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ZERKALO NEDELI: AGREEMENT ON THE DEVELOPMENT OF RELATIONS IN THE GAS SPHERE BETWEEN NJSC NAFTOGAZ AND OJSC GAZPROM

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Last Friday, Prime Minister Yuliya Tymoshenko and the chairman of NJSC Naftogaz board, Oleh Dubina, were expected to report to the President of Ukraine on the results of the gas talks with Gazprom.

On March 12, 2008, the “Agreement on the development of relations in the gas sphere” between NJSC Naftogaz Ukrainy and OJSC Gazprom was signed. The Ukrainian version of this agreement is slightly different form the Russian version, so it looks like both parties purposed their own and rather different aims while signing it.

However, Ukrainian President Viktor Yushchenko is insisting that his agreements with the then president of the Russian Federation Volodymyr Putin stay in force and will not be changed. He says that all Ukrainian officials should take them as a guide to action.

Someway or another, the Prime Minister and the head of Naftogaz gave a press-conference before reporting to the President on March 14th.

In Y. Tymoshenko’s opinion, the most important thing is that “We will continue to eliminate corruption-ridden schemes employed in the gas market of Ukraine. Additionally, gas in the underground storage facilities will be stored for the market price.”

According to Y. Tymoshenko, the price of gas storage in Ukrainian underground gas storage facilities will be reviewed this year. She also pointed out that it was necessary to cancel the contracts with UkrGasEnergo on storing gas for an undercut price.

Today, the tariff on gas storage in Ukrainian underground gas storage facilities is UAH 33 for 1000 cubic meters per season for residents. However, the gas storage tariff for UkrGazEnergo is much lower – at the expense of Ukrainian industrial consumers of gas. To all appearances, this is the lowest price of underground gas storage in Europe…

…As well as the transit tariff on transportation of gas through Ukraine. The gas transit rate is USD 1.7 for 1000 cubic meters of gas per 100 kilometers this year (it was USD 1.6 in 2007). According to ZN sources, one of the world’s leading audit companies estimated that the gas transit rate for Ukraine should be USD 7.2 in 2008. However, according to Y. Tymoshneko, changing the gas transit rate is out of the question today.

In any case, without signing a commercial contract between NJSC Naftogas and OJSC Gazprom (on amounts, tariffs and prices) and additional technical agreements (on the schedule and mode of gas supplies) the gas agreement from March 12 will be not valid.

Let’s review the Agreement on the development of Russian-Ukrainian relations in the gas sphere from March 12. According to its first point, “from January 1 to December 31, 2008, RosUkrEnergo AG or Gazprom will sell to Naftogaz natural gas of Central Asian origin on the condition DAF the Russian Federation-Ukraine border and/or Belarus-Ukraine border in the amount of not less than 49.8 billion cubic meters for the price of USD 179.5 per 1000 cubic meters”.

The first question: why does it state RosUkrEnergo “or” Gazprom? Are RosUkrEnergo and Gazprom the same company now? If this is the case, then they should write so because a direct contract with Gazprom is one thing. And it is a completely different thing if Gazprom just tries to preserve the corruption-ridden scheme with RosUkrEnergo as an intermediary.

However from the other point, the matter at issue is not any more about the creation of new joint venture #1 for exporting gas to Ukraine, on which Gazprom initially insisted. According to the Agreement, NJSC Naftogaz will become the owner of the entire volume of imported gas at the Ukrainian border. This has never happened before in “the times of absolute reign” of RosUkrEnergo in the Ukrainian gas market.

The second question is why does the first point of the Agreement assume the possibility to deliver the gas to Ukraine not through the Russian-Ukrainian border? Is it in order to juggle with kilometerage?

In fact, this is not new. Depending on the situation, Gazprom indicates the transit distance for Asian gas to Ukraine according to its choice. This distance may be 586 kilometers in one case, and 815 kilometers in other case, or 833 kilometers in third. In the technical agreement between Naftogaz and Gazprom from 2008, this kilometrage is estimated as 814 kilometers. And the full gas transit distance from the Turkmen border to Ukraine is 2059 kilometers. However, it is clear that the Russians use gas substitution schemes when supplying Central Asian gas to Ukraine since it is very expensive and useless to transfer Asian gas through the entire territory of the Russian Federation.

The third question to the first point of the Agreement is why does it state only 49.8 billion cubic meters of gas for Ukraine? If we sum up the promised amounts of Asian gas and gas consumed in January-February, 2008, we receive 55 billion cubic meters.

The answer to this question is the fifth point of the Agreement: “In a three-day term from the date of signing the present Agreement, Gazprom and Naftogaz undertake to sign a technical act of acceptance-conveyance of gas supplied in January-February 2008 considering that RosUkrEnergo AG and UkrGazEnergo will sign their acts of acceptance-conveyance of gas supplied in January-February 2008 in the amount of 5.2 billion cubic meters.”

If this Agreement takes affect, Naftogaz will be able “to win back” the main share of the domestic gas market. You remember that during the last two years Naftogaz accounted just for that sector of the gas market where it was very hard even to collect payments (not to mention receiving profit) – population and municipal utility enterprises.

Concerning Gazprom’s subsidiary UkrGasEnergo, we should remember that the National Committee on power industry regulation limited its share in the domestic gas market to 5 billion cubic meters per year. And the Cabinet of Ministers suggested abolishing this joint venture, which was accountable for practically all gas supplies to Ukrainian industrial consumers by the end of 2007. However, the court has postponed its decision on UkrGazEnergo’s future until autumn.

According to the Agreement from March 12th, UkrGazEnergo's quote in the Ukrainian domestic gas market will be not less than 7.5 billion cubic meters "for selling it to Ukrainian industrial consumers with USD 0.01 margin per 1000 cubic meters" (the second point of the Agreement). 7.5 billion cubic meters of gas is 10% of the domestic gas market when during the last two years UkrGazEnergo supplied all gas to Ukrainian industry.

In this sense, the Agreement from March 12th is an indisputable achievement of the Ukrainian side. From now on, Naftogaz will control the entire gas supplies to Ukraine. However, the phrase “not less than 7.5 billion cubic meters” might mean 10, 20 or 35 billion cubic meters of imported gas.

The question is: what will this Gazprom's subsidiary be? Will it be the same UkrGazEnergo or will it be re-named and re-registered?

Y. Tymoshenko announced that henceforth, Naftogaz will buy the whole amount of imported gas and then sell 7.5 billion cubic meters to Gazprom’s subsidiary. “The situation has not just changed; it has become completely different now,” she said.

Meanwhile, the head of Naftogaz, Oleh Dubina, said that the gas agreement signed on March 12th “contains an unprecedented point – it will take effect after the Cabinet of Ministers approves it and informs Gazprom about that.”

Y. Tymoshenko added: “We will discuss this question at the government’s meeting on Wednesday and will send a letter, in which we accept the stated in the Agreement positions, to Gazprom.”

“We have finished with the crisis situation received from the previous government and with tremendous corruption-ridden models. We are starting an absolutely new record of gas supplies to Ukraine,” said Y. Tymoshenko.

Hope that this will be true. Hope that Naftogaz will be able to work normally and that the oil and gas sector will become less politicized.

Alla YEREMENKO

“Zerkalo Nedeli”, Ukraine’s International Social Political Weekly, 15 - 21 March, 2008




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