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December 04, 2007 (the date of publication in Russian)

Sergey Pravosudov

APPETITE COMES WITH EATING

Ukraine falls a victim to US-EU gas diplomacy

Some very remarkable shifts have lately taken place in the "gas triangle" of Russia, Ukraine and Turkmenistan. In November, Turkmenistan's President Gurbanguly Berdymukhammedov raised the acquisition price for local gas for Russia's Gazprom from $100 to $130 per 1000 cub. m, in order to elevate it to $150 by 2009. Thus, he reconsidered the promise of his predecessor Saparmurad Niyazov to maintain the current price of $100.

Berdymukhammedov's new plan suggests that since 2009, the gas price be estimated according to a formula, pegged to European quotations. This formula is going to be introduced for the whole period of the previously signed agreement in Russia that expires in 2028.

This change affects rather Ukraine than Russia, as Turkmen gas is consumed primarily in Ukraine. Not accidentally, Victor Yanukovich recently tried to convince Mr. Berdymukhammedov to leave the current price unchanged. Drawing up the state budget for year 2008, Ukrainian authorities assumed the current price of $160 per barrel, which includes Gazprom's fare for transportation and taxes. In case Gazprom's own acquisition price is elevated to $150, these figures will be unrealistic.

In the independent Ukraine, gas delivery has traditionally served as a political issue. The new Government, be it headed by Yulia Tymoshenko or anyone else, will be faced with the challenge of adjusting Ukraine’s economy to an increased purchase price for gas, which is likely to zoom till $200 per barrel.

It is an open secret that Ukraine has hardly managed to sustain purchase for $130. In this year, the country has already accumulated a $1 billion debt, paying back with gas from storages and by mutual account of transit tariffs.

After the ultimatum of Turkmenistan's new leader, some Ukrainian politicians proposed to increase the transit tariff for Russian gas on its way to Europe. However, they forgot that the tariff rate had been approved for the period of five years from 2005 till 2009. This relatively low level of tariffs is a result of an earlier agreement on write-off of Ukraine's debt for gas, delivered by Gazprom in the period between 1997 and 2000, which allowed reducing this amount from $1.62 to $1.25. In case Ukraine revises the tariff rate, it will be exposed to the earlier accumulated debt.

Therefore, Ukraine falls today a victim of the West's policy. On the one hand, US and EU authorities display strong support for the "orange" political coalition in Ukraine, while on the other, they seduce the Turkmen leadership with projects of Russia-bypassing routes, promising to purchase local gas for world prices. In fact, a new pipeline is not built while the increase of gas price for Ukrainian consumers undermines the social basis of the "orange" leadership. Thence, it is becoming even harder for the Ukrainian establishment to shuffle off all of its problems onto Russia and to maintain national interests in its diplomacy with the United States and the European Union.

Sergey Pravosudov is the Director of National Energy Institute, Moscow


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