Ukraine proposes deal to settle its growing gas debt with Russia (08/06/00)

Ukraine proposes deal to settle its growing gas debt with Russia

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Ukraine has proposed to sell Russia a portion of its natural gas pipeline, as well as additional aircraft and cruise missiles, to help settle its more than $1 billion debt for natural gas, announced Prime Minister Viktor Yuschenko on August 1.

The prime minister underscored that the offer is a proposal being considered by a joint Ukrainian-Russian government committee and subject to change.

"This is one of the options being discussed," explained Mr. Yuschenko. "Of course, we welcome all discussions on this proposal, but it does not mean the issue has been settled."

A joint Ukrainian-Russian governmental committee charged by the prime ministers of both countries with resolving Kyiv's large natural gas debt to Moscow, met on August 1-2 in the Ukrainian capital with no agreement or evident progress on the Ukrainian proposal.

However, Russia has accepted Ukrainian bombers and missile carriers in the past, most recently in December of last year, when Ukraine transferred ownership of eight TU-160 missile carriers and three TU-95 MS long-range bombers, along with 600 X-22 cruise missiles in partial repayment of its ongoing debt to Russia, on which it is almost completely dependent for natural gas. That transaction was valued at $285 million.

According to Interfax-Ukraine, Russian experts have said that the Ukrainian side is currently offering an additional three missile carriers and seven complete bombers along with four disassembled ones, as well as about 80 additional cruise missiles. The cruise missiles are capable of carrying nuclear warheads.

Although there are few details on how the deal, if it is eventually agreed to, would affect Ukraine's natural gas pipeline, Yevhen Marchuk, secretary of Ukraine's National Security and Defense Council, indicated on July 26 that Ukraine is ready to surrender one-third of its gas artery, which supplies northern Europe with Russian natural gas. In 1999 Ukraine received some 30 billion cubic meters of natural gas from Russia as compensation for use of the Ukrainian pipeline.

Mr. Marchuk said he supports a proposal whereby Russian natural gas companies would be able to take part in privatization tenders for the pipeline. He suggested that another one-third of the pipeline would be tendered to European partners.

However, Prime Minister Yuschenko suggested that the pipeline would be handed over in a type of leasing operation with the physical pipeline remaining under Ukrainian management.

Vice Prime Minister Yulia Tymoshenko, who is responsible for the gas and energy portfolio and who has been at loggerheads with Mr. Marchuk over her recent efforts to revamp the sector, came out firmly against the security council chief's proposal. She claimed that it is another short-term fix that does not resolve the problem of long-term Ukrainian indebtedness to Russia.

"I would not administer state property in this way," explained Ms. Tymoshenko. "And what shall we do when there is no more property? Then what shall we pay with?"

Recently Ms. Tymoshenko suggested that Ukrainian industrial consumers should prepare for a sharp rise in the price of natural gas. She based her comments on a belief that Russia is preparing to begin selling Ukraine the desperately needed energy source at European prices, which approach $100 per 1,000 cubic meters.

The vice prime minister supports a deal she negotiated with Turkmenistan that would give Ukraine an alternative natural gas supplier at $42 per 1,000 cubic meters. However, President Leonid Kuchma has criticized that deal because it does not take into account transit costs through the territories of Uzbekistan, Kazakstan and Russia, which would bring the total cost to nearly $100 per 1,000 cubic meters. Ukraine currently pays Russia $36 per 1,000 cubic meters of gas.

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