EDITORIAL: Ukraine's energy dilemma (01/01/06)

EDITORIAL

Ukraine's energy dilemma

Zbigniew Brzezinski, the former U.S. national security advisor, recently said that Russians have a hard time accepting the reality of Ukraine's complete independence.

In the past month, Russian President Vladimir Putin has once again proven Dr. Brzezinski's point. Under the guise of the state-owned gas monopoly Gazprom, Mr. Putin is again exerting pressure on Ukraine. But this time Ukraine is fighting back and a dispute has erupted over how much Ukraine should pay for Russian gas in 2006.

Ukraine gets 25 billion cubic meters of natural gas from Russia as a barter payment for transporting gas to Europe through its pipeline. Ukraine gets 31 percent of the 80 billion cubic meters of natural gas it uses annually from Russia, while the rest comes from domestic sources and Turkmenistan.

According to the new Russian policy, natural gas prices for Ukraine would increase from a rate of $50 per 1,000 cubic meters to $220-$230 per 1,000 cubic meters - a more than fourfold increase. Gazprom has also demanded that the new payments be made in cash.

Though high-ranking Ukrainian officials - including Prime Minister Yuriy Yekhanurov - have traveled to Moscow to negotiate a deal, a tense standoff has nonetheless developed.

Meanwhile, the European Union has reason to be concerned. About half the natural gas consumed there comes from Gazprom, and most of that is shipped in pipelines through Ukraine. Russia has threatened to cut off the gas supply to Ukraine if a deal is not reached by January 1.

The move by Gazprom appears to be another attempt by Mr. Putin to influence countries that have long since left Russia's sphere of influence. Some analysts have suggested that it is punishment for Ukraine's electing a reform-minded, pro-western president and that Russia is trying to influence the outcome of the March 2006 parliamentary elections in Ukraine.

However, what is clear is that Gazprom wants to charge Ukraine much more than it did in the previous year, while charging neighboring Belarus - whose president has always stood firmly beside Mr. Putin - a pittance.

On December 29, 2005, Belarus ceded control to Gazprom of a transit pipeline that crosses Belarus into Europe. Two days earlier, Gazprom reached an agreement to sell gas to Belarus for $46.68 per 1,000 cubic meters - just 20 percent of what it wants to charge Ukraine.

In its discussions with Russia, Ukraine has rightly agreed to pay market rates, but in phased increases over a period of time, rather than all at once.

Russia expressed interest in a Russian-Ukrainian natural gas consortium that would give it co-ownership of Ukraine's transit pipelines. However, Prime Minister Yekhanurov rightly rejected the offer during negotiations in Moscow.

Mr. Putin's policies have been so heavy-handed that some Russian insiders have begun to chafe. On December 27, 2005, Andrei Illarionov, a senior economic adviser to President Putin, resigned, saying Russia had used its energy reserves not merely as an instrument of foreign policy, but as "a weapon."

Russia, it appears, hopes that by raising prices and tightening the gas supply during the winter it can bring a pro-Kremlin coalition to power in the coming Verkhovna Rada elections.

"I think that the Russians find it hard to reconcile themselves with the idea of Ukraine as a mature and independent European country, not a province," Dr. Brzezinski said. "But changes will take place, just like they happened between Russia and Poland. I believe that Russia and Ukraine should have good relations. They are very close and interconnected, yet these relations must be based on respect and recognition of mutual independence."

As Ukrainian and Russian officials continue to negotiate the terms of an agreement, Mr. Putin must take these words to heart. If Ukraine and Russia are to live as neighbors, they must respect and recognize each other's mutual independence.

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