ANALYSIS

Turkmenistan's price demands imperil Moscow-Kyiv gas deal

by Roman Kupchinsky
RFERL Belarus, Ukraine and Moldova Report

Russian Industry and Energy Minister Viktor Khristenko was in the Vietnamese capital of Hanoi last week when he commented on a decision by the Turkmen leadership to raise the price of natural gas. But his words may have had the greatest impact all the way back in Kyiv, where they came as a grim reminder Ukraine's gas woes are far from over.

To backtrack, Turkmenistan President Saparmurat Niyazov, otherwise known as "Turkmenbashi,"declared on February 11 that he intended to raise the price of natural gas from $65 to $100 per 1,000 cubic meters this autumn.

On February 16 Mr. Khristenko said that decision meant a necessary adjustment in the prices Kyiv will pay for its gas supplies under the terms of the deal struck in January by Russia and Ukraine, ending a pricing dispute that saw temporary shut-offs in supplies of Russian gas not only to Ukraine but to a livid Western Europe as well.

Under the deal, Ukraine this year is to receive 34 billion cubic meters for $95 per 1,000 cubic meters from an intermediary, RosUkrEnergo, which in turn will purchase gas from Russia's Gazprom, as well as from Turkmenistan, which accounts for nearly one-half of Ukraine's deliveries from Russia.

But "everything is changing," Interfax cited Mr. Khristenko as saying. "And even the fixed-price formula for RosUkrEnergo may fluctuate depending on the situation on the market."

"Mr. Niyazov's position is predictable," Mr. Khristenko said. If Turkmenistan raises the gas price, he continued, the gas price formula for Ukraine will necessarily change as well.

The developments prompted a Ukrainian delegation comprising Fuel and Energy Minister Ivan Plachkov and Naftohaz Ukrayiny head Oleksandr Ivchenko - who negotiated the January accord with Russia's Gazprom and RusUkrEnergo - to travel on February 17 to Turkmenistan in hopes of clarifying the situation.

From Kyiv's point of view, the gas deal left a lot to be desired. The terms are set for only the first six months of 2006, and questions about RosUkrEnergo and its shadowy role as middleman in the gas delivery chain have lent even greater uncertainty to the fate of the highly criticized accord.

Speaking in Madrid on February 7, Russian President Vladimir Putin stated that Ukraine, not Russia, insisted on keeping RosUkrEnergo in the deal. But subsequent statements by officials in Ukraine appear to indicate the opposite. John Herbst, the U.S. ambassador to Ukraine, on February 16 criticized the inclusion of the middleman company.

"RosUkrEnergo is a suspicious organization, and it is difficult to understand why it plays such a significant role in such an important agreement," Mr. Herbst said, according to Ukrinform. Ambassador Herbst's statement was the latest in a series of critical remarks made by U.S. officials about the company in recent weeks.

His remarks echoed those of Ukrainian President Viktor Yushchenko, who said in a February 14 statement that he shared the concern of the European Union and other international organizations regarding the "scarcity of information" about RosUkrEnergo and its partial owner, Raffeisen Investments.

Interfax the same day cited the president as indicating that all attempts by Ukraine to receive necessary information about RosUkrEnergo had been "fruitless."

Appearing on February 16 on Ukraine's Channel 5 television, Ukrainian Prime Minister Yurii Yekhanurov said Kyiv is ready to bypass RosUkrEnergo and sign gas contracts directly with Gazprom, but added it cannot do so without Moscow's consent.

Mr. Yekhanurov added that he has sent a letter to Russian Prime Minister Mikhail Fradkov informing him of this. But Mr. Khristenko, in his remarks in Vietnam, described RosUkrEnergo as a "sufficiently transparent" company and said there was no need to drop it from the existing deal," Interfax reported.

"The situation has been regulated," Mr. Khristenko said. "The agreements that have been reached were based on the stipulation that RosUkrEnergo would be the trader working with the primary supplies of Central Asian gas, and a structure that could position itself on both the Ukrainian and Western markets."

"The structure," he added, "is sufficiently transparent."

Roman Kupchinsky is the former director of the Ukrainian service at Radio Free Europe/Radio Liberty.

Copyright © The Ukrainian Weekly, February 26, 2006, No. 9, Vol. LXXIV

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