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Russian Gas for Ukraine
April 3, 2006 13:07

Relations between Russia and Ukraine have been sour for the past decade, both on the political and personal levels. The former Soviet Republic has long sought independency by promoting its own statehood, views and the Ukrainian language, slightly different from Russian but of the same Slavonic group.

The lapse of the conflict was caused by Russia’s intention to get more funds into the budget from the gas and oil supplies – at least when the iron is hot. It is yet another lever that has Russia has discovered and now enjoys over some of its neighbours. It may be a kind of revenge for the pro-Western policy and intention to join NATO.

Russia’s gas giant Gazprom is the biggest gas company in the world, playing a crucial role for the national economy. That is why it is heavily related to the government. It may use power as a tool for itself and may be a tool in the hands of the powers that be.

Anyway, Gazprom is in the limelight now searching moral support from the European Union in the pipeline clashes with Ukraine – EU gets gas via Ukraine’s territory. Russia wants to sharply increase gas prices for Ukraine from some $50 to $220-230. As a close economic, cultural and political partner, the country has until now been allowed to pay less than European communities, like other neighbours - Belarus, Armenia. The latter, unlike Ukraine or Georgia, have not experienced any economic blackmail, as some Ukrainian political experts dub it.

The Gazprom board says Ukraine has rejected a compromise solution of $160 per 1,000 cubic meters, so it will have to face a rate standard for European countries. Furthermore, the board insists it is fair since the country plans to join the European Union.

The Russian president said Ukraine is rich enough to afford such prices, and Ukraine’s president agreed but has asked for gradual increase extended over a couple of years. This was considered unacceptable by the Gazprom managers who have given its partner almost an ultimatum.

If the agreement is not reached by the New Year, the company will stop supplies of gas to Ukraine, but continue to deliver it to Europe, said Aleksey Miller in an interview to Russia Today news channel. Should the state resort to stealing, it will cut supplies short for Europe as well and shift all of the responsibility on Ukraine. With the burning demand and dependency of European consumers on gas, it may have unforeseen political implications.

Ukraine has tried to counterattack by promising to up the rent for the Russian fleet based in Crimea, on Ukraine’s territory. But the rent contract was approved by the presidents long ago and is not to be modified. Then Ukraine said it will boost transit prices for the European gas. Moscow reacted by similar threats. An alternative gas supply coming from Turkmenistan is also a transit one going through Turkmenistan, Uzbekistan and Russia. So Russia will feel justified to follow suit and increase the transit rate, too, thinks Aleksander Medvedev, deputy head of the board.

"At the moment, there is an initiative to revise the contract. We are waiting for Gazprom to produce an official proposal on changing the contract in force at the moment. Once an official proposal is forthcoming, we are prepared to examine it and to give a very quick response. That also applies to the government level," this was the official response from Ukraine's PM after meeting Mikhail Fradkov on Monday.

Meanwhile, Anatoly Kinakh, secretary of Ukraine’s National Security and Defence Council, said the price of as much as $95 per 1,000 cubic meters will ruin the national chemical industry. If the price is $103, the same is in store for the mining and metalworking industry. These are vital factors to be considered by Russia, believes Mr Kinakh, because together, the two industries account for 30% of Ukraine’s GDP, and 45% of all foreign currency acquired as a result of exports sales.

Russia has made yet another harsh proposal. If the partner does not have enough money, the gas infrastructure – 50% of the gas transportation system at the market value – will do for Gazprom.

It is not the first war of the gas giant. The decision to abort the pipeline construction via Poland and go for the Baltic project has stirred a wave of angry comments from the Polish counterparts and the Baltic States. There are concerns that the project under the bed of sea will be damaging environmentally, but analysts presume it is the anger that drives the countries’ response. The Baltic States will miss the share of the cake. Now Russia does not have to depend on its neighbours who have treated it with acrimony since the collapse of the Soviet Union.

SOURCE: Reuters


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