Gas Pipeline and effects to Ukraine

[kievstar]

Mrs Shadow some nice points, but you should add that Russia insisted on there middleman being involved as well and Ukraine wants them out of the picture.  Also, Putin was quoted and shown on television here in Brussels saying turn off the gas.  I am sure you know Brussels is the EU headquarters.  Both sides are at fault.  Maybe Ukraine more but both are not angels. 

Also, Russia wanted Ukraine to come to Moscow and Ukraine wanted Russia to come to Kiev near New Years to settle.  Both were stubborn.  In business you always want to negotiate on your own turf as it show strength.  Russia never wants to go to Kiev is this equal business partners? 

USA could care less about gas problems in Europe.  Why is it when there is a problem or something negative USA is part of fault?  The financial crisis is worse here in EU than USA right now - trust me I live both places.  If USA wanted to help Ukraine they would.  Where you live is not impacted as much as you live in a very small country in EU and have the Rotterdam port.  I am actually in Netherlands right now at work. 

Regarding the gas going through Ukraine there is no reconciliation on what goes into Ukraine and what leaves.  Gas has been stolen for 10 plus years.  Same goes for the steal plants in Russia and Ukraine.  They do not reconcile what leaves the plant and what gets to the shipping company.  Very big business for the big consulting companies like D&T, E&Y etc have thousands of people working on projects to help Russian and Ukraine companies not let there goods get stolen.  Was not a problem when prices / profits were high.  But in tougher times Russian / Ukraine companies for first time in their history are understanding cost cutting and lean manufacturing.  As well as protection of assets.

You can laugh all you want but in the end Ukraine and Russia will both profit.  But I respect your views as like many things in life there is more than one right view point.  Your from Russia and always going to stand up for your country.  I respect that.  To bad most Americans have no respect for their country. 

[mrs.Shadow]

Also, Putin was quoted and shown on television here in Brussels saying turn off the gas.  I am sure you know Brussels is the EU headquarters.  Both sides are at fault.  Maybe Ukraine more but both are not angels.

I do not see a fault of Russian side. Russia started the dialog at October, arrived to Kiev, mr.Putin himself. So to tell that one of the reasons - Russians do not want to go to Kiev - incorrect.
As about his quote to shut down the gas - correct. But the quote is not full. Before telling it, Putin got a report that Ukraine stopped transit and all gas stops at Ukraine. On this report from other countries stations about 0 gas, Putin said: now its 15.45, and Russia still sends gas through Ukraine? In this situation I do not see a fault from Putin about his decision as well. Why do you think that Russians should send their resources for free?

Besides it I pointed, that Russian side did their best to find out mr.President of Ukraine or at least Prime Minister. And what they got as answer? Ushenko is on holidays, Timoshenko is ill (therefore she was not ill at all when met the Czech leader).

I am sorry to say but such behavior is childish. I am not talking even about damages to Ukraine reputation.

Ukraine had a good contract, Russia was helping with it a lot. Double less price then European countries, long time contract, support. What else wants Ukraine?

Putin said also straight: Ukraine wants to show they are Europe - no problem. Russia is not against to pay European standard transit prices, but Ukraine has to pay European standard price on gas. That is fair IMHO. Only from such point Ukraine will lose more then Russia.

Why Ukraine chose to gain "popularity" on making problems with Russia - question not to me. But I did not like what I saw in countries which have problems with Russian gas.

And trust me it is not because it is Ukraine and I am Russian. If it was other country I would react negatively as well. 

I did not say USA is a part of fault in this situation. I said that Ushenko was counting on USA support (money). And not only USA but Europe as well. Lets see, because seems like Europe will have to pay for Ukraine to Russia.

[OlgaH]

One day I think one way and the next the other.  Like a soap opera. 

 for long time as "Santa Barbara" 

January 10, 2006

Ukraine vs Gazprom: the price of the problem

So, Gazprom and Naftogaz have reached an agreement. The match is over, there is no more conflict, but the fans are at loss who has won. It is actually hard to guess who won. There was a good deal lot of information during the conflict, much too many details – partly technical (intelligible for experts only), partly unreliable. Many statements were made not just to inform but to pressure the partner or even to misinform him, and so on, and so forth. But we still can see what there is in the body — we will if we compare the position of the sides before and after the conflict.

The deal

Before the agreement. In 2004 the sides agreed on the supplies of Russian gas to Ukraine and on the terms of its transit. According to the agreement, Ukraine got Russian gas for $50 per 1,000 c m. Russia paid the transit services at $1.09 per 1,000 c m/100 km. The payment was made in gas strictly within the same $50). In fact, the agreement meant one thing: Ukraine got 1/6 of the Russian gas for allowing its transit to Europe via its pipelines. No matter, how much is gas in Europe — the share did not change at any price over $50 — Ukraine got its 1/6.

What Ukraine has got as compared with what it had before. Now Ukraine gets gas at an average of $95 during the first half year, including the Russian gas for 230 conventional units, and has raised the transit cost from $1.09 to $1.6. But (most importantly!) it will now pay in “live” money rather than gas barter.

Naftogaz CEO Alexei Ivchenko said after the signing that the higher transit fee is the victory of the Ukrainian side. Let's calculate. Clearly enough, no longer in gas barter, the fee has substantially dropped — before the agreement the actual tax was $4.22. The point is that the transit was paid in gas that, actually costing $230, was rated by Ukraine at virtual “contractual” price of $50. If before Gazprom lost 1 c m in each 1,000 c m pumped via each 4.59 km of the Ukrainian pipeline, now it loses 1 c m per 14.38 km — i.e. upon new terms and at new tariffs the transit for Gazprom (with the present basic $230) has got 3.13 times cheaper, and, much to Gazprom's pleasure, this over threefold decrease has been fixed in the new five-year contract.

For Ukraine — with the estimated basic price for the first half of 2006 being $95 — the drop in its gas equivalent transit earnings is less impressive — only 1.3 times. But you must admit that 30% cut from the service price of a monopolist (and Naftogaz is a monopolist) can be called a success for such a monopolist “only after a good New Year booze,” as Yulia Timoshenko phrased it. And this is only for as long as the agreed-on Rosukenergo price is in force (if the price goes up the cut will increase, if goes down — which is hardly possible — it will decrease). What does the Jan 4 2006 deal mean for the Ukrainian economy? Reuters experts say that “based on a rough calculation, the gas deal could cost Ukraine an extra $2.9 bln this year.”

They considered only the direct rise in the gas price, with no consideration given to the above-mentioned transit losses. And there will be indirect losses — Ukraine's key exporters, the power-consuming chemistry and mining will lose their competitive advantages and will inevitably see their outputs curbed and earnings and tax revenues trimmed. This will make Ukraine's negative foreign trade balance larger by as much as the difference in the gas price ($2.9 bln) and the cut in the competitively disadvantaged exports.

Besides, one should keep in mind that the regularly declared $40 (or $50) price for the Turkmen gas has always been conventional and never real. For quite a long while Ukraine paid for part of it in barter — this including some normally inapplicable trash. (see, e.g.: “Last year (2004) Ukrainian Naftogaz sent 5,500 fir to Turkmenistan as payment for gas. The trees were supplied under a deal with Turkmenneftegaz saying that in 2004 Naftogaz shall buy Turkmen gas for $44 /1,000 c m and shall pay 50% in foreign exchange and 50% in material values. In the last decade all the gas export deals with Ukraine have been made exclusively by Turkmenneftegaz.

Along with firs that Asian country has got diesel locomotives, pipes, metal, machines, light industry items, with the most noteworthy supply being a lot of galoshes in exchange for gas.”) This galosh-fir tree barter has pegged the real Turkmen gas price down to at least $30-$35. This clover is over for Ukraine and now the “independent” Ukrainian economy will have to pay double even for the Turkmen gas, a gas whose price is (yet) cheaper than in Europe. Yulia Timoshenko (the former prime minister, by the way) says that the deal with Gazprom will lose the Ukrainian economy $4.545 bln in 2006 — i.e. precisely $100 per each Ukrainian — from babies to pensioners.

All this, is certainly “a big victory of the President and the Government of Ukraine,” a victory we might well congratulate them on. But they will hardly be glad at being congratulated on this.

Now Gazprom. An over threefold reduction in the transit expenses. If formerly Gazprom spent as much as 17 bln — 18 bln c m to pay for the transit, now 6 bln c m will be enough. This means extra 12 bln c m, which, if sold to Europe at min $230, will gain the company $2.760 bln. This gain (comparative with the former terms) will grow if the gas price goes up. Even more, the new agreement clearly says that 1,000 c m of Russian gas cost $230, which means that should Ukraine decide to increase its supplies, it will have to pay the price it has agreed on.

Ukrainian Foreign Minister Boris Tarasyuk says that Russia “has failed in its attempts to speak to Ukraine in the language of ultimatums.” May any country have such failures five times a day!!! But the main thing is that the transit fee paid in cash rather than in gas will now be legally and financially separate from the gas price for Ukraine. Now Ukraine will no longer be able to use the transit gas as pressure on Russia while negotiating gas tariffs. The former agreement gave it free hand to blackmail Russia. On top of all, Gazprom will gain from the resale of the Turkmen gas, sold at $95 (the price of the first half of 2006).

This suggests a question about the cost of the Turkmen gas transit. But experts say that there is no cost as there is no transit. No gas has ever been sent directly from Turkmenistan to Ukraine. Gazprom has always supplied Turkmen (and any Central Asian) gas to consumers in Lower Volga, Northern Caucasus, Southern Ural and Southern Siberia or exported it to the South Caucasus. Ukraine has got another gas — from long distance pipeline.

So, the transit of Turkmen gas to Ukraine means something conditional here. Having many gas sources (geographically different), Gazprom has always sought to optimize its gas flows to reduce the final cost of the transfer. And so, the company takes no direct expenses on the “transit” of Turkmen gas to Ukraine. Even more, its presence in the pipeline cuts the transfer costs for home consumers. Gazprom's transit fee has nothing to do with how much it actually spends to transfer the gas to the western territory (it has always been “in analogy” with the fees of other transit countries in Europe – these including Ukraine itself). It was rather the “bonus” of Gazprom (who needs the Turkmen gas as a technology to cheapen home transportation — see above). In fact, the averaged $95 price for Jan-June 2006 (quite sparing one, by the way) reflects the low cost of the Central Asian gas and the lack of direct expenses to transport it.

Now about the talks

Ukraine stuck to the contract. The key point is the contractual law, i.e. the actuality of the contract. “There is a contract of 2004. It contains a price of $50 and a transit — a barter based on the $50 price. The contract must be respected. Of course, the costs and terms are negotiable each year, but they should be in force until new costs and terms are agreed on.” Any reduction Russia could make in its gas supplies for Ukraine would be easily compensated for by the “European” gas, with Ukraine making innocent eyes to Europe's anger: “We take the gas we have the right to under the contract. Why the Europeans have got less — ask Russia, the supplier. We are a country with market economy and European orientation and, unlike Asian rulers, we know that contracts must be respected.”

A position of iron and concrete. That is, legally it can be disputed only at court. And even if Russia won the case, the dispute would take as long as 1-1.5 years. But Russia would hardly win — there is a contract. Even if the court unchained Russia from this contract, it would most probably oblige the sides to meet its terms before abrogation. Had Ukraine stuck to this position till the end, it would have won. But it stepped aside by offering suddenly in the spring 2005 to change the contract of 2004, so it could “transit to 'market' relations.” That is exactly where Gazprom got it by the tongue.

Gazprom caught up the serve and took up a rigid “market” stand. "The fair price is the European price. The Europeans pay $230, why should Ukraine pay less than Germany, Italy or others do? There is a “European formula,” and as a sovereign European state Ukraine should pay according to it, especially as it was Ukraine who proposed to transit to the market relations. You need to do it gradually? Well, we are giving you a $3.6 bln loan. If you fail to pay in “market” way, we will stop supplying gas to Ukraine and you will have to steal it from Europe. The stand is fair. The market participants are “pro.” The same is for the rivals (from Europe also and not from mining or chemistry only).

But Ukraine moved aside and its arguments began to collapse. Ukraine's unbending position was bent by Yushchenko, who declared invalid the former contract (just what Gazprom wanted) and began awkwardly formulating what he thought to be the “fair” price. Ukraine got “all adrift” in Dec 2005, when the Naftogaz executives began arguing about the price formula before TV cameras in Putin's office. It looked funny: “We don't understand.” “You don't understand? Well, I will explain now — we take mazut, spread it on coal, multiply by 0.5… and get the total — you have to pay $230.”

Instead of saying that “market is not only ‘market prices’ but also compliance with contracts signed voluntarily, and that the compliance with contract prices is an obligatory condition for market to work,” Ukraine began talking about “political pressure.” By mentioning the Black Sea fleet, tracker stations and so on Ukraine was obviously trying to provoke a dispute on territorial claims. They wanted to say “just look, they want not the gas price, they want to choke us, to take our land away, to take our sovereignty!” Even the absolutely neutral comment by Russian Defense Minister Sergey Ivanov that the terms of the Black Sea fleet deployment in the Crimea cannot be revised was presented by Ukraine as a territorial claim.

“We are waiting for the Russian leadership to officially react to Ivanov's words!” They waited in vain. Putin beautifully parried Yushchenko's serve (he won the whole set). “I welcome the statement of President Yushchenko that a commercial dispute must not be politicized.” “Russia is pressuring us. It is taking vengeance for our revolution!” And in response — “one must not politicize a commercial dispute.” As they say: “Let the flies be separate from the cutlets.” Not now. Then later. Now the gas price. Then the Crimea. Russia aptly evaded political issues in the gas dispute. Silent were even radicals. The core of this success was consolidated position. Putin, Foreign Ministry, Gazprom, Duma — all said one and the same thing: “market relations,” “market,” “European prices.”

Compare with Ukraine: there is all at six and sevens there. One insists on the “legal” position: “there is a contract, Russia, fulfill it!”, the second on the “fair market” one: "the fair price is $80, the third says: “they are taking vengeance for our revolution.” Speaker of Supreme Rada Vladimir Litvin has tripped Yushchenko up at all by saying: “We started the contract's revision ourselves, what are we surprised at now?” Russia was lucky that every official in Ukraine is also a politician (the elections are close — and bad is the clerk who does not dream of being a hetman). The rivalry among politicians in Ukraine is inevitably growing into a fight among officials. As a result, on the eve of the gas cut off the news was not that Gazprom had refused to fulfill the terms of the contract, but that “Ukraine had rejected Gazprom's terms.”

When Gazprom cut its supplies, Ukraine, instead of saying that it gets the Russian gas honestly in accordance with the deal 2004, acted like some petty swindler (though “petty” is hardly the word here), blabbing something about not taking gas from Russia and doing well with one from Turkmenistan. Gazprom had nothing left to do but to expose Ukraine's theft by adducing contracts saying that there can PHYSICALLY be no Turkmen gas in Ukraine as it has been all bought out by Gazprom and by sending auditors to the border to record how much gas Ukraine steals. Ukraine now intends to sue the Gazprom press secretary for his saying that “Ukraine steals gas.” They have found the guilty! This intention looks as a petty revenge for the defeat in the information war. Quite a provincial way to act….

And the defeat was obvious. Gazprom's PR-policy had one end in view — business. To be more precise, to help the company to free itself from the bondage of the transit contract. Both the mass media and the opponent were misinformed that the price was the key. The attention of the Ukrainian negotiators (and immediate observers) was finally fixed to this false (better say secondary) goal when the claimed price was risen from $160 to $230.

As a result, disoriented by Gazprom, Ukraine focused on protecting a secondary position just find itself missing the enemy’s attack in the key direction and, ultimately, losing the secondary position as well — in the new contract the Russian gas price is $230!

One cannot help gaping at the insight of the former prime minister of Ukraine Yulia Timoshenko, who opined that “a criminal decision has been made in this contract to separate the transit of the Russian gas via Ukraine from the Russian gas purchase price.” Timoshenko is right — Ukraine has lost its last trump — “the transit-gas link.” For Gazprom the breaking of this link is hardly criminal though. Concluded is an agreement that has brought Gazprom almost $3 bln in 2006 due to lower transit fee alone (see above) and has lost Ukraine from $2.9 bln (Reuters) to $4.5 bln (Timoshenko).

The West has limply ground its teeth. Quite usual for all. They are constantly grinding. Russia is bad when it sells gas at $50 — “the Putin clique tries to buy love.” Russia is bad when it sells gas at $230 — “the Putin clique takes vengeance.” Russia is bad when it offers a $3.6 bln loan — “the Putin clique wants to make young democracy dependent.” The stance of the West was expected, predictable and therefore not interesting. But for the US, who tried to play some own game and even officially supported Ukraine just to see it quickly surrendering to Gazprom's pressure. The American maneuver has had no development, though the US seems to be trying to save its face and to continue the intrigue by pushing Moldova, Romania and Bulgaria into actions “against Gazprom's monopoly.” It will hardly succeed – for Europe is glad that the conflict is over and wants no more crisis, especially for sake of some ephemeral goals of fighting the sway of the Russian gas. Skeptics warn: “Oh! They will now diversify their gas supplies! Oh! The civilized countries have seen that Russia is an unreliable supplier! They will buy gas in other places and have already decided to build a gas pipeline.”

These fears look far-fetched. By 2020 Europe will consume at least 50% more gas than now. The Europeans need heat, they need hot bath and shower, steaming coffee and tea. As a matter of nature, they will hardly do without the Russian gas in the near future, but, as a matter of fact, the Russian gas alone will be hardly enough for them. They will buy however much gas there is — just pump it! — from whoever, be it Turkmenbashi, Ayatollah, even the Pope, if they find gas in Vatican. For already five years Europe has been considering plans to access new gas resources and to diversify supply sources and transit routes, with the co-sponsor of some of these projects “to get protected from the Russian monopoly” being the selfsame Gazprom.

Noteworthy, Gazprom's ADR price went up 4.6% at London Stock Exchange right after the deal with Ukraine. The company's capitalization has gown by $7 bln. By the end of the week, the growth made up 10%. It would be interesting to know how much cheaper Naftogaz 's shares would get after the deal should they have any quotation at stock exchange at all.

[OlgaH]

31 March 2006

Ukraine and Turkmenistan settled gas dispute

Ukraine's national oil and gas company Naftogaz said Friday it had ironed out all its problems concerning natural gas supply obligations with Turkmenistan, RIA Novosty reported.

According to Naftogaz, after three days of talks in the Turkmen capital, Ashgabat, the two sides signed an agreement on bilateral settlements on natural gas shipment to Ukraine in 2003-05.

Under the agreement, the $88.34 million pre-payment that Ukraine made for 2006 gas deliveries will be counted toward its 2003-05 gas debt to Turkmenistan, thereby clearing the hard currency part of the Ukrainian company's debt and recognizing a $68 million commodities debt that it pledged to discharge before August 10, 2006.

The agreement also said that in the second half of 2006, Ashgabat will supply natural gas "at prices acceptable to Ukraine."

Under an intergovernmental agreement last year, the Central Asian republic was to deliver 40 billion cu m of gas to Ukraine at $50 per 1000 cu m in the first half of 2006 and at $60 per 1000 cu m in the second half.

Turkmenistan said earlier that Ukraine's debt stood at $158.9 million, and President Saparmurat Niyazov urged Ukraine to pay up.

Ukrainian Fuel and Energy Minister Ivan Plachkov previously said Ukraine had no gas debt to Turkmenistan, and the country's prime minister accused Turkmenistan of delaying bilateral settlements on natural gas supplies.

Plachkov said there was a difference between obligations and debt, and that Ukraine paid $88 million as prepayment in January to Turkmenistan for natural gas as part of its obligations.

Turkmenistan threatened to cut off supplies unless the Ukrainian side cleared the outstanding debt.

Turkmenistan became Ukraine's principal supplier of natural gas after Kiev signed an agreement with Ashgabat to increase Turkmen gas supplies, buying less from Russia.


30 June 2006

Turkmenistan made a “gas proposal” to Ukraine

Turkmenistan offered Ukraine to buy gas at $100 for 1000 cu m and to solve the transit question with Russia, press office of Turkmenistan Foreign Ministry reported.

During the negotiations between the Ukrainian delegation and Turkmenistan Ministry on oil and gas industry the Ukrainian party admitted the debt in the amount of 64 mln USD and assured Turkmenistan of the repayment in September.

The sides also discussed the supply of Turkmenistan gas to Ukraine. They agreed that the contract of December 2005 on supplies of natural gas from Turkmenistan to Ukraine in 2006 had lost validity and become obsolete. The Turkmenistan party proposed to make a new contract on supplies of Turkmenistan gas to Ukraine in the forth quarter of 2006 at the price of $100 for 1000 cu m.

The Ukrainian side was also offered to obtain a license for gas transit through the territory of Russia. Turkmenistan noted that it is ready to consider the issue of gas supplies to Ukraine in 2007, if the Ukrainian party obtains the transit license and makes corresponding agreement on supplies’ quota.

The Ukrainian delegation agreed with Turkmenistan’s arguments and left for Kyiv to have consultation with the government on gas price and other terms of supplies.

The negotiations will be continued later. 

SEPTEMBER 5, 2006

Gazprom, the Russian state gas monopoly, said  it had agreed to a 54 percent increase in the price it paid for Turkmen gas. The Russian group will pay $100 per 1,000 cubic meters of gas from Turkmenistan.

As part of a settlement between Moscow and Kiev, Ukraine agreed to pay $95 per 1,000 cubic meters of gas from a Gazprom intermediary company that combined Russian gas costing $230 per 1,000 cubic meters with far cheaper gas from Turkmenistan.

[Shadow]

Now if you have read the news reports you may think that there is a signed contract and at least the transit problem is solved.

WRONG.

Latest news in Russia is that in the document Ukraine signed there is reference to an addition that was not present when the agreement was signed by Russia and the EU.  Russia has requested to see the addition as they have not signed it as part of the agreement.
Also they are critical of the Czech PM not mentioning any addition after the signing in Uraine.

he soap opera continues.

[kievstar]

Mrs Shadow,  I said New Years where meeting would be not October. Russia refused to go to Kiev in December. Putin is a smart businessman.  But Russia would go to Brussels knowing it was the right thing to do and it was Ukraine who sent people back o Russia to talk in Russia after Brussels meeting. place of negotiations is very important.  People do not like being away from home and make snap decisions than.  When you do business deals with Asians bring your golf clubs or fishing poles as they like you to be away from home for months knowing you will agree to there demands as you want to go home to see the family. 

Ukraine can do what they want on gas it is there transit pipes.  Long term solution is for countries with the actually gas to ship it directly to the customers.  Take out Ukraine and Russia from the process. Plus the middleman these countries like to have.

Ukraine has two months of gas supply than can buy another 3 months not from Russia.  I think the soap opera could be up to 5 months more. I hope the Ukraine dollar goes to 15 to 1 as I have a wedding to pay for in Kharkov in March.  Russia's strength on this is be patient as Ukraine will have to fold.  Unless Ukraine wants the East part of Ukraine to suffer for being more Russian and make sure western Ukraine is toasty warm. 

[Diplomacy]

See there is a focus on gas price and we need to look at transit price also.  The Russians have every right to charge EU rates to Ukraine.  Ukraine then has every right to double transit cost. 

Russia and Ukraine are at this point needing each other.  They know it, just pride and politics getting in the way of sound business IMO.

I am not sure still about any of this other than the results suck.  Not good for Ukraine's EU bid.  Not good for Russia's balance sheet or reputation as supplier.  Crabs in the pot again IMO.

[kievstar]

Analysis: EU Now Has Chance To Curb Gas Corruption

MOSCOW, Russia -- The European Union was dragged unwillingly into the Russia-Ukraine gas war, but analysts say the EU's role as mediator now gives it the chance to seek reforms of Russia's multibillion-dollar gas trade.

 
Firewood sellers warm themself next to a fire on January 10 in the center of Zagreb, Croatia.

Critics have charged that shadowy intermediaries earn fortunes from Russia's estimated $75 billion in annual gas sales to Ukraine and Europe, and recently top Russian and Ukrainian officials have joined in calling for reform.

"We have to work together in Europe to try to force Russia and Ukraine to adopt a level of transparency," said Tom Mayne of Global Witness, a London-based rights group that focuses on resource issues, on Sunday.

Anders Aslund, senior fellow at the Peterson Institute of International Economics in Washington, said in an email that the EU should call for the elimination of all middlemen from the gas trade "as they are just means of stealing from (Russian state gas company) Gazprom and the Ukrainian state, and the corrupt revenues are poisoning Ukraine's politics."

The EU has negotiated a deal to monitor Russian gas flow via Ukraine pipelines in a bid to end the cutoff that has left large parts of Europe without heat in freezing temperatures. Russia said it would only resume supplies if EU monitors track the flow and make sure Ukraine doesn't siphon off gas intended for Europe.

Both Russia and Ukraine have strong interests in developing ties with the EU, and they both aggressively sought its support in the crisis. Russia needs support from Europe for prospective pipelines bypassing Ukraine, while Ukraine has been seeking membership in the EU and NATO as part of its efforts to shed Moscow's influence.

Russian Prime Minister Vladimir Putin claimed the current dispute reflected a "high degree of official corruption" in Ukraine. He did not mention Russia.

Putin told reporters that Ukrainian authorities were fighting "not for the price of gas but for a possibility to maintain one or other intermediaries so that they can use the proceeds for their personal gain and also get resources for future political campaigns."

But Aslund and others say that powerful figures in both Ukraine and Russia profit behind the scenes from the gas business.

At a Dec. 30 conference in Washington, Aslund said the Russia-Ukraine gas dispute was "a conflict between very shady businessmen" rather than a dispute between sovereign nations.

"And the amazing thing here is that the EU countries do nothing to secure their energy supplies," he said. "Here they allow themselves to be vulnerable because of some shady organized crime deals."

The main intermediary in Russia's gas trade is RosUkrEnergo, a Swiss-based trading company. According to corporate Web sites, it is half-owned by Russia's Gazprom and half by CentraGas Holding AG, a Vienna-based company controlled by two Ukrainian businessmen.

Critics question the need for Gazprom, a mammoth corporation, to sell fuel through RosUkrEnergo.

"We simply can't understand why the company exists," said Mayne of Global Witness. "There just isn't a good reason for it."

Efforts to reach the company Sunday were unsuccessful.

On its Web site, RosUkrEnergo said it serves Russia and Ukraine "as a coordinative platform for the sale of Central Asian gas in the Ukrainian marketplace" and seeks to ensure "a stable pace of growth in the amounts of Central Asian gas supplied to Ukraine and Europe."

Ukrainian Prime Minister Yulia Tymoshenko, a former gas trading tycoon, has called for eliminating RosUkrEnergo from the Russian gas trade.

Volodymyr Omelchenko, an analyst with the Razumkov Center of Sociological Studies in Kiev, said RosUkrEnergo helps finance the political organization of Tymoshenko's bitter rival, Ukrainian President Viktor Yushchenko.

Yushchenko, however, has denied rumors that he has ties to the gas business.

"My family and I are being accused of involvement in gas," he said last year. "I have more interesting things to do."

Yushchenko beat a Kremlin-backed presidential candidate in December 2004, in the wake of the 2004 Orange Revolution and despite being severely poisoned. Since then, he has led a campaign to bring Ukraine into the European Union and NATO and out of Moscow's orbit.

Russia's criticism of RosUkrEnergo in part may be aimed at weakening Yushchenko politically.

Some media reports linked RosUkrEnergo to Semyon Mogilevich, a 62-year old Ukrainian-born Russian citizen arrested by Moscow police on tax evasion charges a year ago. RosUkrEnergo officials said their company had no relationship with Mogilevich.

But shortly after his arrest, a U.S. Justice Department official confirmed that the department's Organized Crime and Racketeering Section had been investigating his suspected ties to RosUkrEnergo.

U.S. officials have accused Mogilevich of running a powerful organized crime ring in the 1990s. He has also been on the FBI's wanted list since 2003, accused of manipulating the stock of a Pennsylvania-based company that collapsed in 1998.

His lawyer, Alexander Pogonchikov, said Saturday that his client denies the tax charges and was still in jail awaiting trial.

[OlgaH]

Russia refused to go to Kiev in December. Putin is a smart businessman.

The cheese doesn't go after a stomach   More over Miller had meeting with Dubyna in Moscow in November and Putin had a meeting with Timoshenko in Moldova also in November.  

[OlgaH]

The second reason - Ushenko loses his positions and hardly will be selected as President again. The one thing he hopes - to rise national mood by fighting with the "big bear". How? The new scandal.

Exactly!

[mrs.Shadow]

Ukraine can do what they want on gas it is there transit pipes.

Incorrect.
After several years of scandals with gas the pipes with gas FOR Ukraine and the pipes with gas FOR European countries were split. Ukraine has NO any rights to stop transit to European countries, who PAID for the gas. Ukraine has NO also any rights to steal the gas which is for Europe, calling it as "for maintenance needs", as the contract stays. For maintenance Ukraine is paid separately.

Russian representatives were and are still in Kiev. But why you think Putin must fly to Kiev just because Ukraine said "we will steal gas then" I do not know. Russia in this question will NOT run after Ukraine like a dog on a leash. Besides it I repeat once again - there was nobody to fly to, as one Ukrainian leader was "skiing" and second was "ill". I am sure, americans will not be proud if their President will fly to other country just looking for "excuse me, whom can I talk about the problem with gas (any other)?"

[kievstar]

Mrs shadow, Putin said he was not going to visit at all in December in Kiev.  He made it very clear he was not going.   Look below - Russia still does not want to turn on gas even with EU.  Ukraine and Russia are like two children and both at fault. It is ok that Russia is not perfect no country is.


SUDZHA GAS METERING STATION, Russia (AP) -- Teams of EU monitors deployed Sunday at natural gas transit sites along Ukraine's vast pipeline network, but still no gas flowed to a freezing Europe.


Russia refused to restart gas supplies that have been stalled since Wednesday, saying the deal for the monitors was made void by Ukraine, which signed the document but then issued what it called a ''declaration'' to accompany it.

The European Commission insisted the declaration could not change the agreement, but Russian President Dmitry Medvedev said the document was void unless Ukraine withdrew the declaration.

[OlgaH]

 Look below - Russia still does not want to turn on gas even with EU. 

Gas treaty signed by Kiev contains a lie - Lavrov
January 11, 2009

Russia has finally received the originals of a treaty signed by Kiev that will govern the transit of Russian gas to Europe via Ukraine. However, Russian Foreign Minister Sergey Lavrov says the signed text contains falsehoods, including a clause saying Ukraine did not steal gas earmarked for Europe.

At a meeting with Russia’s President Dmitry Medvedev, Lavrov confirmed that the document signed by Ukraine had been received, but said there was also a note that some kind of declaration should be attached to it. He added that Russia had not been supplied with that declaration yet.

"In fact, we are very surprised with the text made partially of false claims that Ukraine had allegedly delivered all transit gas to Europe without taking any," Lavrov said.

The Russian President has announced that those in Ukraine who added amendments should realise that this invalidates the document. Dmitry Medvedev has told the government not to fulfil the agreement with the EU signed on Saturday because of the additions.

“We ask our European colleagues to convince Ukrainian authorities to drop the amendments which contradict the original text of the agreement,” Medvedev said.

“As soon as it is done, Russia will have no objections to the deal,” he added.

In a response to the new twist, Russia’s Prime Minister Vladimir Putin has warned Jose Manuel Barroso, the European Commission President, that any amendments and reservations to the document initially agreed by the EU and Russia are inadmissible. Putin stressed that Ukraine’s additions to the protocol change it radically. He said the changes were mainly to do with business relations between Russia’s Gazprom and Ukraine’s Naftogaz – the countries’ respective state-run gas companies.

Gazprom has also criticised Ukraine’s latest move, saying the country had again ‘taken a destructive position’ in the face of agreement between Russia and the EU.

“Any sane person having put the two documents in front of him, would notice that Ukraine’s declaration is a mere provocation and an attempt to deprive the initial document of any sense,” Gazprom’s spokesperson Sergey Kupriyanov said.

He also pointed out an apparent contradiction in Kiev’s position.

“Ukraine is demanding from Russia 21 million cubic metres of gas daily to provide gas transit. But according to the existing transit contract, for technical needs, Ukraine’s Naftogaz is to use gas from its own reserves or buy it from Gazprom or any other supplier”.

Kupriyanov added that Ukraine is insisting that the monitoring group should work for two months at most. Gazprom, he said, believes it should continue its work until the conflict is resolved and when court procedures on the issue are finished.

Despite an agreement between Russia, the EU and Ukraine over the monitoring of gas flows to Europe, supplies have not resumed as Russia didn’t receive the document signed by Ukraine until late on Sunday night.

Meanwhile, monitors have arrived at the assigned points to control the transit of Russian gas through Ukraine. Gazprom says it will resume a full gas supply to Europe only when the monitors confirm there has been no theft of gas. Gazprom’s condition is made in connection with the agreement reached by Ukraine, Russia and the EU, allowing international monitors to check the flow of gas through its territory.

[mrs.Shadow]

Of cos they refuse, until they will not get the official "addition" which Ukraine put in contract when signed.

You are making a deal with other firm, having problems with them, ask third side to help, giving them ready contract, then you knew that the contract was signed but with the addition, which you have no idea what is. Will you start business immediately? If yes - you are a bad businessman. If you would like to check first what addition is then you are all right.

I do not know why you look from one side only, but it is like blind believing. Business does not trust to blind believing, especially with partners, whose trust does not worth one dollar even (0 gas).

And why Putin should go to Ukraine to solve the problem if the problem started by Ukraine? Actually, Ukraine was not even willing to solve the problem.

Their representatives arrived to Moscow, discussed, then Russian side found out these representatives have no rights to sign any contracts. So the problem is NOT in "they do not want to meet each other". That is not a point. The discussion was all December - no results - that is the point.

But taking position "Ukraine can steal gas and Russia must come to Ukraine if they want to stop stealing" is also strange and weird. Maybe Russia must also pay to all blackmailers?

[kievstar]

If you read it says what Russia agreed with EU.  I thought it was Russia and Ukraine to agree.  Ukraine, Russia, and EU did not all agree on same thing.  "Gazprom has also criticised Ukraine's latest move, saying the country had again taken a destructive position in the face of agreement between Russia and the EU."

More soap opera.  Putin go to Kiev that is what Ukraine wants.  Than Ukraine will pay your price and tell its people we got Putin to come to us. 

Just like when Russia told EU when they would leave Georgia but delayed it knowing the EU has no control. Putin did this to show some power.  Russia has to give something to Ukraine.  Called compromise.

Still no proof Ukraine stole gas.  Could be a gas leak those pipes are very old or maybe the mafia wants its cut. 

Russia should just not send gas through Ukraine.  Stop all business and send it another way.  But than there middleman gets hurt. 

Anyone that thinks one country is innocent in this is foolish.  Ukraine and Russia are both at fault.  I also blame EU.  Does the EU solve anything.   I see why Germany does what it wants all the time. 

Ukraine and Russia still arguing about Nato, Russian navy.  In the past year people in Eastern Ukraine are really starting to hate Russia and I see Russia really hates Ukraine.  Looks like these countries are going to be natural enemies for a longtime.  Next you will see travel banned between the countries. 

[ECOCKS]

Re: Russia using an alternative for transiting the gas

Unfortunately (for Russia), there is no realistic alternative for piping the gas into the EU.  that is why Russia want to get some cooperation and probably some financing assistance from some of the EU countries.  Bad timing for everyone except maybe Ukraine. 

I wish I could believe that UA is smart enough to understand they have maybe 5-6 more years before there will be an alternative route for gas transit into Europe and now is their best time to get profits from Russia for their transportation monopoly.

Unfortunately, I suspect it's just the crimin...er politicians angling for their last big cuts and hoping to stave off civil unrest for a few more years.

[OlgaH]

Still no proof Ukraine stole gas. 

 Ukraine and Russia are both at fault. 

Gazprom has the document from SGS about gas for Europe that is lost on the territory of Ukraine 

May be Russia and Ukraine are both at fault, may be not.  Turkmenistan still breathes with relief after refusing to sell gas Ukraine directly and preferred to deal with Gazprom     

[OlgaH]

I wish I could believe that UA is smart enough to understand they have maybe 5-6 more years before there will be an alternative route for gas transit into Europe and now is their best time to get profits from Russia for their transportation monopoly.

They are smart as a sucker for freebies is smart  therefore they have added provisos "null and void" to the agreement they try to force Russia to sign 

[BC]

They are smart as a sucker for freebies is smart  therefore they have added provisos "null and void" to the agreement they try to force Russia to sign 

Yeah, the 'reservations' sound like this:

We don't owe you squat for whatever happened in the past.
We get assurances that we were right and you were wrong.
We get free gas that equal the consumption of Austria.
The monitors will leave after two months, then it's 'business as usual'.

[wxman]

The brokered deal by the EU has collapsed. Medvedev has called it null and void.

http://www.google.com/hostednews/afp/article/ALeqM5iqCjAYOnK6jxkQCJ0HBECCw8WJYw

[OlgaH]

The brokered deal by the EU has collapsed. Medvedev has called it null and void.

http://www.google.com/hostednews/afp/article/ALeqM5iqCjAYOnK6jxkQCJ0HBECCw8WJYw

"The controversial Ukrainian declaration, seen by AFP late Sunday, also maintains that Ukraine no longer owes money to Russia's Gazprom and denies stealing gas intended for European customers".

BC, you are right about the 'reservations'  They try to push Russia to "null and void" all their debts and stealing actions by all means.

[ECOCKS]

It's obvious to me.  Ukraine is too unreliable and Russia should proceed with an alternate method of shipping their gas into Europe.  Europe probably wants gas NOW though so they should fork over some money to build the new pipelines even quicker.

Business basics...

Oh wait, it's freezing NOW.

Gazprom is far too heavily leveraged to build a new pipeline on its own due to remarkably poor management and over-reliance on their government contracts to let them keep making maoney under any conditions.

Russia is nearly broke and getting worse every day.

Ukraine just shrugs and trudges on, for now.

Infrastructure investments foregone in favor of money in Swiss Banks for the leaders isn't looking so smart now as it was 3-4 years ago.

Hmmmm, maybe we better negotiate a 3 year contract while we figure out how to build a couple of new pipelines?  Then we can negotiate every year with Poland and Turkey and other newly created transit countries.

Nothing is ever quite as simple as it seems.

[BC]

http://voanews.com/english/2009-01-14-voa25.cfm

Mr. Putin told his guests the important thing is that Russia opened the valve in the direction of their countries and is prepared to deliver, but he said the valve on the Ukrainian side is closed and they are not transferring the gas.

Ukraine's Prime Minister Yulia Tymoshenko in Kiev, Ukraine, 14 Jan 2009
In Kyiv, Ukrainian Prime Minister Yulia Tymoshenko said the full resumption of gas deliveries to Europe were being delayed because the small amount of gas provided by Russia does not create the pressure needed transport the gas through the pipeline.

Ms. Tymoshenko says another consideration is that Russia tried to send the fuel through a pipeline where Ukrainian gas has been flowing in the opposite direction to service eastern Ukraine, which makes it impossible to deliver gas to Europe along that route.

Now isn't that a bit ridiculous...

RU turns the gas on with monitors watching, but now UA says it can't work because they are pumping gas in the other direction (from their huge underground gas reservoirs filled with RU gas) towards eastern UA (Kyiv etc).

Now if I look at this map there is really only one entry point that realistically serves EU... the black arrow at the top.

[55North]

Absolutely BC. 

It has been well-reported that for Russia to introduce gas at the eastern point (furthest from its customers) as it did, Ukraine would have had to cut gas to most of the Donbas.

Quite clearly, there's  some Russian gameplaying.  Some suspect that Russia is actually short of gas!
 
Meanwhile, the Europeans are considering suing both Russia and Ukraine.

http://www.guardian.co.uk/world/2009/jan/15/russia-ukraine-gas-row

[Simoni]

I don't know why people ever believe what Putin says.  The families of the dead journalists he killed certainly do not.
Like the little boy in the fable who cried "wolf," how can anyone believe him, or them?

The Russian media continues to lie about Ukraine "stealing" gas.

Now an independent inspection team from the EU has documented that this is not true.  The only gas missing is the gas used to transport gas to European countries.

See story in Russian language: http://news.mail.ru/politics/2299483