Ukraine to Buy Russian Gas for New Higher Prices — Paper

MOSCOW, Russia -- Ukraine’s new government has agreed to buy natural gas from Russia’s gas monopoly Gazprom at higher prices in return for increased gas transit fees, Russia’s Kommersant daily reported on Tuesday, March 29.

According to the paper’s information, officials from Ukraine’s Energy Ministry and state oil and gas company Naftogaz Ukraine went to Gazprom’s Moscow headquarters to negotiate a switch to international prices for natural gas. The move is a bid on both sides to make their relationship more transparent. Kommersant reported that the price of Russian gas supplied to Ukraine would rise from $50 to $80 per 1,000 cubic meters, costing Russia’s neighbor an extra $690 million a year in total.



Ukraine’s President Viktor Yushchenko wants to turn Ukraine into a major energy trading center and to move it out of Russia’s shadow. He has already attempted to negotiate with Turkmenistan so that the Central Asian country comes over to manage Ukraine’s vast network of gas pipelines.

The negotiations have not been completed because of the price issue, but Yushchenko is intent on getting rid of Russia’s virtual monopoly on the Ukrainian energy market. Around 80 percent of Russia’s total gas exports flow to Europe through Ukraine. The other problem that Yushchenko faces is securing cooperation from Gazprom, which can make or break gas exports from landlocked Turkmenistan.

Last year Gazprom and Russia’s state-owned Vnesheconombank agreed to reclassify $1.2 billion of Ukraine’s debts to Russia as prepayments for gas transit. The transit tariff was set at $1.09 per 1,000 cubic meters per 100 kilometers of transit until 2009. But the Russian daily said that in the process of negotiations the parties agreed to raise the transit price to between $1.75 and $2 beginning in 2006 and to stop barter deals under which Gazprom pays for transit with gas.

According to the paper, Russia pipes around 130 billion cubic meters of gas through Ukraine annually. Ukraine receives some 23 billion cubic meters of gas in lieu of transit fees.