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Russia-ukraine discuss long-term gas deal
08 July 2008
Published in
Inform
issue #76
See the full issue here.
Russia and Ukraine are set to agree and sign a comprehensive natural gas agreement before 15 September. The goal is for the deal to ward off any repeat of the recent gas disputes and cement a long-lasting supply agreement between the two countries.
Last week, Ukraine’s Prime Minister, Yulia Tymoshenko, met with her Russian counterpart, Vladimir Putin, to discuss a prospective energy deal and address other issues that have raised tensions between the two neighbours.
Ahead of the meeting, Alexei Miller, chief executive of Russia’s state gas company, Gazprom, warned Ukraine that it may have to pay Western European-level prices for natural gas. This would mean a near doubling of the $179.50 the country is paying this year for gas.
"Our understanding is as of 1 January 2009, gas supplies to Ukraine will work on market principles," said Mr Miller.
The big hike in the cost of gas is because Central Asian states are raising their prices. Ms Tymoshenko is keen to agree a long-term gas deal, lasting a minimum of three-four years. The desired deal would guarantee supply and increase prices incrementally, giving Ukrainian industry and consumers time to make the transition to market prices and lessen their dependence on relatively cheap and plentiful gas.
Fuel and Energy Minister Yuriy Prodan, who accompanied Ms Tymoshenko on the Moscow visit, said that the contracts would be ready for signature in September.
Baloha Critical
Viktor Baloha, the head of the president’s secretariat, said that the timing was flawed and that Ms Tymoshenko had failed to carry out the instructions of the president, which was to agree a new contract for signature before the end of July – so as to give the economy more time to respond to price rises.
“We still do not have a clear understanding from whom, on what terms and what volumes we will be buying next year,” said a statement issued by a combative Mr Baloha.
The argument goes that Ukraine needs to know gas prices in order to calculate subsidy submissions for the draft 2009 budget, which must be presented to parliament by 15 September.
Reaching an agreement by July can only be described as wildly optimistic. Traditionally the annual haggling and agreement on a price has taken months and Ukraine will be determined to reduce the $400 per thousand cubic metres price. Geoffrey Smith of Renaissance Capital said, "It's best to see this as an opening gambit in a negotiating process."
See the full issue here.
Russia and Ukraine are set to agree and sign a comprehensive natural gas agreement before 15 September. The goal is for the deal to ward off any repeat of the recent gas disputes and cement a long-lasting supply agreement between the two countries.
Last week, Ukraine’s Prime Minister, Yulia Tymoshenko, met with her Russian counterpart, Vladimir Putin, to discuss a prospective energy deal and address other issues that have raised tensions between the two neighbours.
Ahead of the meeting, Alexei Miller, chief executive of Russia’s state gas company, Gazprom, warned Ukraine that it may have to pay Western European-level prices for natural gas. This would mean a near doubling of the $179.50 the country is paying this year for gas.
"Our understanding is as of 1 January 2009, gas supplies to Ukraine will work on market principles," said Mr Miller.
The big hike in the cost of gas is because Central Asian states are raising their prices. Ms Tymoshenko is keen to agree a long-term gas deal, lasting a minimum of three-four years. The desired deal would guarantee supply and increase prices incrementally, giving Ukrainian industry and consumers time to make the transition to market prices and lessen their dependence on relatively cheap and plentiful gas.
Fuel and Energy Minister Yuriy Prodan, who accompanied Ms Tymoshenko on the Moscow visit, said that the contracts would be ready for signature in September.
Baloha Critical
Viktor Baloha, the head of the president’s secretariat, said that the timing was flawed and that Ms Tymoshenko had failed to carry out the instructions of the president, which was to agree a new contract for signature before the end of July – so as to give the economy more time to respond to price rises.
“We still do not have a clear understanding from whom, on what terms and what volumes we will be buying next year,” said a statement issued by a combative Mr Baloha.
The argument goes that Ukraine needs to know gas prices in order to calculate subsidy submissions for the draft 2009 budget, which must be presented to parliament by 15 September.
Reaching an agreement by July can only be described as wildly optimistic. Traditionally the annual haggling and agreement on a price has taken months and Ukraine will be determined to reduce the $400 per thousand cubic metres price. Geoffrey Smith of Renaissance Capital said, "It's best to see this as an opening gambit in a negotiating process."
The $400 price tag is a daunting prospect and the
government has made it clear that any major rise
would be accompanied by a reciprocal hike in the
transit fees Gazprom pays for transporting its gas to
Europe through Ukraine’s pipeline network. Currently,
a quarter of the EU’s natural gas imports are from
Gazprom with about 80 percent transiting through
Ukraine’s pipeline network. And that amount appears
to be rising. Last week figures revealed, that in the
first six months of the year, Ukraine transported
65.3 billion cubic metres of natural gas to Europe,
up 23 percent year-on-year.
Ms Tymoshenko said, “The hike to $400 is absolutely impossible for the economy of Ukraine.” She did not deny the likelihood that Ukraine would eventually pay western market rates for its natural gas imports, but suggested that it meet “the European level within the next three-four years.” Mr Prodan said, “Our goal is to negotiate a gradual change in the gas price which will be to the benefit of both parties.”
In return, Mr Putin said that it was too early to specify a figure as the final cost and transport tariff would be the subject of discussions over the next few months.
Ms Tymoshenko said, “The hike to $400 is absolutely impossible for the economy of Ukraine.” She did not deny the likelihood that Ukraine would eventually pay western market rates for its natural gas imports, but suggested that it meet “the European level within the next three-four years.” Mr Prodan said, “Our goal is to negotiate a gradual change in the gas price which will be to the benefit of both parties.”
In return, Mr Putin said that it was too early to specify a figure as the final cost and transport tariff would be the subject of discussions over the next few months.