ANALYSIS: Kyiv faces new pressure on gas debts (08/05/01)

ANALYSIS

Kyiv faces new pressure on gas debts

by Michael Lelyveld
RFE/RL Poland, Belarus and Ukraine Report

Kazakstan has reportedly reduced the flow of gas from Turkmenistan to Ukraine in the latest dispute over Kyiv's refusal to honor the debts of its energy companies.

Last week, Vadym Kopylov, the head of the Ukrainian state energy company Naftohaz Ukrainy, told Interfax that Kazakstan has cut gas deliveries from Turkmenistan by almost half. Pipeline routes from Turkmenistan run through Uzbekistan, Kazakstan and Russia on their way to Ukraine.

Kazakstan's move is the result of a chain of events that started in January when the Russian gas trader Itera announced it was stopping gas supplies to Ukraine because the country's power companies owed $64 million in overdue bills.

The power companies claimed their customers were not paying them. Naftohaz Ukrainy and the government declined to take responsibility for the debts.

Itera soon found that a complete cutoff was impossible, because the power companies simply diverted the gas they needed out of the flow of Russian deliveries to Europe, which run through Ukrainian lines.

At the time, Itera said that Russia's Gazprom was the source of the gas being delivered to the Ukrainian generators. The unpaid bills were only a fraction of the $1.4 billion that Russia has been trying to collect for past supplies to Ukraine.

But at the same time, Itera was also handling Turkmenistan's gas exports to Ukraine. Ashgabat had agreed to supply Kyiv as long as it paid in advance. Itera continued to carry the Turkmen gas to Ukraine, presumably because it could profit from the separate deal.

It now appears that Itera has shifted its tactics by delaying payment to the Kazak pipeline company Intergaz for Ukraine's supplies of Turkmen gas. According to Interfax, Kazakstan has threatened to cut the gas transit unless Itera pays for earlier services to Ukraine.

Itera, in turn, has blamed the Ukrainian power companies for failing to pay their debts, which it now estimates at $56 million. Itera seems to be implying that the Ukrainian generators were using Turkmen rather than Russian gas when they stopped paying their bills. The effect is to make Ukraine's non-payment a problem for Turkmenistan and Kazakstan rather than Russia.

That strategy could prove successful over time. Ukraine may be able to endure the reduction of gas supplies during the summer, when demand is low. But as winter approaches, it may have to pay the debts or find another solution. Turkmenistan may also bring pressure to bear on Ukraine, which now accounts for about half of Turkmen gas exports. The situation will test the policy of the Ukrainian government, which has steadfastly refused to take on the debts of either Naftohaz Ukrainy or the power companies as its own.

Last month Ukrainian Prime Minister Anatolii Kinakh spurned a Russian proposal to restructure the energy company's gas debts by issuing Eurobonds that would be guaranteed by the state. His position was quickly supported by President Leonid Kuchma. "This question cannot be put this way at all. Corporate debts will never become state ones," Interfax quoted Mr. Kuchma as saying.

The government has also rejected a Russian plan to swap the debt for stakes in Ukrainian companies or control of the country's pipelines.

Last January, both President Kuchma and former Prime Minister Viktor Yuschenko negotiated with Itera in an effort to avoid a gas shutoff. But the new prime minister, Mr. Kinakh, has since refused to honor the commitments that his predecessor made.

Russia may now have found a more effective way of pressuring Ukraine by shifting some of the debt burden onto other suppliers. If the strategy works, Turkmenistan and Kazakstan may soon apply more pressure of their own.

Michael Lelyveld is an RFE/RL correspondent.

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