JOHN MARONE, KYIV
DON'T TOUCH THAT GAS
Once again, Russia has resorted to threats and bullying in an ongoing effort to keep Ukraine subservient. And once again, its weapon of choice is gas. Most colonial divorces have been characterized by the colony cutting off the colonizer from its supply of natural resources. But with Russia, the situation is exactly the opposite - at least that's the way it seems on the surface.
On Thursday, February 7, Russian gas giant Gazprom announced that it would give Ukraine a full four days notice to pay past gas debts or risk shut-off. Gazprom spokesman Sergey Kuprianov told journalists that Ukraine's gas debt is $500 million from the beginning of this year alone, and totals $1.5 billion overall.
Of all the countries Russia had "assisted" with gas shortages, "only Ukraine has demonstrated a paradoxical situation in which it receives from us gas supplements but for which it doesn't pay," he emphasized.
The 'paradox' in the Russian-Ukrainian gas trade business is that there isn't much trading going on, as Russia, with the help of corrupt Ukrainian officials, is holding all the cards. Ukraine doesn't need Russian gas, but it does need the Central Asian kind that Gazprom was quick to buy up in order to corner the Ukrainian market. And the debt that Gazprom loves to rave about is largely owed to itself, as Gazprom largely controls the intermediaries who aren't paying up.
But you wouldn't guess all this by listening to Mr. Kuprianov: "Since the beginning of 2008, Ukraine has received through the company RosUkrEnergo not only Central Asian gas but Russian gas, and Ukraine cannot adequately explain who is using this gas, who will pay for it and when," he said.
Whether Ukraine is using Russian or Central Asian gas is only known to Russia, which pumps both through its pipelines. Suffice it to say that Ukraine used to get along just fine on Central Asian imports combined with its own production until Gazprom stepped up its intermediary role. As to the confusion over payments, Mr. Kuprianov should inquire with RosUkrEnergo, the monopoly middleman for gas sales between the two countries whose board seats are held by three top executives of Gazprom.
In fact, RosUkrEnergo is half owned by Gazprom, with the other half belonging to two shady Ukrainian businessmen with no state affiliation, whom many suspect are just proxies of the Kremlin. In any case, the Ukrainian state has no stake in RosUkrenergo, which makes hundreds of millions of dollars a year selling someone else's gas that it doesn't even transport.
That's why no one should be surprised by the long running campaign of recently reinstated Ukrainian Prime Minister Yulia Tymoshenko to oust intermediary companies like RosUkrEnergo.
Tymoshenko told journalists the same day of Kuprianov's press conference that Gazprom's latest charge just goes to prove that her campaign is justified.
"The announcement by Russia demonstrates that we were absolutely right and that intermediaries such as RosUkrEnergo aren't needed because they derail payments to Russia and gas shipments to Ukraine," she said.
As usual, the fiery anti-corruption crusader didn't mince her words.
"I am not ruling out that RosUkrEnergo diverted all the money into the shadow sector and didn't pay Russia."
Tymoshenko said she would resolve the debt issue with Gazprom in talks, while guaranteeing her countrymen and Europeans, who depend on Ukraine as a gas transit country, that supplies wouldn’t be disrupted.
Back in late December 2005, Gazprom disrupted supplies to both Europe and Ukraine during negotiations of a price rise. The result of these negotiations was a doubling of the gas price and introduction of RosUkrEnergo as the monopoly gas intermediary.
A few months later, yet another intermediary appeared, UkrGazEnergo, which is half owned by RosUkrEnergo and half by Ukrainian state oil and gas company Naftogaz Ukrayiny. Since then, the once highly profitably Naftogaz has been pushed to the verge of bankruptcy due to another shady governmental deal that allows UkrGazEnergo to service paying customers, while Naftogaz chases the dead beat public sector.
And if that’s not bad enough, RosUkrEnergo has been plagued by media reports and an investigation by the US Justice Department into its alleged connection to organized crime.
Long before Thursday’s announcement by Gazprom, Ms. Tymoshenko had pledged to clean up Ukraine’s murky gas sector.
Her first attempt was in 2001 while serving as deputy prime minister. It earned her a short stint in jail under President Leonid Kuchma.
Since returning to power as prime minister late last year, Tymoshenko has renewed her campaign. Oleg Dubyna, Tymoshenko’s new head of the financially crippled Naftgaz Ukrayiny, announced that the state company would buy its gas directly from Central Asia. Simultaneously, state regulators have begun challenging RosUkrEnergo’s state contracts.
To gain leverage against Moscow, Tymoshenko said she would renegotiate Russia’s use of Ukraine’s pipelines: Since the only thing Ukraine theoretically needs from Russia is its pipelines to transit Central Asian gas, just as Russia only needs Ukraine’s pipelines to transit its gas to Europe.
Under previous agreements, Ukraine was locked into gas transit fees below the market value, while Russia has been free to almost quadruple its gas price for Ukraine in two years.
It is in this new climate of self assertion by Ukraine under Tymoshenko that the Russian bear has again got its back up.
The Kremlin clearly sees Tymoshenko as an enemy of its interests.
When she was elected prime minister the first time, in 2005, the Kremlin manipulated a rise in oil prices to help get her sacked less than a year later.
Then, when the news had broke of her victory in the September 30 snap elections, Gazprom came up with the same threat that it continues to use today: the sudden announcement of an enormous back debt.
The showdown last fall passed after rushed negotiations, but, as usual, the terms of what had been agreed remained hidden from the public.
And the tradition of secrecy continues, with officials at UkrGazEnergo unable to identify just how much the financially embattled Naftogaz Ukrayiny supposedly owes them.
“The sum of the debt cannot be confirmed in writing due to the absence of a legal basis,” UkrGazEnergo board member Andriy Galushchak said on Thursday.
In addition to blaming state-owned Naftogaz, once the country’s largest taxpayer, now struggling to keep from defaulting on its bonds, Galushchak blamed Tymoshenko, who he said worsened the present situation by putting pressure on his company to leave the market.
Tymoshenko is no saint, having earned a fortune herself on Ukraine’s shady gas market in the 1990s. She is also a cunning populist who scares markets with her hands-on approach.
But she is the only Ukrainian politician who has rolled up her sleeves to tackle the corruption that threatens Ukraine’s and indeed Europe’s energy security. She has stuck out her neck and her hands to root out the kickbacks, while those who have the most to gain from the shadows are protesting the loudest.
John Marone, a columnist of Eurasian Home website, Kyiv, Ukraine
February 8, 2008
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