crisis.
The EU said yesterday it had secured promises from Vladimir Putin and Yulia Tymoshenko, the prime ministers of Russia and Ukraine, to allow the deployment of international monitors along the gas transit route to check on the flow of Russian gas through Ukraine.
Its initiative came amid furious exchanges between Moscow and Kiev, with Russia accusing Ukraine of shutting its EU-bound pipelines and Ukraine claiming Russia had cut off the gas before it ever reached Ukraine.
With Russia supplying about a quarter of the EU's gas, and no gas flowing along a route that accounts for 80 per cent of Russia's shipments, acute shortages were reported yesterday in east and south-east Europe.
Despite the fiercely cold weather, consumers were left without gas, utility companies were turning down thermostats in apartment blocks and public buildings, and big industrial users were cutting consumption. Russian gas flows as far west as Austria stopped completely, triggering nervousness and price spikes in wholesale gas markets.
The disruptions were triggered this month by a bitter dispute between Moscow and Kiev over the annual contract for Gazprom's supplies to Ukraine's domestic market.
The push for international monitors was announced in Prague by José Manuel Barroso, European Commission president, and Mirek Topolanek, the Czech prime minister, whose country took over the EU's rotating presidency on January 1.
Both leaders warned that the EU would consider Russia an unreliable gas supplier, and Ukraine an unreliable transit country, if the agreement on monitors failed to materialise and gas supplies to the bloc continued to be paralysed.
"If the transit of gas doesn't go as normal, we will have to draw the conclusion that the supply of gas from Russia through Ukraine is no longer a credible supply," Mr Barroso said. But he appeared to put more pressure on Ukraine than on Russia, saying: "If Ukraine wants to be closer to the EU, it should not create any problems when it comes to the supply of gas to the EU."
Naftogaz said Gazprom had "completely cut off all gas supplies coming into Ukraine" at 7.40am yesterday. But Gazprom blamed Ukraine, saying the company was still shipping 40m cubic metres of gas yesterday, compared with the 300m it has shipped daily since January 1.
LINK: http://www.ft.com/cms/s/0/825ec8c4-dd25-11dd-a2a9-000077b07658.html
European nations are indeed feeling the effects of the crisis. In southeastern Europe, officials said deliveries of Russian gas through Ukraine to Bulgaria, Greece, Macedonia and Turkey had been halted overnight. Austria said its gas deliveries from Russia were down 90 percent, with Poland, Croatia, Romania, Hungary and the Czech Republic also reporting shortfalls.
On Tuesday, even Germany, Europe's largest economy, reported a decrease in deliveries. Germany is Russia's biggest single customer, receiving more than a third of its gas from Russia, either via Ukraine or Belarus.
Berlin said last week it had national reserves to keep German households warm for some time. Yet E.ON Ruhrgas and Wingas, two German gas companies with strong ties to Gazprom, reported Tuesday that gas flows through their pipelines had dropped dramatically.
"Our limits will be tested if this dramatic drop in supply continues and temperatures remain at these very low levels," Bernhard Reutersberg, the head of E.ON Ruhrgas, said Tuesday in a statement.
Ukraine's economy has long been in deep trouble, and the global financial crisis has only made things worse. The state is nearly bankrupt, and observers say even if a favorable deal with Gazprom emerges from Thursday's negotiations, Kiev simply may not be able to pay for Russia's gas right now.
According to German news Web site Spiegel Online, several Ukrainian companies in recent weeks have not paid their energy bills from Naftogaz, and the state has had to rely on $16.4 billion in loans from the International Monetary Fund to keep Ukraine going.
Kiev, with its pro-Western government, now looks to the West for financial aid. Russia wouldn't mind, as long as its bills are paid. Of course, Europe is not exactly swimming in cash right now - but it may have to get involved, if only to secure its own gas imports in these cold times.
===================================================
6. EU CALLS CRISIS TALKS AS FLOW OF GAS STOPS
By Tony Barber in Prague, Charles Clover in Moscow & Roman Olearchyk in Kiev
Financial Times, London, UK, Thursday, January 8 2009
The European Union has called in the heads of the Russian and Ukrainian gas companies for emergency talks in Brussels today in an attempt to end a spiralling energy dispute that has left more than 100,000 people without heating in eastern Europe.
The bloc's move followed the complete shutdown yesterday of Russian gas shipments through Ukraine to Europe as temperatures plunged, causing huge disruption in Bulgaria, Slovakia and other countries wholly dependent on Russian gas.
EU leaders hope the crisis talks with Alexei Miller, chief executive of Russia's Gazprom, the world's biggest gas company, and Oleh Dubyna, his counterpart at Ukraine's Naftogaz, will lead to the immediate resumption of supplies of Russian gas across Ukraine.
The talks mark the first time the EU has sought to use its influence as Russia's largest energy customer - and as a bloc that Ukraine seeks to join - to end such a crisis.
The EU said yesterday it had secured promises from Vladimir Putin and Yulia Tymoshenko, the prime ministers of Russia and Ukraine, to allow the deployment of international monitors along the gas transit route to check on the flow of Russian gas through Ukraine.
Its initiative came amid furious exchanges between Moscow and Kiev, with Russia accusing Ukraine of shutting its EU-bound pipelines and Ukraine claiming Russia had cut off the gas before it ever reached Ukraine.
With Russia supplying about a quarter of the EU's gas, and no gas flowing along a route that accounts for 80 per cent of Russia's shipments, acute shortages were reported yesterday in east and south-east Europe.
Despite the fiercely cold weather, consumers were left without gas, utility companies were turning down thermostats in apartment blocks and public buildings, and big industrial users were cutting consumption. Russian gas flows as far west as Austria stopped completely, triggering nervousness and price spikes in wholesale gas markets.
The disruptions were triggered this month by a bitter dispute between Moscow and Kiev over the annual contract for Gazprom's supplies to Ukraine's domestic market.
The push for international monitors was announced in Prague by José Manuel Barroso, European Commission president, and Mirek Topolanek, the Czech prime minister, whose country took over the EU's rotating presidency on January 1.
Both leaders warned that the EU would consider Russia an unreliable gas supplier, and Ukraine an unreliable transit country, if the agreement on monitors failed to materialise and gas supplies to the bloc continued to be paralysed.
"If the transit of gas doesn't go as normal, we will have to draw the conclusion that the supply of gas from Russia through Ukraine is no longer a credible supply," Mr Barroso said. But he appeared to put more pressure on Ukraine than on Russia, saying: "If Ukraine wants to be closer to the EU, it should not create any problems when it comes to the supply of gas to the EU."
Naftogaz said Gazprom had "completely cut off all gas supplies coming into Ukraine" at 7.40am yesterday. But Gazprom blamed Ukraine, saying the company was still shipping 40m cubic metres of gas yesterday, compared with the 300m it has shipped daily since January 1.
LINK: http://www.ft.com/cms/s/0/825ec8c4-dd25-11dd-a2a9-000077b07658.html
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7. GAS FEUD MET WITH CHILL IN EUROPE
Analysis: Stefan Nicola, United Press International (UPI), Berlin, Germany, Thu, Jan 8, 2009
BERLIN -- Russia's gas price row with Ukraine escalated Tuesday, disrupting deliveries to Europe as the continent is experiencing a bitterly cold winter.
Alexander Medvedev knows he needs to soothe his best customer. The No. 2 at the Russian energy giant Gazprom arrived in Berlin on Tuesday to meet with German Economy Minister Michael Glos and a representative from the Czech presidency of the European Union.
Whether Mr. Glos extended a warm welcome to Mr. Medvedev is unknown -- but Berlin certainly didn't. It was 5 degrees Fahrenheit in the German capital, and across most of Europe, temperatures were similarly grim, with snow and ice shutting down highways and delaying air travel.
Just as Europe was being hit by a cold spell, the gas price row between Russia and Ukraine escalated, with several European nations reporting a drop in gas deliveries. The European Union imports roughly a quarter of its gas from Russia, some 80 percent of which is pumped through Ukraine.
Russia announced Monday it would reduce gas sent through Ukraine by 65.3 million cubic meters, the amount Gazprom said Ukraine stole between Jan. 1and Jan. 4. The Russian energy giant earlier had stopped the gas intended for Ukraine only, because Kiev refused to agree to Russian price hikes.
But Ukraine said Russia reduced the gas flow by much more -- 200 million cubic meters -- and added Ukraine's state gas firm Naftogaz would divert only as much gas as necessary to keep its generators running.
Russia instead accused Ukraine of having shut down three of four pipelines that deliver gas to Western Europe. Gazprom said Kiev, and not the Kremlin, should be blamed for the drop in deliveries to Europe.
No matter who is to be blamed, officials are furious. The Czech EU presidency issued a statement demanding "that gas supplies be restored immediately to the EU."
"Without prior warning and in clear contradiction with the reassurances given by the highest Russian and Ukrainian authorities to the EU, gas supplies to some EU member states have been substantially cut. This situation is completely unacceptable," the statement said.
Sean McCormack, spokesman for the U.S. State Department, also called the gas cutoffs "unacceptable." "This episode underscores the critical need to diversify sources of natural gas, as well as other energy supplies," he said in a statement.
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7. GAS FEUD MET WITH CHILL IN EUROPE
Analysis: Stefan Nicola, United Press International (UPI), Berlin, Germany, Thu, Jan 8, 2009
BERLIN -- Russia's gas price row with Ukraine escalated Tuesday, disrupting deliveries to Europe as the continent is experiencing a bitterly cold winter.
Alexander Medvedev knows he needs to soothe his best customer. The No. 2 at the Russian energy giant Gazprom arrived in Berlin on Tuesday to meet with German Economy Minister Michael Glos and a representative from the Czech presidency of the European Union.
Whether Mr. Glos extended a warm welcome to Mr. Medvedev is unknown -- but Berlin certainly didn't. It was 5 degrees Fahrenheit in the German capital, and across most of Europe, temperatures were similarly grim, with snow and ice shutting down highways and delaying air travel.
Just as Europe was being hit by a cold spell, the gas price row between Russia and Ukraine escalated, with several European nations reporting a drop in gas deliveries. The European Union imports roughly a quarter of its gas from Russia, some 80 percent of which is pumped through Ukraine.
Russia announced Monday it would reduce gas sent through Ukraine by 65.3 million cubic meters, the amount Gazprom said Ukraine stole between Jan. 1and Jan. 4. The Russian energy giant earlier had stopped the gas intended for Ukraine only, because Kiev refused to agree to Russian price hikes.
But Ukraine said Russia reduced the gas flow by much more -- 200 million cubic meters -- and added Ukraine's state gas firm Naftogaz would divert only as much gas as necessary to keep its generators running.
Russia instead accused Ukraine of having shut down three of four pipelines that deliver gas to Western Europe. Gazprom said Kiev, and not the Kremlin, should be blamed for the drop in deliveries to Europe.
No matter who is to be blamed, officials are furious. The Czech EU presidency issued a statement demanding "that gas supplies be restored immediately to the EU."
"Without prior warning and in clear contradiction with the reassurances given by the highest Russian and Ukrainian authorities to the EU, gas supplies to some EU member states have been substantially cut. This situation is completely unacceptable," the statement said.
Sean McCormack, spokesman for the U.S. State Department, also called the gas cutoffs "unacceptable." "This episode underscores the critical need to diversify sources of natural gas, as well as other energy supplies," he said in a statement.
European nations are indeed feeling the effects of the crisis. In southeastern Europe, officials said deliveries of Russian gas through Ukraine to Bulgaria, Greece, Macedonia and Turkey had been halted overnight. Austria said its gas deliveries from Russia were down 90 percent, with Poland, Croatia, Romania, Hungary and the Czech Republic also reporting shortfalls.
On Tuesday, even Germany, Europe's largest economy, reported a decrease in deliveries. Germany is Russia's biggest single customer, receiving more than a third of its gas from Russia, either via Ukraine or Belarus.
Berlin said last week it had national reserves to keep German households warm for some time. Yet E.ON Ruhrgas and Wingas, two German gas companies with strong ties to Gazprom, reported Tuesday that gas flows through their pipelines had dropped dramatically.
"Our limits will be tested if this dramatic drop in supply continues and temperatures remain at these very low levels," Bernhard Reutersberg, the head of E.ON Ruhrgas, said Tuesday in a statement.
Kiev and Moscow on Tuesday said they would return to the negotiation table Thursday. The European Union has been eager to stay out of the conflict, but it may not be possible to keep up that position much longer.
Ukraine's economy has long been in deep trouble, and the global financial crisis has only made things worse. The state is nearly bankrupt, and observers say even if a favorable deal with Gazprom emerges from Thursday's negotiations, Kiev simply may not be able to pay for Russia's gas right now.
According to German news Web site Spiegel Online, several Ukrainian companies in recent weeks have not paid their energy bills from Naftogaz, and the state has had to rely on $16.4 billion in loans from the International Monetary Fund to keep Ukraine going.
Kiev, with its pro-Western government, now looks to the West for financial aid. Russia wouldn't mind, as long as its bills are paid. Of course, Europe is not exactly swimming in cash right now - but it may have to get involved, if only to secure its own gas imports in these cold times.
NOTE: Stefan Nicola is the Germany correspondent for United Press International.
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8. RUSSIA LEARNS LESSONS IN PR WAR OVER GAS SUPPLIES
NOTE: Send in a letter-to-the-editor today. Let us hear from you.
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8. RUSSIA LEARNS LESSONS IN PR WAR OVER GAS SUPPLIES
Analysis: By Sabina Zawadzki, Reuters, Kiev, Ukraine, Wednesday, January 7, 2009
KIEV - Russia has shown in its gas price row with Ukraine that it has learnt some lessons in how to handle the media since being widely portrayed as the aggressor during a similar dispute in 2006.
Moscow reduced gas supplies to Kiev on Jan. 1, as it did three years ago, cutting flows to European countries which receive much of their gas through Ukraine. But this time, it has fared better in the public relations battle.
Since the dispute in 2006 the Kremlin has hired one of the world's largest public affairs firms, Omnicom (OMC.N), and its Brussels unit, Gplus Europe.
The world's media have been regularly updated on the actions and intentions of Russian state gas monopoly (GAZP.MM), keeping up a barrage of information that has so far helped Russia hold its own in the PR war.
"We are very seriously thinking about our reputation because we have a lot to be proud of -- 20 years of reliable supply in very difficult times," Gazprom Deputy Chief Executive Alexander Medvedev told a news conference in London on Tuesday. "After 2005-2006, we got some lessons because we were wrongly blamed for what happened at that time."
In 2006, the European Union loudly condemned Moscow and openly questioned Russia's reliability as a supplier. The EU's sympathy lay largely with Ukraine following the 2004 "Orange Revolution" which brought pro-Western leaders to power.
But Kiev has lost much of the sympathy it had then because of feuding between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko which has delayed reforms.
GAZPROM PUBLICITY CAMPAIGN
Russian Prime Minister Vladimir Putin has led Moscow's denunciations of Ukraine's actions during the gas dispute, and Gazprom has launched a Web site to explain its side of the row -- www.gazpromukrainefacts.com.
Gazprom's Medvedev has also toured European countries, giving briefings and interviews in which he accuses Ukraine of stealing gas meant for Europe.
"At the moment, we are finding Gazprom's arguments far more convincing," said one European diplomatic source in Kiev.
"Gazprom is putting on the table basic data and statistics, which are hard facts...Gazprom is ready to provide some ready-made figures, while on the Ukrainian side it takes some time and there can be conflicting data," the source said.
It has not all been plain sailing this year for Russia, which alarmed the West by waging a brief war with Georgia after Georgian forces tried to retake control of breakaway South Ossetia in August.
During the war, Georgian President Mikheil Saakashvili portrayed his country as a tiny neighbour battered by "imperialists" in Moscow, a view that was reflected in large parts of the world's media.
The gas row has also served to underline growing Western concerns about Russia's relations with neighbouring countries that were once part of the Soviet Union, and has revived old fears about Moscow's reliability as a supplier.
The PR battle may also become harder to win over coming days. The longer gas supplies to Europe are affected, the harder it will be for Moscow not to appear a bully, especially as Europe is facing a particularly cold spell.
The Sun, a British tabloid, has already referred to Putin as "Vlad the Horrible" and Ukraine's leaders may be banking on winning the blame game in the long run. "They are calculating, and I think not without basis, that the longer this drags on the more the blame will be laid at Moscow's door," said Fyodr Lukyanov, editor of the journal Russia in Global Affairs.
UKRAINIAN LEADERS SAY LITTLE ON DISPUTE
Ukraine's public relations operation has been led by state energy firm Naftogaz, which has been in daily touch with the media, giving updates on technical developments.
Gazprom says it has "left no stone unturned to avoid" a cut in supplies, that its first price offer was more than reasonable and that as a commercial company it should be paid its debts.
Naftogaz says it paid its debts and Gazprom's offer was too high because Ukraine has three years to get to market prices. Ukraine's top politicians have largely been silent since gas supplies were reduced on Jan. 1.
Tymoshenko has said nothing in public on the dispute apart from issuing a joint statement with Yushchenko. The president, who has been on holiday, also sent a short telegram to European states which was published on his Web site.
"Part of the problem regarding PR, as I see it, is that most Western media are based in Moscow and maintain regular contact with political and business elites there," said Tammy Lynch, Senior Research Fellow at Boston University's Institute for the Study of Conflict, Ideology and Policy. "Ukraine's interests, even in a dispute like this, are peripheral to the 'big issue' of Russia's relations with Europe."
LINK: http://uk.reuters.com/article/oilRpt/idUKL738497420090107?sp=true
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9. THE BATTLE OF THE OLIGARCHS BEHIND THE GAS DISPUTE
Analysis & Commentary: By Jérôme Guillet and John Evans
The Financial Times, London, Tuesday, January 6 2009
Amonolithic, Putin-led Kremlin using the “energy weapon” to browbeat neighbouring Ukraine and beyond and threaten the rest of Europe with natural gas shortages: the image has become commonplace during the “gas spats” of the past few years. Yet those spats have a longer history than is generally appreciated – they began in 1992 – and, what is more, Vladimir Putin and Gazprom cannot win a prolonged gas war, and they know it.
The Soviet gas industry was born in Ukraine in the 1930s and the infrastructure was built from there. Ukraine remained a central part of the gas pipeline network even as the focus of activity moved to western Siberia. Carving up the Soviet Union along along the borders of its former republics made for an often unworkable allocation of physical assets.
Vital assets for Gazprom, the Russian gas monopoly, are located in Ukraine and thus no longer under its direct control: the pipelines are an obvious item, but, just as significantly, Ukraine controls most of the storage capacity of the Russian export system. On the other hand, Ukraine, a heavy industry country, has mostly depleted its gas reserves, making it dependent on gas from Siberia.
So this is a situation of mutual dependence. Russia needs Ukrainian infrastructure to honour its export contracts to Europe, and Ukraine needs Russian gas. In case of conflict, withholding gas (from Russia’s side) or shutting down export infrastructure (from Ukraine’s) are tempting options, which have been taken up repeatedly since the demise of the Soviet Union.
Ukraine used to get its gas allocation from Soviet planners and continued to expect the same after independence. When Russia first tried to get payment for its deliveries in the early 1990s, it failed. When it first cut off gas to Ukraine to enforce payments, Ukraine simply tapped the gas sent for export purposes; when European buyers howled, Russia relented and restored gas supplies without having managed to get paid by Ukraine. This has gone on. Yet somehow the gas continues to flow every year.
Russia cannot cut off Ukraine for any lengthy period of time, because that endangers its exports. In practice, giving roughly 20 per cent of its gas shipments to Ukraine as payment for transit is an acceptable deal for both sides. So why the annual charade?
Gazprom understood long ago that Ukraine would never pay for official deliveries. The attempted “solution” was to privatise a portion of the trade. Customers were offered lower rates if they paid them directly to another supplier, formally unrelated to either Ukrainian gas authorities or Gazprom.
The co-operation of senior Gazprom management and Russian and Ukrainian politicians was required to set up the 30bn-cubic-metre-a-year trade.
The trade’s enablers are in a position to benefit personally from it – and in effect cut out both Kiev and Gazprom. Political infighting in Ukraine can largely be understood by the struggle to be the Ukrainian counterparty to the trade.
(It is no coincidence that Yulia Tymoshenko, the prime minister, made her fortune in gas trading in the 1990s and that Viktor Yanukovich, the pro-Russia opposition leader, represents some of the largest heavy industrial gas buyers in eastern Ukraine.) In Russia, similarly, both the Kremlin and Gazprom are rife with infighting between shifting coalitions.
So while the world focuses on the predictable brinkmanship between Ukraine and Russia, the real fight over the share-out is taking place more discreetly between a few oligarchs in Moscow and Kiev. This is perhaps the whole purpose of the noisy puppet show.
Worries about Russia or Gazprom using the “gas weapon” against Europe are misplaced. In their official capacity, both are keenly aware of their absolute dependency on exports to Europe for a huge share of the country’s income, and on the need for stable, reliable, long-term relationships to finance the investments needed in gas infrastructure.
Of far more concern is that governments in Ukraine and Russia tolerate – indeed encourage – use of their upper political echelons and large parts of their infrastructure as instruments in disputes between unknown oligarchs. It suggests how little the rule of law and principles of accountability have penetrated public life in each country. And also, compared with the power of competing factions, how overstated is the strongman reputation of Mr Putin, Russia’s prime minister.
Jérôme Guillet, an investment banker, and John Evans, a writer, are the editors of the European Tribune, a news and debate website (www.eurotrib.com)
9. THE BATTLE OF THE OLIGARCHS BEHIND THE GAS DISPUTE
Analysis & Commentary: By Jérôme Guillet and John Evans
The Financial Times, London, Tuesday, January 6 2009
Amonolithic, Putin-led Kremlin using the “energy weapon” to browbeat neighbouring Ukraine and beyond and threaten the rest of Europe with natural gas shortages: the image has become commonplace during the “gas spats” of the past few years. Yet those spats have a longer history than is generally appreciated – they began in 1992 – and, what is more, Vladimir Putin and Gazprom cannot win a prolonged gas war, and they know it.
The Soviet gas industry was born in Ukraine in the 1930s and the infrastructure was built from there. Ukraine remained a central part of the gas pipeline network even as the focus of activity moved to western Siberia. Carving up the Soviet Union along along the borders of its former republics made for an often unworkable allocation of physical assets.
Vital assets for Gazprom, the Russian gas monopoly, are located in Ukraine and thus no longer under its direct control: the pipelines are an obvious item, but, just as significantly, Ukraine controls most of the storage capacity of the Russian export system. On the other hand, Ukraine, a heavy industry country, has mostly depleted its gas reserves, making it dependent on gas from Siberia.
So this is a situation of mutual dependence. Russia needs Ukrainian infrastructure to honour its export contracts to Europe, and Ukraine needs Russian gas. In case of conflict, withholding gas (from Russia’s side) or shutting down export infrastructure (from Ukraine’s) are tempting options, which have been taken up repeatedly since the demise of the Soviet Union.
Ukraine used to get its gas allocation from Soviet planners and continued to expect the same after independence. When Russia first tried to get payment for its deliveries in the early 1990s, it failed. When it first cut off gas to Ukraine to enforce payments, Ukraine simply tapped the gas sent for export purposes; when European buyers howled, Russia relented and restored gas supplies without having managed to get paid by Ukraine. This has gone on. Yet somehow the gas continues to flow every year.
Russia cannot cut off Ukraine for any lengthy period of time, because that endangers its exports. In practice, giving roughly 20 per cent of its gas shipments to Ukraine as payment for transit is an acceptable deal for both sides. So why the annual charade?
Gazprom understood long ago that Ukraine would never pay for official deliveries. The attempted “solution” was to privatise a portion of the trade. Customers were offered lower rates if they paid them directly to another supplier, formally unrelated to either Ukrainian gas authorities or Gazprom.
The co-operation of senior Gazprom management and Russian and Ukrainian politicians was required to set up the 30bn-cubic-metre-a-year trade.
The trade’s enablers are in a position to benefit personally from it – and in effect cut out both Kiev and Gazprom. Political infighting in Ukraine can largely be understood by the struggle to be the Ukrainian counterparty to the trade.
(It is no coincidence that Yulia Tymoshenko, the prime minister, made her fortune in gas trading in the 1990s and that Viktor Yanukovich, the pro-Russia opposition leader, represents some of the largest heavy industrial gas buyers in eastern Ukraine.) In Russia, similarly, both the Kremlin and Gazprom are rife with infighting between shifting coalitions.
So while the world focuses on the predictable brinkmanship between Ukraine and Russia, the real fight over the share-out is taking place more discreetly between a few oligarchs in Moscow and Kiev. This is perhaps the whole purpose of the noisy puppet show.
Worries about Russia or Gazprom using the “gas weapon” against Europe are misplaced. In their official capacity, both are keenly aware of their absolute dependency on exports to Europe for a huge share of the country’s income, and on the need for stable, reliable, long-term relationships to finance the investments needed in gas infrastructure.
Of far more concern is that governments in Ukraine and Russia tolerate – indeed encourage – use of their upper political echelons and large parts of their infrastructure as instruments in disputes between unknown oligarchs. It suggests how little the rule of law and principles of accountability have penetrated public life in each country. And also, compared with the power of competing factions, how overstated is the strongman reputation of Mr Putin, Russia’s prime minister.
Jérôme Guillet, an investment banker, and John Evans, a writer, are the editors of the European Tribune, a news and debate website (www.eurotrib.com)
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10. UKRAINE SETS GAS OFFER BUT WANTS NO MIDDLEMAN
By Pavel Polityuk, Reuters, Kiev, Ukraine, Wed, January 7, 2009
KIEV - Ukraine will insist on a price of $201 per 1,000 cubic meters of Russian gas for 2009, less than half Russia's proposal, and wants to scrap a controversial gas intermediary, the state energy company's head said on Wednesday.
Naftogaz head Oleh Dubyna told Reuters in an interview that Ukraine would only pay this price, up from $179.50 in 2008, if Russian gas monopoly Gazprom agreed to increase transit fees to $2.05 per tcm over 100 km from $1.70. Dubyna will head a delegation to resume talks in Moscow with Gazprom Chief Executive Alexei Miller on Thursday.
The talks are aimed at resolving a gas contract dispute with Russia that has disrupted supplies to the European Union, which gets about a fifth of its gas from pipelines that cross Ukraine. Gazprom has said Ukraine must pay $450 per tcm, arguing that Ukraine had rejected earlier, lower offers.
Naftogaz previously said it could pay a maximum of $235 per tcm but President Viktor Yushchenko and Prime Minister Yulia Tymoshenko then made a rare joint statement on New Year's Eve, saying a suitable price would be $201 per tcm.
"This is the figure stated by the president and prime minister... This is a political statement so I must keep to these figures," Dubyna said at Ukraine's central gas distribution monitoring centre. "I cannot accept it when one side proposes a rise of $70 while transit fees remain unchanged," he said, adding that a gas price of $250 per tcm was unacceptable to Ukraine.
Dubyna, who answers to Prime Minister Tymoshenko, also weighed into a politically charged debate over the future of RosUkrEnergo, a controversial intermediary which in 2006 became the exclusive intermediary for Ukraine's gas imports.
He said RosUkrEnergo, which is a 50/50 joint venture between Gazprom and two Ukrainian businessmen, should be scrapped. It acts as an intermediary between Gazprom and Naftogaz. "I don't want to see anybody between us," he said. "That is my strong position -- someone else can do it. I would resign and I would never sign a deal with RosUkrEnergo."
Tymoshenko has repeatedly said RosUkrEnergo is "a corrupt intermediary" that is being protected by senior politicians. RosUkrEnergo has denied allegations that Ukrainian or Russian politicians have commercial interests in it.
WINTER GAS CUT-OFF
Dubyna said Russian claims that Ukraine had shut down export pipelines to European customers were "absurd," as all gas taps were on Russian territory.
In a sign the cut-off may be starting to affect the Ukrainian economy, Dubyna said Naftogaz may have to reduce gas supplies to companies in the metal and chemical sectors, which together account for more than half of exports.
"We will have to reduce for a short time supplies to domestic customers," said Dubyna, a 49-year-old former engineer. "This will not be a full stoppage but I think we will have to reduce gas supplies to ... some metals companies and some chemical enterprises. Later, supplies will be restored."
Ukrainian households have not yet been affected. With temperatures in Kiev dropping below minus 20 degrees Celsius, Dubyna said the gas row had gone too far. "When you look at the thermometer and see minus 24 degrees Celsius, you understand that God help us if the heating stoves stop working," he said. "When you think that your family may not have heat, your understanding of high-level politics ends.
"When you understand that this could lead to a big collapse then I do not understand such high-level politics," he said, adding that Russia and Ukraine would come to a deal in the end. "We will in any case come to an agreement. We cannot exist without each other so let's not continue down this road anymore."
(Reporting by Pavel Polityuk; Writing by Guy Faulconbridge and Sabina Zawadzki in Kiev; editing by Philippa Fletcher)
LINK: http://uk.reuters.com/article/burningIssues/idUKTRE5062ZZ20090107?sp=true
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10. UKRAINE SETS GAS OFFER BUT WANTS NO MIDDLEMAN
By Pavel Polityuk, Reuters, Kiev, Ukraine, Wed, January 7, 2009
KIEV - Ukraine will insist on a price of $201 per 1,000 cubic meters of Russian gas for 2009, less than half Russia's proposal, and wants to scrap a controversial gas intermediary, the state energy company's head said on Wednesday.
Naftogaz head Oleh Dubyna told Reuters in an interview that Ukraine would only pay this price, up from $179.50 in 2008, if Russian gas monopoly Gazprom agreed to increase transit fees to $2.05 per tcm over 100 km from $1.70. Dubyna will head a delegation to resume talks in Moscow with Gazprom Chief Executive Alexei Miller on Thursday.
The talks are aimed at resolving a gas contract dispute with Russia that has disrupted supplies to the European Union, which gets about a fifth of its gas from pipelines that cross Ukraine. Gazprom has said Ukraine must pay $450 per tcm, arguing that Ukraine had rejected earlier, lower offers.
Naftogaz previously said it could pay a maximum of $235 per tcm but President Viktor Yushchenko and Prime Minister Yulia Tymoshenko then made a rare joint statement on New Year's Eve, saying a suitable price would be $201 per tcm.
"This is the figure stated by the president and prime minister... This is a political statement so I must keep to these figures," Dubyna said at Ukraine's central gas distribution monitoring centre. "I cannot accept it when one side proposes a rise of $70 while transit fees remain unchanged," he said, adding that a gas price of $250 per tcm was unacceptable to Ukraine.
Dubyna, who answers to Prime Minister Tymoshenko, also weighed into a politically charged debate over the future of RosUkrEnergo, a controversial intermediary which in 2006 became the exclusive intermediary for Ukraine's gas imports.
He said RosUkrEnergo, which is a 50/50 joint venture between Gazprom and two Ukrainian businessmen, should be scrapped. It acts as an intermediary between Gazprom and Naftogaz. "I don't want to see anybody between us," he said. "That is my strong position -- someone else can do it. I would resign and I would never sign a deal with RosUkrEnergo."
Tymoshenko has repeatedly said RosUkrEnergo is "a corrupt intermediary" that is being protected by senior politicians. RosUkrEnergo has denied allegations that Ukrainian or Russian politicians have commercial interests in it.
WINTER GAS CUT-OFF
Dubyna said Russian claims that Ukraine had shut down export pipelines to European customers were "absurd," as all gas taps were on Russian territory.
In a sign the cut-off may be starting to affect the Ukrainian economy, Dubyna said Naftogaz may have to reduce gas supplies to companies in the metal and chemical sectors, which together account for more than half of exports.
"We will have to reduce for a short time supplies to domestic customers," said Dubyna, a 49-year-old former engineer. "This will not be a full stoppage but I think we will have to reduce gas supplies to ... some metals companies and some chemical enterprises. Later, supplies will be restored."
Ukrainian households have not yet been affected. With temperatures in Kiev dropping below minus 20 degrees Celsius, Dubyna said the gas row had gone too far. "When you look at the thermometer and see minus 24 degrees Celsius, you understand that God help us if the heating stoves stop working," he said. "When you think that your family may not have heat, your understanding of high-level politics ends.
"When you understand that this could lead to a big collapse then I do not understand such high-level politics," he said, adding that Russia and Ukraine would come to a deal in the end. "We will in any case come to an agreement. We cannot exist without each other so let's not continue down this road anymore."
(Reporting by Pavel Polityuk; Writing by Guy Faulconbridge and Sabina Zawadzki in Kiev; editing by Philippa Fletcher)
LINK: http://uk.reuters.com/article/burningIssues/idUKTRE5062ZZ20090107?sp=true
--------------------------------------------------------------------------------
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11. PUTIN, PIPE DOWN ON UKRAINE
The Russian leader points to Ukraine and the US for his economic woes. He should look in the mirror.
The Russian leader points to Ukraine and the US for his economic woes. He should look in the mirror.
Editorial Board, Christian Science Monitor, Boston, MA, Thursday, Jan 8, 2009
Moscow is pointing fingers again. The gas delivery crisis in Europe? It's all Ukraine's fault. The economic crisis in Russia? Oh, wait, there is no crisis, according to the state-controlled media. But if there were, it's all America's fault. Truth be told, neither Ukraine nor the US are blameless. But that misses the larger point.
Yes, Ukraine appears to have paid late for natural gas from Russia last year, and it failed to agree on a price hike for this year. Their dispute led Russia to cut off gas for Ukraine on Jan. 1. This week, gas destined for Europe and Turkey via Ukraine ceased.
Also true, the global financial crisis started in the US (Prime Minister Vladimir Putin says the US "infected" the world). And Russia had nothing to do with plummeting oil prices that are causing this oil exporter to rapidly spend down its foreign currency reserves, bail out indebted oligarchs, and prop up a sagging ruble.
But if Russia only looked in the mirror, it would find its own policies have exacerbated its woes. By blaming outsiders, it misses an opportunity to
strengthen the economy, which must be done.
One reason that Russia's behemoth gas supplier, Gazprom, is tightening the screws on Ukraine is that it needs money. Instead of investing adequately in
operations, it borrowed heavily to buy up private concerns – part of Mr. Putin's ill-conceived strategy of renationalizing Russia's oil and gas industry. Gazprom is now deep in debt (about $50 billion) and is negotiating a rescue with the government.
Its debt load reflects staggering national corporate debt (about $500 billion). Like Gazprom, companies have financed their borrowing from abroad (the dominance of Russian state banks has suppressed lending opportunities at home).
Meanwhile, the Russian economy may grow by only 1 to 2 percent in 2009, or perhaps even contract – this after seven years of annual growth of 6.5 to 7
percent. And, Russia will face a budget deficit, because money from oil and gas exports provides 60 percent of official revenue. Russia must evolve from
a one-trick economy and diversify.
Corruption and unreliability have also caught up with Russia. Before the Wall Street crisis, investors were fleeing Moscow's stock market, which fell
by more than 70 percent in 2008.
Putin is doing everything but actually addressing these problems. Domestically, he's shoring up his grip on the state. He still has high approval ratings, but just in case public criticism swells, he's got a handy excuse in all those enemies abroad – from Georgia, to Ukraine, to the West – and he could always manufacture more threats.
For now, he's got enough foreign currency reserves (though depleted) as well as rainy-day funds to weather the economic storm – depending on how long it
lasts.
And he's helped by the fact that ordinary Russians are not yet broadly affected. They aren't in the stock market; they don't hold heavy mortgages.
Still, unemployment is spiking in places, as have protests, and wary Russians are pulling rubles from bank accounts.
The Kremlin strongman is hoping energy prices rebound before the masses realize that the house that Putin built may be a house of cards. If he's
wrong, he'll also have himself to blame.
LINK: http://www.csmonitor.com:80/2009/0108/p08s01-comv.html
Yes, Ukraine appears to have paid late for natural gas from Russia last year, and it failed to agree on a price hike for this year. Their dispute led Russia to cut off gas for Ukraine on Jan. 1. This week, gas destined for Europe and Turkey via Ukraine ceased.
Also true, the global financial crisis started in the US (Prime Minister Vladimir Putin says the US "infected" the world). And Russia had nothing to do with plummeting oil prices that are causing this oil exporter to rapidly spend down its foreign currency reserves, bail out indebted oligarchs, and prop up a sagging ruble.
But if Russia only looked in the mirror, it would find its own policies have exacerbated its woes. By blaming outsiders, it misses an opportunity to
strengthen the economy, which must be done.
One reason that Russia's behemoth gas supplier, Gazprom, is tightening the screws on Ukraine is that it needs money. Instead of investing adequately in
operations, it borrowed heavily to buy up private concerns – part of Mr. Putin's ill-conceived strategy of renationalizing Russia's oil and gas industry. Gazprom is now deep in debt (about $50 billion) and is negotiating a rescue with the government.
Its debt load reflects staggering national corporate debt (about $500 billion). Like Gazprom, companies have financed their borrowing from abroad (the dominance of Russian state banks has suppressed lending opportunities at home).
Meanwhile, the Russian economy may grow by only 1 to 2 percent in 2009, or perhaps even contract – this after seven years of annual growth of 6.5 to 7
percent. And, Russia will face a budget deficit, because money from oil and gas exports provides 60 percent of official revenue. Russia must evolve from
a one-trick economy and diversify.
Corruption and unreliability have also caught up with Russia. Before the Wall Street crisis, investors were fleeing Moscow's stock market, which fell
by more than 70 percent in 2008.
Putin is doing everything but actually addressing these problems. Domestically, he's shoring up his grip on the state. He still has high approval ratings, but just in case public criticism swells, he's got a handy excuse in all those enemies abroad – from Georgia, to Ukraine, to the West – and he could always manufacture more threats.
For now, he's got enough foreign currency reserves (though depleted) as well as rainy-day funds to weather the economic storm – depending on how long it
lasts.
And he's helped by the fact that ordinary Russians are not yet broadly affected. They aren't in the stock market; they don't hold heavy mortgages.
Still, unemployment is spiking in places, as have protests, and wary Russians are pulling rubles from bank accounts.
The Kremlin strongman is hoping energy prices rebound before the masses realize that the house that Putin built may be a house of cards. If he's
wrong, he'll also have himself to blame.
LINK: http://www.csmonitor.com:80/2009/0108/p08s01-comv.html
--------------------------------------------------------------------------------
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12. GAZPROM BATTLES TO RESTORE REPUTATION
Analysis & Commentary: By Ed Crooks, Financial Times, London, UK, Wed, Jan 7 2009
As the dispute between Russia and Ukraine appeared to be edging towards resolution, the cost of the showdown for Gazprom, Russia’s state-controlled gas company, was already apparent. Gazprom has been caught in a very difficult position.
In the short term, it needs to extract as much revenue as possible from Ukraine. In the long term, its tactics in the crisis could stand in the way of its ambition of becoming a leading global energy business.
Last summer Gazprom was riding high. Already the world’s third-largest company by market capitalisation, valued at about $350bn (€255bn, £230bn), it was taken seriously when it predicted a $1,000bn valuation by 2015.
Alexei Miller, its chief executive, predicted that oil would soon rise to $250 per barrel. Today, with oil below $50, Gazprom is valued at just $86bn, and is down to 46th place in the international rankings.
Financial market indicators of the company’s health, such as its share price and the cost of insuring its debt against default, have improved from their low point last October, but Gazprom still faces a very difficult outlook.
The price of its gas in European markets is tied to the price of oil, with a six-to- nine-month lag. So the steep fall in oil prices in the second half of last year means the price of Gazprom’s gas will also fall sharply.
Gas cost more than $530 per thousand cubic metres towards the end of last year, but if oil stays at about $40-$50 a barrel it will end the year at about $250-$300.
Meanwhile, the price Gazprom pays for gas from central Asian countries such as Turkmenistan, an important supplement to its own production, has been rising to reflect European market prices. Gazprom paid just $100 per thousand cubic metres for Turkmen gas in the first half of 2007 and is paying about $365 today, although that will fall under the oil-linked formula as the year goes on.
As a result, Gazprom’s profits are being squeezed at a time when it faces a massive demand for investment to sustain Russia’s crumbling infrastructure and open up new sources of production, particularly the vast gas fields of the Yamal peninsula in north-west Russia.
Chris Weafer of Uralsib, a Russian bank, estimates that Gazprom will have to invest at least $20bn a year in the coming years. It is also hampered by a debt burden that was about $61bn at the end of 2007, at a time when raising funds is difficult for the most credit-worthy borrowers, let alone a company from an emerging economy that defaulted on its debts a decade ago.
Mr Weafer argues that to reassure investors Gazprom has to make Ukraine pay significantly more than the below-market gas price it has been paying until now. “This is a critical juncture for the company, where it really needs to raise more money,” he says. “So it has to get rid of the legacy of the Soviet Union where it was selling gas to Ukraine at a price that would mean it is making a loss.”
The cost of that action, however, has been to wipe out much of the progress that Gazprom has made since the 2006 dispute with Ukraine in establishing its reputation in the European Union.
As Colette Lewiner of Capgemini, the consultancy, puts it: “Gazprom has tried to be a normal company and to expand its footprint in other countries. It has been holding press conferences and talking nicely. But this crisis has shown another image: a facet of Gazprom that is not so good.”
Katinka Barysch of the Centre for European Reform, a think-tank, argues that European reactions to the current dispute are different from the instinctive support for Ukrainian democracy that was the dominant feeling in 2006. “Now Ukraine’s squabbling, self-serving leaders attract little sympathy,” she says.
Nevertheless, for many Europeans the apportioning of blame is less important than the sense that Russia is no longer a reliable supplier.
Alexander Medvedev, Gazprom’s deputy chief executive, told reporters in London this week: “We are very seriously thinking about our reputation as a company. because we have a lot to be proud of. We have 40 years of supply in some very difficult times.”
Attempts to use the 2006 confrontation to galvanise a common European energy security policy may have been ineffective, but the disruption to supplies left a legacy of mistrust of Gazprom that was not easy to dispel.
After this more serious conflict, Europe’s wariness of Gazprom will run even deeper.
LINK: http://www.ft.com/cms/s/0/118cfaba-dceb-11dd-a2a9-000077b07658.html
12. GAZPROM BATTLES TO RESTORE REPUTATION
Analysis & Commentary: By Ed Crooks, Financial Times, London, UK, Wed, Jan 7 2009
As the dispute between Russia and Ukraine appeared to be edging towards resolution, the cost of the showdown for Gazprom, Russia’s state-controlled gas company, was already apparent. Gazprom has been caught in a very difficult position.
In the short term, it needs to extract as much revenue as possible from Ukraine. In the long term, its tactics in the crisis could stand in the way of its ambition of becoming a leading global energy business.
Last summer Gazprom was riding high. Already the world’s third-largest company by market capitalisation, valued at about $350bn (€255bn, £230bn), it was taken seriously when it predicted a $1,000bn valuation by 2015.
Alexei Miller, its chief executive, predicted that oil would soon rise to $250 per barrel. Today, with oil below $50, Gazprom is valued at just $86bn, and is down to 46th place in the international rankings.
Financial market indicators of the company’s health, such as its share price and the cost of insuring its debt against default, have improved from their low point last October, but Gazprom still faces a very difficult outlook.
The price of its gas in European markets is tied to the price of oil, with a six-to- nine-month lag. So the steep fall in oil prices in the second half of last year means the price of Gazprom’s gas will also fall sharply.
Gas cost more than $530 per thousand cubic metres towards the end of last year, but if oil stays at about $40-$50 a barrel it will end the year at about $250-$300.
Meanwhile, the price Gazprom pays for gas from central Asian countries such as Turkmenistan, an important supplement to its own production, has been rising to reflect European market prices. Gazprom paid just $100 per thousand cubic metres for Turkmen gas in the first half of 2007 and is paying about $365 today, although that will fall under the oil-linked formula as the year goes on.
As a result, Gazprom’s profits are being squeezed at a time when it faces a massive demand for investment to sustain Russia’s crumbling infrastructure and open up new sources of production, particularly the vast gas fields of the Yamal peninsula in north-west Russia.
Chris Weafer of Uralsib, a Russian bank, estimates that Gazprom will have to invest at least $20bn a year in the coming years. It is also hampered by a debt burden that was about $61bn at the end of 2007, at a time when raising funds is difficult for the most credit-worthy borrowers, let alone a company from an emerging economy that defaulted on its debts a decade ago.
Mr Weafer argues that to reassure investors Gazprom has to make Ukraine pay significantly more than the below-market gas price it has been paying until now. “This is a critical juncture for the company, where it really needs to raise more money,” he says. “So it has to get rid of the legacy of the Soviet Union where it was selling gas to Ukraine at a price that would mean it is making a loss.”
The cost of that action, however, has been to wipe out much of the progress that Gazprom has made since the 2006 dispute with Ukraine in establishing its reputation in the European Union.
As Colette Lewiner of Capgemini, the consultancy, puts it: “Gazprom has tried to be a normal company and to expand its footprint in other countries. It has been holding press conferences and talking nicely. But this crisis has shown another image: a facet of Gazprom that is not so good.”
Katinka Barysch of the Centre for European Reform, a think-tank, argues that European reactions to the current dispute are different from the instinctive support for Ukrainian democracy that was the dominant feeling in 2006. “Now Ukraine’s squabbling, self-serving leaders attract little sympathy,” she says.
Nevertheless, for many Europeans the apportioning of blame is less important than the sense that Russia is no longer a reliable supplier.
Alexander Medvedev, Gazprom’s deputy chief executive, told reporters in London this week: “We are very seriously thinking about our reputation as a company. because we have a lot to be proud of. We have 40 years of supply in some very difficult times.”
Attempts to use the 2006 confrontation to galvanise a common European energy security policy may have been ineffective, but the disruption to supplies left a legacy of mistrust of Gazprom that was not easy to dispel.
After this more serious conflict, Europe’s wariness of Gazprom will run even deeper.
LINK: http://www.ft.com/cms/s/0/118cfaba-dceb-11dd-a2a9-000077b07658.html
--------------------------------------------------------------------------------
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13. ONCE AGAIN, THE RUSSIA-UKRAINE BATTLE OVER GAS
========================================================
13. ONCE AGAIN, THE RUSSIA-UKRAINE BATTLE OVER GAS
ABOUT MUCH MORE THAN ECONOMICS
Analysis & Commentary: By Tammy Lynch
Senior Fellow Institute for the Study of Conflict, Ideology and Policy
Behind the Breaking News, Volume VII, Number 1
Boston University, Boston, MA, Friday, January 2, 2009
Analysis & Commentary: By Tammy Lynch
Senior Fellow Institute for the Study of Conflict, Ideology and Policy
Behind the Breaking News, Volume VII, Number 1
Boston University, Boston, MA, Friday, January 2, 2009
Here we go again. On January 1, for the second time in three years, Russia turned off the gas to Ukraine. The move came despite Ukraine’s full payment for all gas received in 2008 and despite Ukraine’s requests to continue negotiating.
At its core, Russia’s action demonstrates clearly that the country is prepared to use intimidation as much more than a last resort, while resorting to what appear to be very shallow pretexts as justification.
In a full-court, multi-lingual public relations campaign, Russia’s Gazprom gas monopoly has listed a series of grievances that seemingly allowed it no choice, but to turn off the gas. These include an alleged failure to pay debts owed for gas, an attempt by Ukraine to demand Russia pay more for transiting Europe’s gas through its territory and Ukraine’s apparent unwillingness to move towards fair market prices for gas supplies. (1)
These claims are similar to those made on 1 January 2006 when Gazprom turned off Ukraine’s gas for the first time – particularly the claims about payment. The difference now is that these claims have much less basis in fact.
In 2006, Ukraine privately admitted owing a significant debt to Gazprom and requested a combination of debt forgiveness and a settling of the debt through return of gas in storage. The country also stubbornly demanded an arbitrary gas price far below market value.
In 2008, Ukraine did accrue short-term debt for gas during the fall months, but settled most of that debt by early December, and the rest with a payment of $1.55 billion several days before the end of 2008. The conflict this year concerns between $500 million and $650 million in late fees, penalties, and administrative fees that Gazprom suggests are owed. The figure has risen since the conflict began, even though no gas is being provided.
Ukraine disputes those fees and has begun the process of asking the Stockholm Board of Arbitration for a ruling. It is likely that the country will owe at least a portion of the fees, but the final figure is in dispute. Unlike accepted Western practice, Gazprom has chosen not to wait for an arbitrator’s decision before acting on these disputed debts.
Furthermore, Ukraine’s price negotiations this year are far from arbitrary and designed to move the country from an unsupportable below-market price to a clear market price by 1 January 2011.
Just three months ago, on 2 October 2008, Ukraine’s Prime Minister Yulia Tymoshenko and Russia’s Prime Minister Vladimir Putin signed a memorandum detailing the framework for gas negotiations and agreement. The two confirmed their intention to move gradually in a three-step process over the next three years to market, economically-based Ö prices for the importation of gas to Ukrainian consumers and the tariffs for gas transit across the territory of Ukraine. (2)
Following the meeting, Tymoshenko announced that Ukraine would pay 50% of average market price in 2009, 75% in 2010 and 100% of market price in 2011. Neither Putin nor Gazprom disputed this account of their negotiations.
The question, of course, is – what is market price?
On 27 December, during negotiations with Ukraine’s neighbor Belarus over that country’s gas price, Gazprom spokesman Sergei Kupriyanov announced that the price would decrease by mid-2009 for all European partners, for the Baltic states, and for Moldova as gas prices caught up with oil prices. Moreover, Kupriyanov confirmed that Belarus’ price would not increase as significantly as earlier predicted. (3)
In 2008, Belarus paid $129 per 1000 cubic meters of gas, or $50 less than Ukraine. That figure undermines statements by some who criticize Ukraine’s agreement as enshrined in the October memorandum. Chris Weafer, chief strategist at Russia’s UralSib, for example, yesterday supported Gazprom’s decision to demand a major increase in Ukraine’s gas price. Gazprom’s international investors, he said, did not sign up to be part of anybody's foreign aid program. (4)
Ukraine has responded to this type of criticism by offering to increase its gas price by approximately 40% to $235 per 1000 cubic meters. However, in a joint letter to Gazprom, Yushchenko and Tymoshenko suggested that the transit fee paid to Ukraine for exclusive use of the country’s pipelines ($1.6 mcm/km) is not enough to allow adequate maintenance of the pipeline system. Ukraine charges that the fee is at least three times below the figure paid to Western European partners. Gazprom has not disputed this claim, but suggests that the transit price is a separate contract that is not being negotiated.
Ukraine has drawn a line in the sand, however. It wants some level of increase in transit fees in any agreement.
Ignoring this demand, Gazprom today suggested that Ukraine must pay $418 per 1000 cubic meters, which it said represents full market price. Gazprom officials suggest that Ukraine’s rejection of a Gazprom offer of $250 per 1,000 cubic meters means that all previous agreements were nullified.
But what about that $250 offer? Given Ukraine’s counter-offer of $235, it appears that Russia is refusing to provide gas over a difference of $15 per 1000 cubic meters, a request to increase transit fees and a planned submission of late fees for an arbitrator’s opinion. Are these insurmountable issues? Are we to understand that no compromise can result from two sides that appear so close?
Apparently so.
This action once again seems to indicate that, if negotiations don’t proceed exactly as its leaders would like, Russia is prepared to respond with displays of power and intimidation instead of compromise. From the first Ukraine gas cut-off in 2006, to another gas shut-off in Moldova that same year, to arbitrary food embargoes of its neighbors’ products, to the August invasion of Georgia, Russia is always prepared to show its might.
Russia has demonstrated a willingness to force a deal on its terms using both economic and military methods. And few countries have stood their ground. Those that have—like the tiny Republic of Georgia—usually have done so alone and have paid a price.
Of course, there are reasons why Russia is irritated with Ukraine. The country fell behind in its gas payments last fall and paid accounts for September through November late. Yushchenko has refused to extend Russia’s lease of the Sevastopol naval base in Crimea and has pushed to secure a NATO membership action plan. Ukraine also has limited the use of the Russian language in films and begun enforcing laws that limit the number of hours of Russian language programming on television.
But what now? Unlike 2006, when Ukraine had little gas storage and seemed desperate for a return of the gas flow, in 2008, its leaders have hardened their position. Ukraine now says it has amassed enough gas in storage to last until April without gas deliveries. It is unclear, however, how much damage a protracted disagreement would cause to Ukraine’s already fragile economy. Its production facilities rely on gas for power.
For its part, Russia has not said how long it can maintain a lower gas pressure in the pipeline. The shut off to Ukraine in 2006 lowered pipeline pressure so significantly that power distributors in Italy and France were forced to shut down their plants. So far this situation has not repeated itself.
But for each week Russia does not provide gas to Ukraine, Gazprom could lose up to $200 million in payments. Within days it will become clear just how long Russia is willing to go without a gas contract, and just what it is willing to do to get one.
Source Notes:
(1) Statement by Gazprom, 1 Jan 08, http://www.gazpromukrainefacts.com/.
At its core, Russia’s action demonstrates clearly that the country is prepared to use intimidation as much more than a last resort, while resorting to what appear to be very shallow pretexts as justification.
In a full-court, multi-lingual public relations campaign, Russia’s Gazprom gas monopoly has listed a series of grievances that seemingly allowed it no choice, but to turn off the gas. These include an alleged failure to pay debts owed for gas, an attempt by Ukraine to demand Russia pay more for transiting Europe’s gas through its territory and Ukraine’s apparent unwillingness to move towards fair market prices for gas supplies. (1)
These claims are similar to those made on 1 January 2006 when Gazprom turned off Ukraine’s gas for the first time – particularly the claims about payment. The difference now is that these claims have much less basis in fact.
In 2006, Ukraine privately admitted owing a significant debt to Gazprom and requested a combination of debt forgiveness and a settling of the debt through return of gas in storage. The country also stubbornly demanded an arbitrary gas price far below market value.
In 2008, Ukraine did accrue short-term debt for gas during the fall months, but settled most of that debt by early December, and the rest with a payment of $1.55 billion several days before the end of 2008. The conflict this year concerns between $500 million and $650 million in late fees, penalties, and administrative fees that Gazprom suggests are owed. The figure has risen since the conflict began, even though no gas is being provided.
Ukraine disputes those fees and has begun the process of asking the Stockholm Board of Arbitration for a ruling. It is likely that the country will owe at least a portion of the fees, but the final figure is in dispute. Unlike accepted Western practice, Gazprom has chosen not to wait for an arbitrator’s decision before acting on these disputed debts.
Furthermore, Ukraine’s price negotiations this year are far from arbitrary and designed to move the country from an unsupportable below-market price to a clear market price by 1 January 2011.
Just three months ago, on 2 October 2008, Ukraine’s Prime Minister Yulia Tymoshenko and Russia’s Prime Minister Vladimir Putin signed a memorandum detailing the framework for gas negotiations and agreement. The two confirmed their intention to move gradually in a three-step process over the next three years to market, economically-based Ö prices for the importation of gas to Ukrainian consumers and the tariffs for gas transit across the territory of Ukraine. (2)
Following the meeting, Tymoshenko announced that Ukraine would pay 50% of average market price in 2009, 75% in 2010 and 100% of market price in 2011. Neither Putin nor Gazprom disputed this account of their negotiations.
The question, of course, is – what is market price?
On 27 December, during negotiations with Ukraine’s neighbor Belarus over that country’s gas price, Gazprom spokesman Sergei Kupriyanov announced that the price would decrease by mid-2009 for all European partners, for the Baltic states, and for Moldova as gas prices caught up with oil prices. Moreover, Kupriyanov confirmed that Belarus’ price would not increase as significantly as earlier predicted. (3)
In 2008, Belarus paid $129 per 1000 cubic meters of gas, or $50 less than Ukraine. That figure undermines statements by some who criticize Ukraine’s agreement as enshrined in the October memorandum. Chris Weafer, chief strategist at Russia’s UralSib, for example, yesterday supported Gazprom’s decision to demand a major increase in Ukraine’s gas price. Gazprom’s international investors, he said, did not sign up to be part of anybody's foreign aid program. (4)
Ukraine has responded to this type of criticism by offering to increase its gas price by approximately 40% to $235 per 1000 cubic meters. However, in a joint letter to Gazprom, Yushchenko and Tymoshenko suggested that the transit fee paid to Ukraine for exclusive use of the country’s pipelines ($1.6 mcm/km) is not enough to allow adequate maintenance of the pipeline system. Ukraine charges that the fee is at least three times below the figure paid to Western European partners. Gazprom has not disputed this claim, but suggests that the transit price is a separate contract that is not being negotiated.
Ukraine has drawn a line in the sand, however. It wants some level of increase in transit fees in any agreement.
Ignoring this demand, Gazprom today suggested that Ukraine must pay $418 per 1000 cubic meters, which it said represents full market price. Gazprom officials suggest that Ukraine’s rejection of a Gazprom offer of $250 per 1,000 cubic meters means that all previous agreements were nullified.
But what about that $250 offer? Given Ukraine’s counter-offer of $235, it appears that Russia is refusing to provide gas over a difference of $15 per 1000 cubic meters, a request to increase transit fees and a planned submission of late fees for an arbitrator’s opinion. Are these insurmountable issues? Are we to understand that no compromise can result from two sides that appear so close?
Apparently so.
This action once again seems to indicate that, if negotiations don’t proceed exactly as its leaders would like, Russia is prepared to respond with displays of power and intimidation instead of compromise. From the first Ukraine gas cut-off in 2006, to another gas shut-off in Moldova that same year, to arbitrary food embargoes of its neighbors’ products, to the August invasion of Georgia, Russia is always prepared to show its might.
Russia has demonstrated a willingness to force a deal on its terms using both economic and military methods. And few countries have stood their ground. Those that have—like the tiny Republic of Georgia—usually have done so alone and have paid a price.
Of course, there are reasons why Russia is irritated with Ukraine. The country fell behind in its gas payments last fall and paid accounts for September through November late. Yushchenko has refused to extend Russia’s lease of the Sevastopol naval base in Crimea and has pushed to secure a NATO membership action plan. Ukraine also has limited the use of the Russian language in films and begun enforcing laws that limit the number of hours of Russian language programming on television.
But what now? Unlike 2006, when Ukraine had little gas storage and seemed desperate for a return of the gas flow, in 2008, its leaders have hardened their position. Ukraine now says it has amassed enough gas in storage to last until April without gas deliveries. It is unclear, however, how much damage a protracted disagreement would cause to Ukraine’s already fragile economy. Its production facilities rely on gas for power.
For its part, Russia has not said how long it can maintain a lower gas pressure in the pipeline. The shut off to Ukraine in 2006 lowered pipeline pressure so significantly that power distributors in Italy and France were forced to shut down their plants. So far this situation has not repeated itself.
But for each week Russia does not provide gas to Ukraine, Gazprom could lose up to $200 million in payments. Within days it will become clear just how long Russia is willing to go without a gas contract, and just what it is willing to do to get one.
Source Notes:
(1) Statement by Gazprom, 1 Jan 08, http://www.gazpromukrainefacts.com/.
(2) “About the gas sphere,” 2 Oct 08, memorandum signed in Moscow by Prime Ministers Vladimir Putin and Yulia Tymoshenko. In Russian. Copy available from the author. Also see Ukrayinska Pravda, 3 Oct 08, in Ukrainian and Russian.
(3) Gazprom: Gas price for Belarus in 2009 to be higher than in 2008, but lower than contract amount, Interfax, 27 Dec 08 as reproduced in Kyiv Post, 1750 GMT, 27 Dec 08.
(4) Russia cuts off gas to Ukraine, Agence France Presse, 1 January 08 via Google News. LINK: http://www.bu.edu/iscip/
(3) Gazprom: Gas price for Belarus in 2009 to be higher than in 2008, but lower than contract amount, Interfax, 27 Dec 08 as reproduced in Kyiv Post, 1750 GMT, 27 Dec 08.
(4) Russia cuts off gas to Ukraine, Agence France Presse, 1 January 08 via Google News. LINK: http://www.bu.edu/iscip/
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14. RUSSIA, UKRAINE IN EU TALKS AS GAS CRISIS ENGULFS EUROPE
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14. RUSSIA, UKRAINE IN EU TALKS AS GAS CRISIS ENGULFS EUROPE
By Christopher Boian, Agence France-Presse (AFP), Moscow, Russia, Wed, Jan 7, 2009
MOSCOW - Envoys from Russia and Ukraine go to Brussels on Thursday for emergency EU-brokered talks to resolve a bitter gas fight between the two ex-Soviet giants that has engulfed Europe in a major energy crisis.
Announcing the hastily-arranged crisis talks in Prague, European Commission chief Jose Manuel Barroso said the meeting would focus on the use of monitors to verify the flow of Russian gas through Ukraine to clients in Europe.
He said the heads of the Russian and Ukrainian state-run gas companies, Gazprom and Naftogaz, respectively, would be present for talks with other Russian and Ukrainian officials and representatives of the European Union.
The organization of the Brussels talks brought some badly-needed focus to a chaotic dispute that began as a commercial disagreement between Gazprom and Naftogaz and has mushroomed into a full-blown international crisis.
While Russia and Ukraine have exchanged accusations of guilt, a dozen countries that rely heavily on Russian gas, most of them in the EU, have reported huge drops in gas supplies in the depths of a bitterly cold winter.
Slovakia and Romania have declared states of energy emergency, Bulgaria has ordered gas rationing for industry and Hungary, Croatia and Bosnia reported two consecutive days of complete stoppage of Russian gas supply. Tens of thousands of people have been left without heating in their homes.
Gazprom ordered delivery of gas to Ukraine itself halted on New Year's Day after it failed to reach agreement with Naftogaz on payment of arrears for Russian gas already used by Ukraine and on prices for supply in 2009.
The move triggered a chain reaction: Russia accused Ukraine of "stealing" gas it was trying to ship to Europe and Ukraine countered that Russia had deliberately reduced supplies to provoke a crisis.
A spokeman for Russia's powerful Prime Minister Vladimir Putin on Wednesday insisted Gazprom had continued to pump volumes required by European consumers through the Ukraine pipeline network, and accused Kiev of "blackmail."
On Wednesday, Gazprom ordered a halt to gas shipments through Ukraine, asserting that Ukraine had already shut down all six pipelines that get the gas to Europe and accusing Kiev of diverting the gas for its own use illegally.
On the eve of the Brussels meeting, Russian President Dmitry Medvedev, in a telephone conversation with Ukrainian President Viktor Yushchenko, laid down a number of conditions for any resumption of Russian gas shipments via Ukraine.
They included a demand that Ukraine begin paying market prices for Russian gas immediately -- Russia has long sold gas to Ukraine at discounted prices -- and an independent EU monitoring plan to verify gas flows through Ukraine.
Gazprom has warned that leaving the pipeline network in Ukraine empty in freezing temperatures for a prolonged period could cause severe damage to the infrastructure. Long repair time would delay resumption of gas flow to Europe.
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15. WHAT'S BEHIND RUSSIA'S DECISION TO CUT GAS TO UKRAINE?
Is Russia's decision to cut gas supplies to Ukraine simply a commercial dispute? Is it the Kremlin extracting political revenge for Ukraine's Orange Revolution? Or is it an even more convoluted conspiracy involving powerful political figures in Moscow and Kiev?
Depending on who you talk to, it's all of the above.
Political tool?
Talk to the deputy chairman of Russia's state gas giant Gazprom, Alexander Medvedev, and he'll tell you it's purely a commercial dispute. "The rest of Europe pays more than $400 for each thousand cubic metres of gas it gets from Russia."
Alexander Medevdev says Gazprom needs 'alternative transit routes' He tells me: "We have offered Ukraine extremely favourable terms for gas deliveries in 2009, but they have still refused to sign a new contract. "So now we have no legal basis to continue supplying gas to them."
All of this is true. Up to now Ukraine has got its gas at just $179 per thousand cubic metres. This year Russia wants to raise that to $250.
That's still far below what the rest of Europe pays.
But talk to Masha Lipmann, a well-known political commentator at the Carnegie Endowment for International Peace in Moscow, and you'll hear a very different story. "Moscow can't pretend this is purely a commercial dispute" she says. "There's little doubt that Russia is using its energy resources as a political tool."
But why? What does the Kremlin want to achieve? According to those who subscribe to the political weapon theory, Russia's purpose is to bring down the government of Ukrainian President Victor Yushchenko.
The Kremlin has never forgiven Mr Yushchenko for leading the Orange Revolution in 2004, and for moving Ukraine out of the Russian fold and towards a much closer relationship with Europe and the US.
Mr Yushchenko has applied to join Nato, and says he wants Ukraine to eventually join the European Union. This is anathema to many Russians who consider Ukraine a part of the Slavic heartland.
Prime Minister Vladimir Putin is famously supposed to have told US President George W Bush once that "Ukraine isn't even a state".
The current pipeline network through Ukraine is perfectly adequate. Except, that is, if Ukraine keeps jeopardising supplies to Europe.
Far-fetched? Consider this from Gazprom's Alexander Medvedev on Friday: "The question is can we rely on a transit country like Ukraine? Obviously there is no positive answer to this question.
"This is why we believe it is necessary to develop, as soon as possible, alternative transit routes. We hope that Europe takes the necessary steps to support this." Perhaps not so far-fetched then.
But the final theory is even more outlandish: that powerful political figures in Ukraine are colluding with the Kremlin to foment the crisis and bring down President Yushchenko. That would allow his political enemies to gain power.
Who would benefit from such a scenario? Ukraine's increasingly powerful Prime Minister Yulia Timoshenko. Supporters of this theory say we can expect Ms Timoshenko to turn up in Moscow some time next week, sign a deal with the Kremlin, and return home to Kiev in triumph, having saved Ukraine from disaster.
Russian gas theories abound
By Rupert Wingfield-Hayes, BBC News, Moscow, Friday, January 2, 2009
Winston Churchill once famously described Russia as "a riddle wrapped in a mystery inside an enigma". This week Russia has once again lived up to its difficult reputation. As an outsider it's extremely easy to be desperately confused by the way this country behaves.
By Rupert Wingfield-Hayes, BBC News, Moscow, Friday, January 2, 2009
Winston Churchill once famously described Russia as "a riddle wrapped in a mystery inside an enigma". This week Russia has once again lived up to its difficult reputation. As an outsider it's extremely easy to be desperately confused by the way this country behaves.
Is Russia's decision to cut gas supplies to Ukraine simply a commercial dispute? Is it the Kremlin extracting political revenge for Ukraine's Orange Revolution? Or is it an even more convoluted conspiracy involving powerful political figures in Moscow and Kiev?
Depending on who you talk to, it's all of the above.
Political tool?
Talk to the deputy chairman of Russia's state gas giant Gazprom, Alexander Medvedev, and he'll tell you it's purely a commercial dispute. "The rest of Europe pays more than $400 for each thousand cubic metres of gas it gets from Russia."
Alexander Medevdev says Gazprom needs 'alternative transit routes' He tells me: "We have offered Ukraine extremely favourable terms for gas deliveries in 2009, but they have still refused to sign a new contract. "So now we have no legal basis to continue supplying gas to them."
All of this is true. Up to now Ukraine has got its gas at just $179 per thousand cubic metres. This year Russia wants to raise that to $250.
That's still far below what the rest of Europe pays.
But talk to Masha Lipmann, a well-known political commentator at the Carnegie Endowment for International Peace in Moscow, and you'll hear a very different story. "Moscow can't pretend this is purely a commercial dispute" she says. "There's little doubt that Russia is using its energy resources as a political tool."
But why? What does the Kremlin want to achieve? According to those who subscribe to the political weapon theory, Russia's purpose is to bring down the government of Ukrainian President Victor Yushchenko.
The Kremlin has never forgiven Mr Yushchenko for leading the Orange Revolution in 2004, and for moving Ukraine out of the Russian fold and towards a much closer relationship with Europe and the US.
Mr Yushchenko has applied to join Nato, and says he wants Ukraine to eventually join the European Union. This is anathema to many Russians who consider Ukraine a part of the Slavic heartland.
Prime Minister Vladimir Putin is famously supposed to have told US President George W Bush once that "Ukraine isn't even a state".
And then there are the conspiracy theories. The first goes like this: Gazprom wants to build a pipeline down the Baltic Sea, bypassing Ukraine, to supply its gas directly to the rich markets of Western Europe. But the project, known as "Nordstream" is hugely expensive, fraught with environmental problems, and unnecessary.
The current pipeline network through Ukraine is perfectly adequate. Except, that is, if Ukraine keeps jeopardising supplies to Europe.
Far-fetched? Consider this from Gazprom's Alexander Medvedev on Friday: "The question is can we rely on a transit country like Ukraine? Obviously there is no positive answer to this question.
"This is why we believe it is necessary to develop, as soon as possible, alternative transit routes. We hope that Europe takes the necessary steps to support this." Perhaps not so far-fetched then.
But the final theory is even more outlandish: that powerful political figures in Ukraine are colluding with the Kremlin to foment the crisis and bring down President Yushchenko. That would allow his political enemies to gain power.
Who would benefit from such a scenario? Ukraine's increasingly powerful Prime Minister Yulia Timoshenko. Supporters of this theory say we can expect Ms Timoshenko to turn up in Moscow some time next week, sign a deal with the Kremlin, and return home to Kiev in triumph, having saved Ukraine from disaster.
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16. PLAYING CHICKEN WITH KIEV
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16. PLAYING CHICKEN WITH KIEV
Heard on the Street: By Liam Denning, The Wall Street Journal
New York, New York, Wednesday, January 7, 2009
Fights between Moscow and Kiev over unpaid natural-gas bills have become a winter fixture. But the latest spat is different -- which should have everyone involved worried.
In January 2006, when Russia's Gazprom turned off the tap for the first time, energy markets were healthy and talk of a credit crunch was still considered impolite. That first cutoff had more to do with the Kremlin's anger at Ukraine's installation of a pro-Western government in 2005.
Today, Russia is no less keen on regime change. But it also has pressing economic concerns. The prices Gazprom charges for exports of natural gas to Europe -- four-fifths of which usually traverse Ukraine -- are linked to oil. So in 2009, the lagged effect of the collapse in crude prices will hit its cash
flow.
Thane Gustafson of Cambridge Energy Research Associates reckons Gazprom's export revenues could drop by $24 billion in 2009. That would almost equal the company's estimated $26 billion capital-expenditure budget, according to Renaissance Capital. Gazprom's majority shareholder, the Kremlin, won't want to make up any shortfall.
As for Ukraine, its monthly gas bill is roughly $800 million. Having tapped the International Monetary Fund for an emergency loan, the country struggles to afford this.
Mundane finance, as opposed to politics, makes resolution more difficult this time. In the short term, that is destabilizing for Ukraine and economically harmful for Europe. Longer term, however, Gazprom has the most to lose. Already struggling with high debt and capex needs, cutoffs only force its best customer to look harder for alternative suppliers. [Write to Liam Denning at liam.denning@wsj.com.]
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17. THE WINTER GAS WAR BETWEEN RUSSIA AND UKRAINE
Putin's latest power play, and a lesson for Barack Obama.
Mr. Putin, who has no formal oversight role at Gazprom, nonetheless ordered a 15% cut in gas deliveries to Ukraine on New Year's Day, amid a contractual dispute over prices. Russia used the same crude pressure tactic in January 2006, when Gazprom first cut supplies and destroyed its once stellar reputation for reliability.
But the impact down the line on Europe, which gets a fifth of all its gas through Ukraine, appears more pronounced than three years ago. Amid freezing winter temperatures, six European countries yesterday reported a halt in gas supplies while five others saw significant reductions.
Moscow learned from 2006 and launched a propaganda blitzkrieg in the run-up to this winter war. A lobbying firm in Brussels was hired to reassure Continentals about the security of their supplies -- at least until yesterday -- and pin the blame on Ukraine's refusal to pay a "market price" for natural gas and keep up payments. The Russians even created a Web site -- www.gazpromukrainefacts.com -- that yesterday noted that, "Ukraine is responsible for everything that has happened."
The Kremlin's goals in Ukraine are transparent. Kiev's support for Georgia in the August war, and its ambitions to join the EU and NATO, is a thorn in the bear's paw. In Europe, Russia wants to reassert itself as the dominant power in the east, feared if not respected.
Europe and America can still turn Mr. Putin's tactical overreach into a strategic opportunity. The "new Europeans" from the east are pushing the EU to get serious about developing new sources of energy -- starting with the stalled Nabucco pipeline that would cross Turkey and the Balkans, routing Central Asian gas around Russia.
For the new Obama Administration, Mr. Putin has offered yet another tutorial in its coming challenges in Eurasia. The President-elect's German friends will urge him to be nice to Mr. Putin. But in the Senate and on the campaign trail, Mr. Obama said he wanted to let Ukraine and Georgia make their free choice to join the Western camp, starting with a roadmap for NATO membership. The best American response to the latest Russian provocations would be to restate that desire.
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17. THE WINTER GAS WAR BETWEEN RUSSIA AND UKRAINE
Putin's latest power play, and a lesson for Barack Obama.
Opinion Journal, The Wall Street Journal, New York, NY, Wed, Jan 7, 2009
Five months after sending Russian tanks into Georgia, Vladimir Putin has turned his sights to another pesky democratic neighbor, Ukraine. His weapon of choice this time is natural gas.
Try to ignore the noise about transit fees, back payments and market prices. Here's the salient fact about the conflict between Russia and Ukraine over gas supplies: Russia's strongman is wielding the energy club to undermine the pro-Western government in Kiev and scare the European Union into submission.
Five months after sending Russian tanks into Georgia, Vladimir Putin has turned his sights to another pesky democratic neighbor, Ukraine. His weapon of choice this time is natural gas.
Try to ignore the noise about transit fees, back payments and market prices. Here's the salient fact about the conflict between Russia and Ukraine over gas supplies: Russia's strongman is wielding the energy club to undermine the pro-Western government in Kiev and scare the European Union into submission.
The strategic stakes are as great as in Georgia last summer.
Mr. Putin, who has no formal oversight role at Gazprom, nonetheless ordered a 15% cut in gas deliveries to Ukraine on New Year's Day, amid a contractual dispute over prices. Russia used the same crude pressure tactic in January 2006, when Gazprom first cut supplies and destroyed its once stellar reputation for reliability.
But the impact down the line on Europe, which gets a fifth of all its gas through Ukraine, appears more pronounced than three years ago. Amid freezing winter temperatures, six European countries yesterday reported a halt in gas supplies while five others saw significant reductions.
Tens of thousands of people were left without heat, including two mid-sized cities in Bulgaria. Here in the U.S., heating oil prices jumped 3.3% on expectations that Europeans would switch from natural gas to warm their homes.
Moscow learned from 2006 and launched a propaganda blitzkrieg in the run-up to this winter war. A lobbying firm in Brussels was hired to reassure Continentals about the security of their supplies -- at least until yesterday -- and pin the blame on Ukraine's refusal to pay a "market price" for natural gas and keep up payments. The Russians even created a Web site -- www.gazpromukrainefacts.com -- that yesterday noted that, "Ukraine is responsible for everything that has happened."
Ukraine isn't blameless here. In 2006, the Kiev government was all too happy to create a murky -- many assume deeply corrupt -- structure to funnel billions in transit fees for Gazprom gas. Its fractious leaders resisted efforts to make the energy market transparent or wean its economy off relatively cheap Russian natural gas.
But the Kremlin's motivations are plainly political, not commercial. For starters, no "market price" for natural gas exists because Gazprom happens to be a monopoly supplier to Ukraine. Russia won't allow Kiev to make up the shortfall with supplies from another source like Turkmenistan, which uses Russian pipelines. And Russia continues to let its "friends," such as the dictatorship in Belarus, buy gas on the cheap.
Normally, this sort of dispute might end up in arbitration and a backdated settlement. The old apolitical Gazprom treasured its customer relationships too much to disrupt shipment at any price. Atop a new Russia determined to rebuild its old empire, Mr. Putin decided to go for the jugular with Ukraine -- cutting off the gas, in the middle of winter, just before the Orthodox Christmas.
The Kremlin's goals in Ukraine are transparent. Kiev's support for Georgia in the August war, and its ambitions to join the EU and NATO, is a thorn in the bear's paw. In Europe, Russia wants to reassert itself as the dominant power in the east, feared if not respected.
Germany's establishment is all too happy to kowtow and urge the EU to do the same, at Ukraine's expense. The EU spokesman this week could have been reading from Gazprom talking points, saying that the block believes this is a "commercial dispute [that] has to be solved by the two parties."
Europe and America can still turn Mr. Putin's tactical overreach into a strategic opportunity. The "new Europeans" from the east are pushing the EU to get serious about developing new sources of energy -- starting with the stalled Nabucco pipeline that would cross Turkey and the Balkans, routing Central Asian gas around Russia.
For the new Obama Administration, Mr. Putin has offered yet another tutorial in its coming challenges in Eurasia. The President-elect's German friends will urge him to be nice to Mr. Putin. But in the Senate and on the campaign trail, Mr. Obama said he wanted to let Ukraine and Georgia make their free choice to join the Western camp, starting with a roadmap for NATO membership. The best American response to the latest Russian provocations would be to restate that desire.
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18. GAZPROM/UKRAINE
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18. GAZPROM/UKRAINE
Editorial: The Financial Times, London, UK, Tuesday, January 6 2009
History, Marx suggested, repeats itself, first as tragedy, then as farce. Gazprom's first big gas shut-off to Ukraine, in 2006, was seen as the Russian bear mauling plucky Ukraine, months after its pro-democracy revolution. This time round, it is hard to pity either side.
Russia in 2005 signalled its intentions to stop subsidising gas to former Soviet neighbours and to start charging market prices. It is time Kiev and Moscow ended annual price wrangles and signed a long-term contract similar to Russia's agreements with western Europe, where a formula links gas prices, with a six- to nine-month lag, to oil prices.
Their failure to do so results partly from politics. It suits Gazprom's Kremlin masters to put Ukraine in a position where it can be portrayed as a flaky partner for the European Union. Supply disruptions in half a dozen European countries resulting from the dispute with Ukraine bolster arguments for a controversial alternative pipeline Gazprom is building under the Baltic Sea to Germany.
Kiev, meanwhile, likes to depict Gazprom as a bully, but has been hampered in negotiations by chronic bickering among one-time Orange Revolution allies.
The EU, which both sides want involved as an arbiter, should bang heads together - particularly in Kiev. The gap between the $250 per thousand cubic metres Gazprom demanded and the $201-$211 Ukraine says is fair seems hardly unbridgeable.
For its part, Gazprom should make clear its $250 offer still stands and stop tossing around figures such as $450 (based on the temporarily sky-high prices western Europe is paying because of last summer's oil price spike). It should also agree to remove RosUkrEnergo, the opaque intermediary it partly owns, from the Ukrainian gas trade.
Cheaper oil means the gap between west European gas prices and what Ukraine is prepared to pay will narrow sharply. Here, at last, is an opportunity to agree a European-style pricing formula - and to avoid further farcical new year shut-offs.
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19. SETTLE THE UKRAINE GAS DISPUTE
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19. SETTLE THE UKRAINE GAS DISPUTE
Editorial, The Financial Times, London, UK, Tuesday, January 6 2009
The European Union is, rather belatedly, waking up to the fact that the Russia-Ukraine gas dispute is more than a bilateral issue for Kiev and Moscow.
While Brussels would still prefer the two sides to settle the quarrel themselves, it is now considering the “extreme option” of a three-way EU-Russia-Ukraine summit.
While Brussels would still prefer the two sides to settle the quarrel themselves, it is now considering the “extreme option” of a three-way EU-Russia-Ukraine summit.
Not before time. On Tuesday, the growing disruption in EU-bound supplies of Russian gas crossing Ukraine spread from eastern Europe to Germany, the union’s biggest economy. Meanwhile, Slovakia prepared to declare a state of emergency and other eastern European states reported drastic supply cuts. If this is not an EU energy crisis, it is hard to know what is.
The Union has dragged its feet mainly to avoid irritating Moscow, which wanted a free hand to bully Kiev. But now that even Russia-friendly Germany is suffering supply cuts, the priorities must change, not least in Berlin.
[1] First, Brussels must make clear to Moscow that the dispute risks damaging Russia-EU relations. Gazprom, the state-controlled gas giant, has the upper hand in dealings with its EU clients, given its role as the Union’s largest gas supplier. But it does not hold all the cards: it is as dependent on the EU for revenue as the Union is dependent on Russia for gas.
Moreover, gas prices are set to fall rapidly this year, following the drop in oil prices, just as Gazprom faces trouble raising finance for its huge investment plans. The company’s future rests on close EU-Russia co-operation.
[2] Next, the EU must remind Kiev that its domestic political rows have fuelled the gas dispute by giving Moscow opportunities to meddle.
[3] Third, Brussels must press both sides to implement plans agreed last year for transparent contracts, with gas prices tied to oil prices, as they are for Gazprom’s EU clients. Murky intermediaries must go. If that means somewhat higher prices for Ukraine, Kiev should bite the bullet. It is a burden worth bearing for the sake of greater political independence from Moscow.
[4] Finally, the Union must develop greater solidarity in energy issues. As long as the EU’s big countries, led by Germany, do cosy bilateral deals with Russia, the smaller member states in eastern Europe, which are even more dependent on Gazprom, will feel exposed.
There is no need for an EU-wide buyers’ cartel, which would clearly undermine efforts to liberalise energy markets. But stronger co-ordination in dealing with Gazprom would send a powerful signal that the Union means what it says when it claims to represent all its members.
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20. UKRAINE'S GOVERNMENT: FROM HEROIC TO FARCICAL
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20. UKRAINE'S GOVERNMENT: FROM HEROIC TO FARCICAL
As Ukraine’s politicians bicker, the economy slides
The Economist print edition, London, UK, Tuesday, Dec 30, 2008
The Economist print edition, London, UK, Tuesday, Dec 30, 2008
IN-FIGHTING has been a chronic condition of Ukrainian politics for years. The benevolent idea, often from outside, is that it is all part of the democratic process. The grumpier view of many Ukrainians is that it is a sign of the incompetence and immaturity of the elite.
Since the “orange revolution” in 2004-05, Ukraine’s politics have moved from heroic to melodramatic, tragicomic to comic, and finally to farcical. A recent satirical television show likened it to a game of chess in which the first white move is for the king to take his own queen.
Until recently, ordinary Ukrainians took little notice of the game’s twists and turns. Indeed, the less time politicians had to interfere, the better the economy did. Yet the financial crisis has sent that into reverse. Ukraine has been one of the worst-affected of all emerging markets. GDP shrank by more than 14% in November on a year ago, and industrial production by twice as much.
The hryvnia has lost half its value against the dollar. Erratic behaviour by the central bank has prompted accusations ranging from corruption to insanity. Lay-offs, especially in the industrial south-east, are running into the tens of thousands. Rising unemployment could fuel both crime and street protests.
On top of all this Russia, in its now traditional new year’s greeting, has threatened to cut off gas from January 1st if Ukraine does not settle its $2 billion outstanding gas debt. Despite falling oil prices, Russia also wants to more than double gas prices.
On top of all this Russia, in its now traditional new year’s greeting, has threatened to cut off gas from January 1st if Ukraine does not settle its $2 billion outstanding gas debt. Despite falling oil prices, Russia also wants to more than double gas prices.
In preparation for this recurring stand-off, Ukraine has filled up its reservoir with enough gas to last it until the end of the winter; and falling industrial production will also mean lower gas consumption. But a row with Russia is the last thing that Ukraine needs right now.
One politician who might be well-placed to ride a wave of social discontent is Viktor Yanukovich, leader of the Party of the Regions, who draws his support mainly from the Russian-speaking south-east. He is in opposition despite leading the biggest party in parliament. Yet the prime minister, Yulia Tymoshenko, is in combative mood. “I have appealed to all political forces in Ukraine to unite in the face of the crisis,” she told this correspondent.
As ever, Ukrainian politicians show little sign of unity. Ms Tymoshenko’s main rivalry is not with Mr Yanukovich at all, but rather with her erstwhile orange-revolution ally, President Viktor Yushchenko.
The situation has become so absurd that Mr Yushchenko is trying to block the work of the cabinet, half of which he chose. Since Ms Tymoshenko became prime minister (again) in 2007, the president has made her work virtually impossible—though as a seasoned populist she has also made promises far beyond Ukraine’s means.
A few months ago Mr Yushchenko tried to dissolve parliament and call a fresh election. For several weeks parliament had no speaker, making the passing of laws extremely hard (though it did at least approve a set of emergency measures to back a $16.4 billion IMF loan). In retaliation Ms Tymoshenko tried to checkmate Mr Yushchenko by teaming up with Mr Yanukovich instead.
But some of Mr Yanukovich’s financial backers did not like this idea. Now she has managed to pull some of Mr Yushchenko’s own supporters over to her side and form a new coalition that takes in the small party of Vladimir Litvin, who served as speaker before the orange revolution and has now got the job back again.
Yulia Mostovaya, editor of Zerkalo Nedeli, a political weekly, says this coalition is weak and unstable. Part of its agreement is to avoid any elections before the presidential vote due in early 2010. Ms Tymoshenko, who plans to run then, says of Mr Yushchenko (whose popularity rating is in the low single digits): “I would not go to any more elections if I were him.”
Yet in the words of Anatoly Gritsenko, a former defence minister, “a huge economic tsunami is hanging over the country” while the politicians bicker. “The presidency should be the last thing on the minds [of the main politicians], because one can become president, but receive a country in ruins.”
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21. POLITICAL CHAOS HINDERS ECONOMIC PROGRESS IN UKRAINE
Rivalry between the country's leaders has constrained the government's ability to formulate an economic policy.
In late December, the Ukrainian parliament passed a long-awaited package of legislation by a one-vote margin. At the same sitting, it also passed the 2009 state budget.
Under normal circumstances, the package of laws--which significantly raises import duties on "noncritical" items such as foreign automobiles and other consumer goods--would have a significant impact on economic activity as well as the Ukraine's balance of foreign trade. However, persistent fierce rivalries within the ruling "coalition" will hinder virtually any efforts to coordinate and implement policy.
There is also a small but increasing risk of sovereign default. In 2009, foreign debt obligations will reach $45.6 billion, equivalent to approximately 150% of the country's total hard currency reserves.
Political absurdity. Although the crisis was not caused by the ongoing power struggles between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko, their continual political warfare has seriously constrained the government's ability to formulate and implement a coherent economic agenda.
--Despite continuing to serve as head of the government, Tymoshenko announced that she was now acting in "opposition to the president."
21. POLITICAL CHAOS HINDERS ECONOMIC PROGRESS IN UKRAINE
Oxford Analytica, United Kingdom, Forbes, NY, Tuesday, January 6, 2009
Rivalry between the country's leaders has constrained the government's ability to formulate an economic policy.
In late December, the Ukrainian parliament passed a long-awaited package of legislation by a one-vote margin. At the same sitting, it also passed the 2009 state budget.
Under normal circumstances, the package of laws--which significantly raises import duties on "noncritical" items such as foreign automobiles and other consumer goods--would have a significant impact on economic activity as well as the Ukraine's balance of foreign trade. However, persistent fierce rivalries within the ruling "coalition" will hinder virtually any efforts to coordinate and implement policy.
Economic frailty. Nearly all of the Ukraine's industrial sectors have posted double-digit percentage declines in the last two to three months, with the country's main source of export revenues, metallurgy, in the worst shape of all.
The Ukrainian currency has lost more than 60% of its value compared with its May peak, and rapidly declining exports have not helped stabilize the situation. Western ratings agencies and think tanks have estimated that Ukraine's gross domestic product will shrink between 2.5 and 5% this year, with inflation moderating somewhat to 14.2% to 17.5%.
There is also a small but increasing risk of sovereign default. In 2009, foreign debt obligations will reach $45.6 billion, equivalent to approximately 150% of the country's total hard currency reserves.
Political absurdity. Although the crisis was not caused by the ongoing power struggles between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko, their continual political warfare has seriously constrained the government's ability to formulate and implement a coherent economic agenda.
Last month, the prime minister accused the president of participating in currency speculation deliberately designed to destabilize the work of the National Bank of Ukraine (NBU):
--According to Tymoshenko, Yushchenko engineered the currency speculation along with his alleged business partner, Dmytro Firtash, who also controls part of RosUkrEnergo, the controversial intermediary that supplies Russian gas to Ukraine.
--According to Tymoshenko, Yushchenko engineered the currency speculation along with his alleged business partner, Dmytro Firtash, who also controls part of RosUkrEnergo, the controversial intermediary that supplies Russian gas to Ukraine.
--Despite continuing to serve as head of the government, Tymoshenko announced that she was now acting in "opposition to the president."
--She then called on Yushchenko and NBU Chairman Volodymyr Stelmakh to resign.
--Tymoshenko has also asserted that Yushchenko is planning to declare a state of emergency and cancel the presidential election, due at the end of 2009 or very early in 2010.
For his part, Yushchenko has repeatedly blamed Tymoshenko for the Ukrainian economy's rapid deterioration. The open hostility between the Ukraine's top two leaders has prevented the formation and functioning of an effective parliamentary coalition.
For his part, Yushchenko has repeatedly blamed Tymoshenko for the Ukrainian economy's rapid deterioration. The open hostility between the Ukraine's top two leaders has prevented the formation and functioning of an effective parliamentary coalition.
To pass legislation, votes must be cobbled together from across the political spectrum--the pro-presidential Our Ukraine-People's Self-Defense, the Communists and the opposition Party of Regions. Thus the 2009 state budget was approved with the narrowest of margins.
However, some deputies have already asserted that they did not actually vote in favor of the budget, and have asked for a special investigation of "falsifications" by the parliamentary speaker, Volodymyr Lytvyn, and some prominent Tymoshenko allies. In such an environment, with a near-total lack of political consensus, it is virtually impossible for any of the Ukraine's leading political figures to implement policy.
However, some deputies have already asserted that they did not actually vote in favor of the budget, and have asked for a special investigation of "falsifications" by the parliamentary speaker, Volodymyr Lytvyn, and some prominent Tymoshenko allies. In such an environment, with a near-total lack of political consensus, it is virtually impossible for any of the Ukraine's leading political figures to implement policy.
To read an extended version of this article, log on to Oxford Analytica's Web site, http://www.oxanstore.com/itemlist.php?C=Ukraine.
LINK: http://www.forbes.com:80/2009/01/05/ukraine-budget-currency-cx_0106oxford.html?feed=rss_news
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22. EUROPE: FEELING THE COLD BLAST OF ANOTHER RUSSO-UKRAINIAN DISPUTE
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22. EUROPE: FEELING THE COLD BLAST OF ANOTHER RUSSO-UKRAINIAN DISPUTE
STRATFOR, Austin, Texas, Tuesday, January 6, 2009
SUMMARY: The Russo-Ukrainian natural gas price dispute has led Russia to cut off natural gas supplies to Ukraine. The dispute reached a new level Jan. 6, however, when Russia reduced shipments through Ukraine to Europe.
SUMMARY: The Russo-Ukrainian natural gas price dispute has led Russia to cut off natural gas supplies to Ukraine. The dispute reached a new level Jan. 6, however, when Russia reduced shipments through Ukraine to Europe.
As a result, natural gas shortages are being felt throughout the continent, with the sharpest drops and even complete cutoffs seen in some Central European countries. In the near term, the Europeans are responding to the cutoff, urging the Kremlin to get the issue resolved; in the long term, they are working to wean themselves from Russian energy.
ANALYSIS: The Russo-Ukrainian dispute over natural gas supplies hit a new level Jan. 6. Previously, Russia simply reduced natural gas flows to the Ukrainian trunk lines equal to the amount of natural gas that Ukraine used, while continuing to ship the natural gas that transits Ukraine on its way to Europe.
But now, Russia is accusing Ukraine of siphoning supplies meant for Europe and is further reducing shipments by the amount it accuses Ukraine of stealing. The results of this reduction are rippling from Turkey to Germany, with the sharpest drop — and even full natural gas cutoffs — concentrated in the triangle of states from Italy to the Czech Republic to Bulgaria.
Each government is scrambling to respond to the Russian cutoff. Prague, which is the new sitting EU president, has “ordered” the Kremlin to schedule a set of meetings on the issue, but Russia has postponed all talks until after the Russian Orthodox Christmas on Jan. 7. The Bulgarian government has already called this an emergency and ordered industrial users to switch to alternative fuels, such as oil.
Each government is scrambling to respond to the Russian cutoff. Prague, which is the new sitting EU president, has “ordered” the Kremlin to schedule a set of meetings on the issue, but Russia has postponed all talks until after the Russian Orthodox Christmas on Jan. 7. The Bulgarian government has already called this an emergency and ordered industrial users to switch to alternative fuels, such as oil.
It has even started to shut down some of the country’s largest gas-hungry industrial plants, like its chemical plant Neochim. Bulgaria has also urged households to use other means for heating rather than central heating that runs on natural gas. Romania and Serbia are considering shutting down some of their industrial centers as well.
In terms of amounts of supply reduction, the 2009 cutoff is now larger than a similar energy crisis that struck — for similar reasons — in 2006. In fact, some of the Ukrainian lines that lead into Romania have now been shut off completely for safety reasons. (If pressure is too low in pipes, breaches can occur.)
In terms of amounts of supply reduction, the 2009 cutoff is now larger than a similar energy crisis that struck — for similar reasons — in 2006. In fact, some of the Ukrainian lines that lead into Romania have now been shut off completely for safety reasons. (If pressure is too low in pipes, breaches can occur.)
The only reason the Europeans are not panicking is that the 2008-2009 winter has been exceptionally mild thus far (though temperatures are expected to soon drop with an arctic front sweeping across the Continent), and the Europeans’ storage facilities at the moment are filled to the brim to cover their needs even without new Russian supplies. But when temperatures drop, those supplies can be emptied pretty quickly.
Just because they are not panicking does not mean the Europeans will simply reach for a heavier coat. Most European governments are already working diligently to secure alternatives to Russian natural gas. Indeed, the pan-European plan is actually ahead of schedule, and the Europeans look set to cut the amount of natural gas they receive from Russia by two-thirds by the end of 2010.
However, the geographic concentration of the natural gas shortages seen Jan. 6 will push the Europeans to make some specific changes in terms of energy projects. More than alternative supplies in general, what are needed now are specific supplies for a specific region: Southeastern Europe.
To reach this goal, the Europeans have four main options (listed below in the order in which they are likely to be adopted):
[1] The Poseidon pipeline: This is a subsea pipeline with an annual capacity of 8 billion - 10 billion cubic meters (bcm) that will connect Greece to Italy under the Adriatic Sea. Poseidon will connect to the existing line running up from Turkey to Greece. Once active, the line will give Italy the ability to tap natural gas supplies from the Middle East (as opposed to North Africa and continental Europe) as well from as the Caspian Basin.
It also will greatly weaken Russia’s grip on the Italian market. Currently, Gazprom maintains an extremely tight link to Italy’s national energy distributor ENI, but the Poseidon project is run by Edison, a relative upstart that is broadly unaffiliated with Gazprom and far more efficient in providing services. Currently, Poseidon is slated to be complete by the en d of 2009.
[2] Nuclear: Much of Europe (excluding France) has attempted to shy away from the nuclear power option, with the 10 EU members who joined the bloc in 2004 being forced to negotiate away their nuclear facilities as part of the terms of their accession. (And the countries being hit hardest by the Russian cutoff are some of those EU countries).
The Bulgarian government is currently holding emergency meetings to discuss reopening as soon as possible its Kozloduy nuclear plant, which it had to shut down upon joining the European Union in 2007, and the cutoffs have spurred many countries to start planning new nuclear power facilities, which take years to build. In Southeastern Europe, only two nuclear plants are under construction, and both are in Bulgaria. All of these are for electricity generation, so they will not re move the need for all natural gas, but they will certainly lighten the load.
[3] Liquefied natural gas (LNG): LNG is an alternative version of natural gas that can be shipped in once frozen. However, LNG facilities are difficult to build and very costly — though in the long run, tapping LNG is relatively cheap and fast compared to building new pipelines.
Currently in Southeastern Europe, only Greece has an LNG facility, but Croatia has long been planning one in Krk that is slated to start construction at the end of 2009 and be up and running by 2014. The Krk facility is set to have an annual capacity of 10 bcm and cost a little over $1 billion.
[4] The Nabucco pipeline: The Russo-Ukrainian crisis may well prove to be the kiss of life for this project, which has not moved beyond the drawing board despite nearly 10 years of firm support from the European Commission. Nabucco’s primary problem has been that it is not clear exactly who would be supplying natural gas to the line. Candidates include Azerbaijan, Turkmenistan, Iran (should it mend its relations with the West), Iraq, Qatar and Egypt.
The major change that has occurred in this realm since Stratfor last addressed the topic is that Iraq’s security situation has settled sufficiently for it to finally launch greenfield energy development projects.
That raises the possibility of Middle Eastern natural gas, either sourced from Iraq or (more likely) transiting Iraq to Turkey, finding its way to Nabucco. Unfortunately, even in the best-case scenario, the prospect of bringing this gas to the European market remains five years away — because of the minor detail that Nabucco has yet to be built.
The one large obstacle preventing progress on all of these projects is the current global financial crisis, which is hitting Southeastern Europe hard. Countries in the region are struggling to keep their currencies, banks and economies afloat and are relying on aid from institutions like the World Bank and the International Monetary Fund.
These large energy projects, though critical to implement, are simply too expensive right now. Some of the projects are Western-funded, but the financial crunch is hitting Western economies too, and there are rumors that many of these projects — specifically the nuclear plants and LNG facilities — co uld be postponed for years.
Thus, the struggle will be Europe’s attempt to expedite these projects while balancing the financial capability to do so — all while Russia continues to use energy as a political tool now, when it hurts Europe the most.
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Promoting U.S.-Ukraine business investments since 1995.
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23. UKRAINE REJECTS GAS THEFT CLAIM AND CALLS ON EU
Inform, BYuT Newsletter Issue 98, Kyiv, Ukraine, Monday, January 5, 2009
Ukraine’s state-owned gas company, Naftohaz Ukrainy, has denied Russian accusations that it is stealing gas. However, a presidential aide gave a stark warning on Saturday that gas supplies to Europe could be impacted in two weeks time unless the dispute is resolved.
In the meantime, Yuriy Prodan, Ukraine’s Minister for Energy, has led a delegation to EU states to explain Ukraine’s position, while President Viktor Yushchenko and Prime Minister Yulia Tymoshenko have invited the European Union (EU) to mediate in the dispute with Gazprom.
The supply of natural gas from Russia to Ukraine was cut off at 0700 hours GMT on Thursday, 1 January, after talks collapsed over the alleged non-payment of a debt and failure to agree a gas price for 2009.
The central issues concern a demand by Gazprom to pay an alleged debt of $2 billion. Naftohaz said that it had paid $1.5 billion to the Swiss intermediary company, RosUkrEnergo, that supplies Central Asian gas to Ukraine. But Gazprom is insisting on a further payment of $500 million for alleged late payment fees, the validity of which Naftohaz disputes and has stated its willingness to take to a court of arbitration.
The other major bone of contention is the failure to agree a gas price for 2009 and the fees Ukraine wants to charge for transporting Russian gas to Europe. About 80 percent of Russian gas exported to Europe is transported through Ukraine’s ageing gas pipeline network. Currently, Gazprom enjoys a cut-price transport fee which is three-times below the market rate.
Gazprom pays Ukraine $1.70 to transport 1,000 cubic meters of gas per 100 kilometres (62 miles) and has insisted on keeping the price unchanged. In a joint letter to Gazprom, Ukraine’s president and premier pointed out that the current fee is inadequate to fund the maintenance of the pipeline network.
NO CONTRACT, NO GAS!
According to Gazprom’s Chairman, Alexei Miller, “as far as gas to Ukraine is concerned we have no signed contract and so no legal basis to supply gas to them.”
Gazprom offered Ukraine a 2009 gas price of $250 per thousand cubic metres, which amounts to a 40 percent hike over the 2008 price of $179.50 per thousand cubic metres. Ukraine rejected this figure, stating that $201 would be more appropriate.
Gazprom reduced its offer to $235 per thousand cubic metres but has since dug in its heels, maintaining that Ukraine pay a market price of $418. But the price of gas is set to fall. Its price is linked to, but lags behind, the price of oil which has dropped three-fold since the summer.
“Ukraine is open to negotiation not intimidation,” said Hryhoriy Nemyria, Deputy Prime Minister responsible for European integration, “and will do its utmost to guarantee no disruption in supply to our European neighbours.”
However, President Yushchenko’s envoy on energy security, Bohdan Sokolovsky, warned that although Ukraine will continue to ship gas to Europe, disruptions may occur in “10 to 15 days” unless Ukraine’s gas is pumped along with supplies to Europe. Maintaining pressure in the pipeline system is essential to continue deliveries.
GAS IS NOT BEING STOLEN
Naftohaz officials strenuously rejected Russian claims that gas meant for Europe was being stolen. Valentyn Zemlianskyi, Naftohaz’s press spokesperson, said, “We are removing gas for technical purposes, in order to ensure the transit of Russian exports." Once again, this to ensure Naftohaz maintains the correct pressure in the pipeline network.
On Saturday, a Naftohaz official confirmed that Russia had actually reduced the amount of gas being shipped to Europe through Ukraine’s pipelines by 21 million cubic metres a day to 284.5 million cubic metres.
The European Commission is monitoring the dispute very closely with the Czech presidency saying it would call a crisis meeting of envoys in Brussels on Monday.
Despite a major lobbying exercise and PR campaign to explain its actions, Gazprom has once again drawn considerable flak from the international community over its willingness to resort quickly to strong-arm tactics.
Tammy Lynch, a Senior Fellow at Boston University’s Institute for the Study of Conflict, Ideology and Policy, writing for the Huffington Post, said: “forcing Ukraine to negotiate under the distress of having its gas turned off is a tactic that smacks of blackmail and intimidation.”
Naftohaz officials have estimated that Ukraine has about 90 days worth of gas stored to see it through the crisis.
Inform, BYuT Newsletter Issue 98, Kyiv, Ukraine, Monday, January 5, 2009
Ukraine’s state-owned gas company, Naftohaz Ukrainy, has denied Russian accusations that it is stealing gas. However, a presidential aide gave a stark warning on Saturday that gas supplies to Europe could be impacted in two weeks time unless the dispute is resolved.
In the meantime, Yuriy Prodan, Ukraine’s Minister for Energy, has led a delegation to EU states to explain Ukraine’s position, while President Viktor Yushchenko and Prime Minister Yulia Tymoshenko have invited the European Union (EU) to mediate in the dispute with Gazprom.
The supply of natural gas from Russia to Ukraine was cut off at 0700 hours GMT on Thursday, 1 January, after talks collapsed over the alleged non-payment of a debt and failure to agree a gas price for 2009.
The central issues concern a demand by Gazprom to pay an alleged debt of $2 billion. Naftohaz said that it had paid $1.5 billion to the Swiss intermediary company, RosUkrEnergo, that supplies Central Asian gas to Ukraine. But Gazprom is insisting on a further payment of $500 million for alleged late payment fees, the validity of which Naftohaz disputes and has stated its willingness to take to a court of arbitration.
The other major bone of contention is the failure to agree a gas price for 2009 and the fees Ukraine wants to charge for transporting Russian gas to Europe. About 80 percent of Russian gas exported to Europe is transported through Ukraine’s ageing gas pipeline network. Currently, Gazprom enjoys a cut-price transport fee which is three-times below the market rate.
Gazprom pays Ukraine $1.70 to transport 1,000 cubic meters of gas per 100 kilometres (62 miles) and has insisted on keeping the price unchanged. In a joint letter to Gazprom, Ukraine’s president and premier pointed out that the current fee is inadequate to fund the maintenance of the pipeline network.
NO CONTRACT, NO GAS!
According to Gazprom’s Chairman, Alexei Miller, “as far as gas to Ukraine is concerned we have no signed contract and so no legal basis to supply gas to them.”
Gazprom offered Ukraine a 2009 gas price of $250 per thousand cubic metres, which amounts to a 40 percent hike over the 2008 price of $179.50 per thousand cubic metres. Ukraine rejected this figure, stating that $201 would be more appropriate.
Gazprom reduced its offer to $235 per thousand cubic metres but has since dug in its heels, maintaining that Ukraine pay a market price of $418. But the price of gas is set to fall. Its price is linked to, but lags behind, the price of oil which has dropped three-fold since the summer.
“Ukraine is open to negotiation not intimidation,” said Hryhoriy Nemyria, Deputy Prime Minister responsible for European integration, “and will do its utmost to guarantee no disruption in supply to our European neighbours.”
However, President Yushchenko’s envoy on energy security, Bohdan Sokolovsky, warned that although Ukraine will continue to ship gas to Europe, disruptions may occur in “10 to 15 days” unless Ukraine’s gas is pumped along with supplies to Europe. Maintaining pressure in the pipeline system is essential to continue deliveries.
GAS IS NOT BEING STOLEN
Naftohaz officials strenuously rejected Russian claims that gas meant for Europe was being stolen. Valentyn Zemlianskyi, Naftohaz’s press spokesperson, said, “We are removing gas for technical purposes, in order to ensure the transit of Russian exports." Once again, this to ensure Naftohaz maintains the correct pressure in the pipeline network.
On Saturday, a Naftohaz official confirmed that Russia had actually reduced the amount of gas being shipped to Europe through Ukraine’s pipelines by 21 million cubic metres a day to 284.5 million cubic metres.
The European Commission is monitoring the dispute very closely with the Czech presidency saying it would call a crisis meeting of envoys in Brussels on Monday.
Despite a major lobbying exercise and PR campaign to explain its actions, Gazprom has once again drawn considerable flak from the international community over its willingness to resort quickly to strong-arm tactics.
Tammy Lynch, a Senior Fellow at Boston University’s Institute for the Study of Conflict, Ideology and Policy, writing for the Huffington Post, said: “forcing Ukraine to negotiate under the distress of having its gas turned off is a tactic that smacks of blackmail and intimidation.”
Naftohaz officials have estimated that Ukraine has about 90 days worth of gas stored to see it through the crisis.
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24. GAZPROM/UKRAINE
Editorial, Lex Team, Financial Times, London, UK, Monday, January 5, 2009
History, Karl Marx suggested, repeats itself, first as tragedy and second as farce. Gazprom’s first big gas shut-off to Ukraine in 2006 was widely seen
as the Russian bear mauling plucky Ukraine, months after its pro-democracy revolution. This time round, it is difficult to pity either side.
Russia signalled intentions in 2005 to stop subsidising gas to former Soviet neighbours and charge market prices. It is time Kiev and Moscow ended annual
price wrangles and signed a long-term contract similar to Russia’s agreements with western Europe, where a formula links gas prices, with a six- to nine-month lag, to oil prices. Their failure to do so results partly from politics.
It suits Gazprom’s Kremlin masters to put Ukraine in a position where it can be portrayed as a flaky partner for the European Union. Supply disruptions
via Ukraine bolster arguments for a controversial alternative pipeline Gazprom is building under the Baltic Sea to Germany. Kiev, meanwhile, likes to depict Gazprom as a bully, but has been hamstrung in negotiations by chronic bickering among its onetime Orange Revolution allies.
The EU, which both sides want involved, should bang heads together – particularly in Kiev – to sit down and agree on a 2009 price. The gap between the $250 per thousand cubic metres Gazprom demanded and the $201-$211 Ukraine says is fair seems hardly unbridgeable.
For its part, Gazprom should make clear its $250 offer still stands, and stop tossing around figures such as $450 (based on the temporarily sky-high
prices western Europe is paying because of last summer’s oil price spike). It should also agree to remove RosUkrEnergo, the opaque partly Gazprom-owned intermediary, from gas supplies to Ukraine.
Looking ahead, cheaper oil means the gap between west European gas prices and what Ukraine is prepared to pay will narrow sharply. Here, at last, is
an opportunity to agree a European-style pricing formula – and avoid further repeats of the farcical New Year shut-off.
History, Karl Marx suggested, repeats itself, first as tragedy and second as farce. Gazprom’s first big gas shut-off to Ukraine in 2006 was widely seen
as the Russian bear mauling plucky Ukraine, months after its pro-democracy revolution. This time round, it is difficult to pity either side.
Russia signalled intentions in 2005 to stop subsidising gas to former Soviet neighbours and charge market prices. It is time Kiev and Moscow ended annual
price wrangles and signed a long-term contract similar to Russia’s agreements with western Europe, where a formula links gas prices, with a six- to nine-month lag, to oil prices. Their failure to do so results partly from politics.
It suits Gazprom’s Kremlin masters to put Ukraine in a position where it can be portrayed as a flaky partner for the European Union. Supply disruptions
via Ukraine bolster arguments for a controversial alternative pipeline Gazprom is building under the Baltic Sea to Germany. Kiev, meanwhile, likes to depict Gazprom as a bully, but has been hamstrung in negotiations by chronic bickering among its onetime Orange Revolution allies.
The EU, which both sides want involved, should bang heads together – particularly in Kiev – to sit down and agree on a 2009 price. The gap between the $250 per thousand cubic metres Gazprom demanded and the $201-$211 Ukraine says is fair seems hardly unbridgeable.
For its part, Gazprom should make clear its $250 offer still stands, and stop tossing around figures such as $450 (based on the temporarily sky-high
prices western Europe is paying because of last summer’s oil price spike). It should also agree to remove RosUkrEnergo, the opaque partly Gazprom-owned intermediary, from gas supplies to Ukraine.
Looking ahead, cheaper oil means the gap between west European gas prices and what Ukraine is prepared to pay will narrow sharply. Here, at last, is
an opportunity to agree a European-style pricing formula – and avoid further repeats of the farcical New Year shut-off.
LINK: http://www.ft.com/cms/s/1/cbbe85a8-db0a-11dd-be53-000077b07658.html
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25. UKRAINE-RUSSIA GAS PRICE SPAT
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25. UKRAINE-RUSSIA GAS PRICE SPAT
RBS EM Strategy Update, by Timothy Ash, Head of CEEMEA research
Royal Bank of Scotland, London, UK, Friday, January 2, 2009
A couple of comments on the on-going gas price dispute between Ukraine and Russia, which saw Russia cut off gas supplies to Ukrainian customers from
January 1, 2009.
[1] First this is an almost perennial occurrence now for Russia and Ukraine to get into last minute gas pricing talks. This is not Ukrainian-leader specific as Tymoshenko, Yushchenko, Yanukovych and indeed former President Kuchma have all been embroiled in similar spats with Moscow at the turn of the New Year. These tend to get resolved; a case of handbags at dawn!
[2] Second, we doubt that the dispute will be long-lasting as the relationship between Moscow and Kiev over gas supplies is very much symbiotic. Both need each other. Russia transits two thirds of its gas supplies thru Ukraine to market in Western Europe. With oil and commodity prices way down, it desperately needs the export revenues now and cannot afford to disrupt energy export revenues.
With Urals oil prices at one-quarter of last year’s highs, the energy supply balance has shifted against Moscow in recent months. Similarly, Ukraine is
reliant on Ukraine for domestic energy supplies and for gas transit fees; it earns US$2bn+ annually in gas transit fees.
[3] Third, it had appeared earlier in the year that the two sides (Tymoshenko + Putin) had agreed an increase in gas import prices from US$179.50 for 2008, to around US$250 per 1,000 cu metres for 2009. This was though when oil prices were close to record highs (US$140+ per barrel). Subsequently Ukraine has sought to renegotiate that deal, with talk of a rolling contract, driven by changes in the oil price. This angered Moscow, which thought that it was being generous by offering US$250, when the European market price had then been US$400-500.
Ukraine is now said to be looking for US$205, and also for a hike in gas transit fees to US$1.80 per 1,000 cu metres over 100km; US$1.60 was agreed
as part of the 2006 gas price agreement signed by President Yushchenko, and which decoupled the gas import price from transit fees. A deal close to
US$230-240 still seems most likely.
Royal Bank of Scotland, London, UK, Friday, January 2, 2009
A couple of comments on the on-going gas price dispute between Ukraine and Russia, which saw Russia cut off gas supplies to Ukrainian customers from
January 1, 2009.
[1] First this is an almost perennial occurrence now for Russia and Ukraine to get into last minute gas pricing talks. This is not Ukrainian-leader specific as Tymoshenko, Yushchenko, Yanukovych and indeed former President Kuchma have all been embroiled in similar spats with Moscow at the turn of the New Year. These tend to get resolved; a case of handbags at dawn!
[2] Second, we doubt that the dispute will be long-lasting as the relationship between Moscow and Kiev over gas supplies is very much symbiotic. Both need each other. Russia transits two thirds of its gas supplies thru Ukraine to market in Western Europe. With oil and commodity prices way down, it desperately needs the export revenues now and cannot afford to disrupt energy export revenues.
With Urals oil prices at one-quarter of last year’s highs, the energy supply balance has shifted against Moscow in recent months. Similarly, Ukraine is
reliant on Ukraine for domestic energy supplies and for gas transit fees; it earns US$2bn+ annually in gas transit fees.
[3] Third, it had appeared earlier in the year that the two sides (Tymoshenko + Putin) had agreed an increase in gas import prices from US$179.50 for 2008, to around US$250 per 1,000 cu metres for 2009. This was though when oil prices were close to record highs (US$140+ per barrel). Subsequently Ukraine has sought to renegotiate that deal, with talk of a rolling contract, driven by changes in the oil price. This angered Moscow, which thought that it was being generous by offering US$250, when the European market price had then been US$400-500.
Ukraine is now said to be looking for US$205, and also for a hike in gas transit fees to US$1.80 per 1,000 cu metres over 100km; US$1.60 was agreed
as part of the 2006 gas price agreement signed by President Yushchenko, and which decoupled the gas import price from transit fees. A deal close to
US$230-240 still seems most likely.
[4] Fourth, obviously given that both economies are currently being massively impacted by the collapse in commodity export prices, the stakes from the current spat have increased; Ukraine’s currency has been in close to free-fall, while the CBR is still trying to manage the depreciation of the rouble to a more competitive level, both reflecting weaknesses in the external financing front. We still think though that both sides have an interest in not trying to elevate the current crisis much above current levels and trying to reach a deal sooner, rather than later.
NOTE: This material has been prepared by The Royal Bank of Scotland plc (“RBS”) for information purposes only and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy.
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26. BEHIND THE RUSSIA-UKRAINE GAS CONFLICT
Economics and politics drove Gazprom's decision to shut off gas to its neighbor
By Miriam Elder, Business Week, New York, NY, Saturday, January 3, 2009
It has become a New Year's tradition: With the clock inching closer to midnight, Russia and Ukraine trade threats and accusations as talks over the next year's gas contract come down to the wire. The two neighbors squabble over the price Ukraine will pay for Russian gas, and the tariffs Russia will pay Ukraine for the use of pipelines that cross its territory, sending Russian gas to Europe.
Only once before did the situation get so dire that Gazprom (GAZP.RTS), Russia's state-run gas monopoly, followed through on threats to turn off the taps. That was in January 2006, when Russia sought to hike prices sharply in the wake of the Orange Revolution that ushered a Western-leaning government into power in Kiev.
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26. BEHIND THE RUSSIA-UKRAINE GAS CONFLICT
Economics and politics drove Gazprom's decision to shut off gas to its neighbor
By Miriam Elder, Business Week, New York, NY, Saturday, January 3, 2009
It has become a New Year's tradition: With the clock inching closer to midnight, Russia and Ukraine trade threats and accusations as talks over the next year's gas contract come down to the wire. The two neighbors squabble over the price Ukraine will pay for Russian gas, and the tariffs Russia will pay Ukraine for the use of pipelines that cross its territory, sending Russian gas to Europe.
Only once before did the situation get so dire that Gazprom (GAZP.RTS), Russia's state-run gas monopoly, followed through on threats to turn off the taps. That was in January 2006, when Russia sought to hike prices sharply in the wake of the Orange Revolution that ushered a Western-leaning government into power in Kiev.
But once again this year, Gazprom cut all gas to Ukraine on New Year's Day, arguing that Naftogaz, Ukraine's state-run gas company, had failed to pay its gas bill in full and that talks on a price for 2009 had stalled completely.
What's behind the dispute? Gazprom maintains that the conflict is purely commercial. In fact, both economic and political considerations are at play in both countries. That makes it likely the fight will drag on for several days or longer, in contrast to 2006, when the neighbors found a resolution within three days.
Coming less than five months after Russia's heavy-handed war with Georgia, the dispute will surely raise questions about Russia's intentions toward its
ex-Soviet neighbors, as well as its ability to reliably supply gas to Europe. The European Union imports about a quarter of its gas from Russia, and 80% of that amount travels through pipelines that cross Ukraine.
What's behind the dispute? Gazprom maintains that the conflict is purely commercial. In fact, both economic and political considerations are at play in both countries. That makes it likely the fight will drag on for several days or longer, in contrast to 2006, when the neighbors found a resolution within three days.
Coming less than five months after Russia's heavy-handed war with Georgia, the dispute will surely raise questions about Russia's intentions toward its
ex-Soviet neighbors, as well as its ability to reliably supply gas to Europe. The European Union imports about a quarter of its gas from Russia, and 80% of that amount travels through pipelines that cross Ukraine.
The conflict with Ukraine also comes at a time when Russia has been trying to increase its sway among global oil and gas players, regularly attending OPEC meetings and floating the idea of setting up an OPEC-style group for the global gas industry.
Ukraine Got IMF Loan
The stakes are high. "There is potentially a lot more at stake here than just money," says Chris Weafer, chief strategist at UralSib, a Moscow investment bank. "Russia needs to win the PR war on this issue as much as it needs the higher price." Russia, he says, needs the EU to help fund new projects in the Arctic and East Siberia, costly because of the difficult conditions but necessary to boost Russia's lagging production. "Russia will not be able to do that alone and will need the EU both as a customer and an investor," Weafer adds.
Both Russia and Ukraine have been hit hard by the global financial crisis. Ukraine is one of the few countries that appealed to the International Monetary Fund for help, taking a $16 billion loan in November.
Ukraine Got IMF Loan
The stakes are high. "There is potentially a lot more at stake here than just money," says Chris Weafer, chief strategist at UralSib, a Moscow investment bank. "Russia needs to win the PR war on this issue as much as it needs the higher price." Russia, he says, needs the EU to help fund new projects in the Arctic and East Siberia, costly because of the difficult conditions but necessary to boost Russia's lagging production. "Russia will not be able to do that alone and will need the EU both as a customer and an investor," Weafer adds.
Both Russia and Ukraine have been hit hard by the global financial crisis. Ukraine is one of the few countries that appealed to the International Monetary Fund for help, taking a $16 billion loan in November.
Its currency has lost half its value since September, its economy is in deep recession, and thousands face layoffs as its mining industry grinds to a halt. The government, plagued by infighting between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko, is paralyzed.
This state of affairs hasn't been lost on Russia, whose own miracle has been jeopardized as the financial crisis spreads to the real economy. The
country's markets have lost three-fourths of their value since August. Industrial production slowed by 8.7% in November—the most since the 1998
financial crisis.
And the ruble has lost over 15% of its value in a managed devaluation that has squandered over $160 billion in foreign reserves since mid-November.
Russian officials expect economic growth, which averaged 7% over the past five years, to dip to 2% this year.
A Convenient Distraction
Gazprom itself is mired in debt, and was recently included on a list of companies eligible for a government bailout. Its shares, which once valued the company at over $300 billion, making it the world's third largest, have fallen 76% since the financial crisis hit in September.
Eager to distract an increasingly worried population from the problems at home, Russia has filled the airwaves of state-run television with anti-Ukrainian propaganda. Yearend programs wrapping up 2008 gave equal coverage to political discontent in Ukraine as to the war with Georgia. One program ran a 10-minute profile of a Ukrainian man who spent the last year building life-sized dolls of Yushchenko and Tymoshenko and placing them in coffins. For its part, Gazprom has appeared eager to capitalize on Ukraine's political instability to get a better deal.
This state of affairs hasn't been lost on Russia, whose own miracle has been jeopardized as the financial crisis spreads to the real economy. The
country's markets have lost three-fourths of their value since August. Industrial production slowed by 8.7% in November—the most since the 1998
financial crisis.
And the ruble has lost over 15% of its value in a managed devaluation that has squandered over $160 billion in foreign reserves since mid-November.
Russian officials expect economic growth, which averaged 7% over the past five years, to dip to 2% this year.
A Convenient Distraction
Gazprom itself is mired in debt, and was recently included on a list of companies eligible for a government bailout. Its shares, which once valued the company at over $300 billion, making it the world's third largest, have fallen 76% since the financial crisis hit in September.
Eager to distract an increasingly worried population from the problems at home, Russia has filled the airwaves of state-run television with anti-Ukrainian propaganda. Yearend programs wrapping up 2008 gave equal coverage to political discontent in Ukraine as to the war with Georgia. One program ran a 10-minute profile of a Ukrainian man who spent the last year building life-sized dolls of Yushchenko and Tymoshenko and placing them in coffins. For its part, Gazprom has appeared eager to capitalize on Ukraine's political instability to get a better deal.
This year's row began in December, when Gazprom accused Naftogaz of failing to pay a $2 billion debt for gas delivered in 2008, precluding the start of negotiations on a contract for gas delivery in 2009. Naftogaz disputed the debt, finally caving in on Dec. 30 and taking loans from state banks to cover the payment.
On New Year's Eve, Gazprom acknowledged that Naftogaz had transferred the payment to RosUkrEnergo, a middleman gas trader it half owns, but the funds had yet to appear on the company's accounts in Moscow. Further, Gazprom charged that Ukraine still owes $600 million in fines. Gazprom has also accused Naftogaz of threatening to siphon gas meant for Europe if the dispute wasn't resolved.
Europe Better Prepared This Time
Naftogas has publicly denied Gazprom's allegations. But in January 2006, the company did tap pipelines destined for Europe to cover its own shortfalls in the midst of a harsh winter. Supplies dipped across Europe, sparking a loud outcry that pushed Kiev and Moscow to solve the dispute quickly.
This time around, Europe is better prepared. The economic downturn means less demand for gas, and most countries have built up storage capacity and reserves to last through a short disruption. If the dispute drags on for weeks, however, those supplies will run out. Britain, for example, has storage to weather a complete cut in supplies for 10 to 12 days. France and Germany could last as long as two months.
On Jan. 3, Gazprom said it had boosted supplies to Europe through three alternate pipelines that bypass Ukraine. But countries in Central and Eastern Europe are already feeling the crunch. Romania has registered a 30% decrease in supply since Jan. 1 and shipments to Poland have dropped by 11%. Bulgaria says it is missing out on 10%-15% of its daily gas delivery.
"If the Russian side does not provide more gas [to EU member states] than at the moment, then in around 10 days there could be very serious technical problems," Yushchenko's energy adviser Bogdan Sokolovsky warned at a briefing in Kiev on Jan. 3. While Ukraine argues that it has slightly reduced the flow of gas to maintain pressure in its network. Russia says that its neighbor is stealing gas meant for paying customers in Europe and plans to take Naftogaz to international arbitration court in Stockholm.
Plans to Bypass Ukraine
The Czech Republic, which took over the rotating EU presidency on Jan. 1 and has its own tense relationship with Russia, has called an extraordinary session of EU envoys on Jan. 5 to address the crisis. But few analysts expect the dispute to be resolved quickly. No talks between Gazprom and Naftogaz are scheduled. And Gazprom has increased the price it wants Ukraine to pay from $250 per thousand cubic meters to $418, compared to the price of $179.50 it paid in 2008.
Ukraine says it can pay as much as $235, but only if Russia agrees to pay more in transit fees for sending gas to Europe. Gazprom argues that Ukraine's leadership has failed to forge a unified position so that it can approach the negotiating table with one voice.
Eventually, Gazprom hopes to solve its annual problem with Ukraine by shipping gas directly to Europe. The company has grand plans to build pipelines that would send gas straight to Germany and through the Balkans to Western Europe. But the economic downturn has cast doubt on these projects. That means Europe will be getting much of its gas via Ukraine for years to come—once Russia agrees to turn back on the taps.
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