Yushchenko Blames Tymoshenko For Economic Woes; Premier Calls President's Words 'A Mix Of Lies, Panic And Hysteria'

KIEV, Ukraine -- President Viktor Yushchenko on Friday demanded that his arch rival, Ukraine's prime minister, alter the 2009 budget to withstand the world financial crisis.

Yushchenko (L) and Tymoshenko continue their war of words as who is to blame for the economy.
The president accused Prime Minister Yulia Tymoshenko, his estranged ally from the 2004 "Orange Revolution", of deliberately drafting a budget with targets he said were impossible to fulfil.

"I hereby appeal to Yulia Tymoshenko and to the majority in parliament that she has put together. This is your responsibility," Yushchenko said in a televised address.

"You have knowingly included in the budget inflated indicators and promises that cannot be fulfilled today."

Members of parliament backing the prime minister, he said, were "supporting populism which tomorrow will turn into unpaid salaries, pensions, stipends and social benefits".

"On behalf of the entire country I demand that the government and parliament put together an honest budget in which expenditure matches the possibilities afforded by our economy."

Responding in a statement issued late on Jan. 30, Tymoshenko blasted Yushchenko, calling his words “a mix of lies, panic and hysteria.”

“Everyone saw that the president is not that leader which is needed now, when the country is in the midst of a deep world economic crisis facing a test of its strength. I will not cover up the true situation with makeup, but I will also not sow panic,” she said.

“If the president cannot find a way to help, he should not interfere,” she said.

The budget, passed just before the New Year, provides for negative growth of only 0.4 percent against forecasts by some bodies, including the economy minister, of minus 5 percent as Ukraine is battered by the effects of the crisis.

Industrial production in the ex-Soviet state plunged between 20-30 percent in October and December and growth shrank by over 14 percent in November and December month-on-month. The economy grew 2.1 percent in 2008 against 7.6 percent in 2007.

The budget also provides for a deficit of 3 percent despite a stipulation by the International Monetary Fund that it be deficit-free. An IMF mission is currently in Kiev to review progress by the government and determine whether to disburse the second tranche of a $16.4 billion credit approved last year.

The prime minister has defended her government's budget and vowed to implement it. The tone of both leaders has become increasingly strident, with the prime minister repeatedly calling on Yushchenko to resign.

In his remarks, Yushchenko said he backed reservations on the budget attributed this week to Finance Minister Viktor Pynzenyk on a major Internet site. Pynzenyk dissociated himself from the report without making an outright denial.

Yushchenko has been at odds with Tymoshenko on virtually all policy issues since she became premier a second time in 2007 and in his remarks repeated allegations that she had clinched a gas supply and pricing deal with Russia detrimental to Ukraine.

The prime minister, he said, was deliberately responsible for "the economic situation, the disruption of the budget process, the wrecking of the banking system ... Enough of lies."

He vowed to defend Ukrainians against the effects of the crisis and called on the chairman of parliament to take action to ensure that the budget would be suitably amended.

Tymoshenko denied Yushchenko’s accusation that citizens could not be paid pensions and salaries due to a major shortfall in budget revenues.

“I have a sad news for the president, but optimistic information for the country. Despite the crisis, the state budget in January has been over fulfilled. Budget-funded salaries and pensions will be paid on time and in full,” she said adding that energy tariffs will not be raised on households.

Source: Kyiv Post

Pirates’ Prison

KIEV, Ukraine -- From economic crisis to gas crisis, from autumn into winter, 17 Ukrainian sailors have remained hostages aboard the MV Faina cargo ship, seized by Somali pirates on Sept. 25.

A photo released by the US Navy in 2008 shows the crew of the hijacked merchant vessel MV Faina.
The men are still waiting for rescue, amid reports that some of them are suffering poor health and that all of them are imprisoned in terrible conditions – enduring scorching temperatures off the lawless east African coast and spending most of their time in a cramped room aboard the hijacked ship.

After months of staying silent at the Ukrainian government’s request, relatives of the crew have run out of patience and are now speaking out. They are alarmed by the indifference and inability of the nation’s political leaders to free the crew after four months of captivity, the longest of any in a recent upsurge of high seas piracy in the Indian Ocean.

“Faina is a cold-blooded, slow and incredibly cynical murder of 17 boys, who were unlucky enough to be born on the territory, declared as independent Ukraine,” said Victor Shapovalov, father of crew member Denis Shapovalov.

“I don’t even dare to call it a state. A state, by definition, pre-supposes territory, population, government and a president. Ukraine is missing the two last ones,” Shapovalov said. “Nothing has been done in four months. Nothing. The government turned a deaf ear to its 17 citizens and we [parents] will find other ways to save their lives.”

The relatives of the Faina crew note that their sons’ captivity didn’t even rate a passing mention in either the New Year’s greeting of Ukrainian President Victor Yushchenko or Prime Minister Yulia Tymoshenko. The sailors’ mothers also say they recently spent hours in the rain trying to get into the Presidential Secretariat, but were rebuffed. They note that the website of the Ministry of Foreign Affairs has a hyperlink to Euro 2012, the soccer championship to be co-hosted by Ukraine, but not to the Faina standoff.

The Ministry of Foreign Affairs deny indifference and inaction, and has blamed the interference of third parties for scuttling talks to liberate the crew. Sources and reports identify the third person as Michele Ballarin, an American businesswoman with connections to United States intelligence whose self-described aim has been to turn Somalia from a failed state into a functioning country. Ballarin claims to be trying to broker a deal freeing all hijacked ships in the region and is quoted by military.com as saying: “My goal is to unwind all 17 ships and all 450 people they’ve been holding.”

Ukraine’s Foreign Ministry “takes all necessary measure to rescue citizens,” according to spokesman Vasyl Kyrylych, noting that “according to international experience, state structures, as a rule, do not take a direct part in the negotiation process.”

So far, however, nobody appears to be successful in freeing the sailors.

Faina is owned by Israeli citizen Vadim Alperin, owner of Tomex Team, Inc., and a former deputy of the Odesa City Council. Many of the ship’s crew and their relatives are also from the Black Sea port city.

At a Jan. 22 news conference in Kyiv called by the crew’s relatives, Alperin’s representative said that negotiations with the pirates – more than 40 are believed to be aboard the ship – are making progress.

“We had already reached an agreement on a $1.7 million ransom,” said Victor Murenko, Alperin’s representative. Murenko, however, said that the pirates rejected some conditions and the deal fell apart. It was revived again on Jan. 21, Murenko said, when the two sides reached an agreement on the ransom amount. He expected release of the sailors within several days. But, as this Jan. 29 edition of the Kyiv Post went to press, the men were still in captivity.

So the desperate parents are trying everything to win the release of their loved ones. They are now planning to file a lawsuit against the government.

At their Jan. 22 news conference, the parents said they are tired of hearing stories about how negotiations were on the brink of success, only to be disrupted by various third parties.

“The informational vacuum is unbearable,” said Svetlana Mgeladze, mother of Faina crew member Roland Mgeladze. “We can’t stand anymore hearing ‘they have water, food and fuel; keep on waiting’ from the Ministry of Foreign Affairs.”

On Jan. 25, parents of the Faina crew got a rare present: a brief phone call from the ship’s crew. Relatives say the credit for arranging the phone call goes not to the Ukrainian government, but to Abdi Muhammed Nur, a representative of the non-profit Human Rights Watch.

The telephone conversation was as troubling as it was brief.

“We bear up with our last bit of strength,” Denis Shapovalov told his father. He said that the sailors get only one meal a day – rice and noodles – and have irregular supplies of water and poor sanitary conditions. The parents also said their sons told them that the talks were stalled because the pirates wanted to deal directly with the ship’s owner, a step they say hadn’t been taken yet.

Besides the 17 Ukrainian crew members, two Russians and a Latvian are also aboard the ship. The vessel’s Russian captain, Vladimir Kolobkov, died of a heart attack two days after the hijacking. His remains are still on board, reportedly kept in a refrigerator.

The hostage ship’s complicated identity and mission are raising fears among parents that some Ukrainian government officials don’t want to see the ship returned.

The ship sailed under the Belize flag and carried 33 Soviet-type T-72 battle tanks along with other weapons and ammunition. While Ukraine and Kenya insist the tanks were bound for Kenya’s military, Agence France Presse reported that the United States and the pirates themselves have said the weapons were destined for rebels in southern Sudan. If true, the shipments would be in violation of a U.N. Security Council embargo on weapons trade with Sudan.

“I judge by the fact that absolutely nothing has been done,” said parent Svitlana Mgeladze. “Probably somebody wants it to be this way.”

If the shipments were destined for a prohibited destination, it wouldn’t be the first time that Ukrainian arms exports made scandalous international headlines. During the Leonid Kuchma era, Americans accused Ukraine of supplying Saddam Hussein-led Iraq with advanced radars. More recently, Russians accused Ukraine of supplying Georgians with weapons during the August war. While Ukraine has defended its right to sell arms to Georgia, the proof of radar sales to Iraq never materialized.

Oleksiy Tolkachev, head of the non-profit Public Committee of National Security, spoke at the Jan. 22 press conference and he agreed that the ship raises potentially troublesome questions for Ukraine. “Ukrainian weapons trafficking has created international scandal and is viewed as another foundation for the possible impeachment of Victor Yushchenko,” Tolkachev said. “If this ship comes back, an investigation will be held and many questions will be asked.”

Victor Shapovalov, father of Denis, a 33 year-old graduate of Odesa National Marine University, has no intention of giving up efforts to save all aboard the Faina. “I raised my son not to lose him to mercantile interests of some shabby leaders of this ‘formation,’” Shapovalov said, referring to Ukraine.

Source: Kyiv Post

Valeriy Khoroshkovsky Appointed Deputy Head Of Ukraine’s Spy Agency

KIEV, Ukraine -- President Victor Yushchenko raised eyebrows on Jan. 28 appointing billionaire media magnate Valeriy Khoroshkovsky as deputy head of Ukraine’s spy agency, the State Security Service, or SBU, as it is commonly called.

Valeriy Khoroshkovsky’s appointment to the SBU seen as tactical move by Yushchenko in his rivalry with Tymoshenko.
The controversial appointment comes amidst a deepening rivalry between Yushchenko and Prime Minister Yulia Tymoshenko.

Both are expected to square off for the presidency later this year or in early 2010.

Khoroshkovsky, who has served as head of Ukraine’s Customs Service, claims to own one of Ukraine’s leading television channels, Inter, via a holding called U.A. Inter Media Group.

Tymoshenko identified Dmytro Firtash, the billionaire who controlled natural gas supplies to Ukraine via Swiss-registered Rosukrenergo, as a media partner of Khoroshkovsky.

Tymoshenko’s gas agreement this month removed this intermediary, which her political camp claims has been “corrupt” and funneled money to her opponents, Yushchenko and ex-premier Victor Yanukovych.

Khoroshkovsky this week admitted that Firtash has an option to buy into the Inter media group, but insisted Tymoshenko tried to buy Inter channel herself, or have it sold to other investors.

Source: Kyiv Post

Slain Moscow Reporter Buried In Sevastopol

SEVASTOPOL, Ukraine -- Anastasiya Baburova, who chased after the assassin of human-rights lawyer Stanislav Markelov only to be killed by the same unidentified gunman, was buried in her native Ukraine on Jan. 26.

Larysa Baburova at the funeral of her daughter Anastasiya Baburova, 25, seen in framed photo. An unknown gunman assassinated the young journalist and human-rights lawyer Stanislav Markelov in Moscow on Jan.19.
Baburova, 25, was a Moscow journalist with one of Russia’s few remaining independent newspapers, Novaya Gazeta.

She and Markelov were slain less than a mile from the Kremlin, just after the lawyer held a Jan. 19 press conference to condemn the early release from prison of a Russian army colonel convicted of killing an 18-year-old Chechen woman in 2000.

Baburova was from Sevastopol.

Agence France Presse reported that several dozen mourners attended the funeral Mass held in St. Vladimir Orthodox Cathedral in the center of the Crimean port city before she was laid to rest in a cemetery on the city’s outskirts.

Her mother, Larysa Baburova, told the French news agency that her daughter a year ago had complained that her work was too dangerous, saying: “Mum, I am not going to live long like this.”

Novaya Gazeta – one of the few Russian newspapers that allow criticism of the Kremlin in its coverage – has been hit by tragedy several times, including in 2006, when star journalist Anna Politkovskaya was gunned down in Moscow.

If these murders follow the disturbing Russian pattern, no killers will be found.

Source: Kyiv Post

Yushchenko Instructs PM To Save Artek Children Center

KIEV, Ukraine -- Ukraine's president has instructed the country's prime minister to look into and take urgent measures to prevent the possible closure of the cash-strapped International Children's Center Artek in Ukraine's Crimea.

International Children's Center Artek
During a video link between Kiev and Moscow devoted to the problem, Artek's chief doctor, Mykhailo Bezugliy, blamed interest groups, which plan to take over the center's land valued at some $100,000 per 100 sq m, for orchestrating its financial woes.

The opposition Party of Regions has accused Viktor Yushchenko and Yulia Tymoshenko of pushing Artek to bankruptcy.

"Public attention, generated by media reports, in particular those saying the government is pushing Artek to bankruptcy... are causing concern," the presidential press service quoted Yushchenko as saying.

The president gave the prime minister one week to deal with the matter.

Located in the southern Crimea not far from Yalta, Artek is famous as the main Soviet-era pioneer camp that took children in all year round since the 1930s and even carried on working during World War II, when the center moved to Altai.

It remained a unique international meeting place for children of all ages from all over the former Soviet Union and other countries after the breakup of the U.S.S.R. when already under Ukraine's jurisdiction, but closed in January over a lack of funds.

It is currently supervised by the Ukrainian president's property management committee.

Artek General Director Boris Novozhilov said in Kiev on January 16 that the center could cease to exist within a year as the government had not provided any funding for the former Soviet recreation camp for three years. On Monday he was hospitalized with heart problems.

Source: RIA Novosti

The Role Of Russian Organized Crime In The Gas War Of January 2009

WASHINGTON, DC -- On January 20 Alexei Miller, the CEO of Russia’s state-owned gas monopoly, Gazprom, made an amazing confession. He told Interfax that in late December 2008, when negotiations between Ukraine and Russia on a new gas supply contract broke down, the party largely responsible for this was RosUkrEnergo (RUE), the Swiss-based middleman company that sold Central Asian gas to Ukraine.

Gazprom chief, Alexei Miller, made an amazing confession.
RUE is 50 percent owned by Gazprom and 45 percent by a Ukrainian businessman, Dmytro Firtash. “Yes, it is true that when the prime ministers of Russia and Ukraine agreed to a price of $235 for 1,000 cubic meters of gas… RosUkrEnergo proposed paying $285. This company was betting that by making such an offer it would remain in the market,” Miller stated. What Miller failed to explain is why RUE would dare undermine the Russian government.

From its inception RUE has been accused of opacity by the media and of “criminality” by Ukrainian Prime Minister Yulia Tymoshenko. Most of the charges centered on Gazprom’s partner in RUE, Dmytro Firtash, and his alleged links to a notorious Russian mobster, Semen Mogilevich. Dmytro Firtash has denied any direct links to Mogilevich. This might be true, but the indirect links suggest that Mogilevich was indeed tied to Firtash, the Kremlin leadership, and the Ukrainian elite.

The history of RUE began in December 2002 when Firtash registered a company in Hungary named Eural Tran Gas (ETG), which signed a contract with Gazprom on December 5, 2002, becoming the middleman in the Turkmen- Ukrainian gas trade.

Strange circumstances surrounded ETG’s creation: unemployed Romanians became principles of the company; an Israeli lawyer with ties to Mogilevich became a nominal director of the company; and Andras Knopp, a former Hungarian communist cultural functionary with no knowledge of the gas business became the director of the company.

Even stranger was Firtash’s refusal to reveal that he was the ultimate beneficiary of ETG. Soon after the contract was signed, ETG was given a $70 million loan by Gazprom Bank, which also became the guarantor of a $227 million loan to ETG by Vnesheconombank.

By July 2004 media criticism of ETG forced the Kremlin to eliminate the company and create RosUkrEnergo in its place. RUE came into being during a meeting between Russian President Vladimir Putin and then-Ukrainian President Leonid Kuchma in Yalta.

At that time both leaders stressed that RUE would be a fully transparent company, tacitly acknowledging media reports that ETG was opaque. One of the two co-directors of RUE was Konstantin Chuychenko, a former KGB officer, the head of Gazprom’s legal department, and a classmate of Dmitry Medvedev (Chuychenko’s biography was posted on the Gazprom website, www.gazprom.com, but was removed after he left Gazprom to join Medvedev’s administration).

The other co-director was Oleg Palchykov, the former director of the ETG office in Moscow who represented Centragas, a company silently controlled by Firtash. Palchykov’s appointment as co-director of RUE was met with a great deal of skepticism.

“His [Palchykov’s] candidacy was submitted by Raiffeisen Investment [the nominal owners of Centragas]; and we were unable to stop it,” Alexander Ryazanov, the deputy director of Gazprom and a member of RUE’s coordinating committee, told the Russian newspaper Vedomosti.

Why Gazprom wanted to prevent Palchykov’s appointment in the first place was not clear. Gazprom had always insisted that their partners in RUE were honest, transparent businessmen. Had this view suddenly changed?

Part of the explanation could be that the Moscow ETG office Palchykov headed was located in a building on Novy Arbat 14 that was also used by an alleged mobster, Igor Fisherman, who was wanted together with Mogilevich by the FBI.

According to Vedomosti on May 30, 2006, Fisherman was Firtash’s partner in the purchase of 75 percent of a Russian company Zangas. The flow of money from RUE to Gazprom was also murky. Apparently it first went to a shell company in Cyprus and then on to Moscow to another shell company, “Rubin”. Why wasn’t the money sent directly to Gazprom?

Chuychenko, Dmitry Medvedev’s man in RUE, however, remained adamant in his whitewashing of Firtash and RUE. “Dmytro Firtash is a very well-known figure in the gas business,” Chuychenko told Ukrayina Television on December 1, 2006. “He has been working in the gas business in Ukraine for a long time, so his appearance in this field was no accident.”

On October 9, 2007, Medvedev made an incredible statement on the German television station ARD: “We will most likely review the scheme of our relations [with Ukraine] and will end the existence of middlemen structures, which we do not fully understand.” How could Medvedev, the head of Gazprom’s board of directors, not understand what RUE was?

Chuychenko’s claims about Firtash were soon disputed by Putin, who told Interfax on January 8, 2009: “50 percent of RUE belongs to Gazprom… the Ukrainian side belongs to persons we do not know…they showed us Mister Firtash once…”

A controversy over massive Ukrainian debts to RUE and RUE to Gazprom heated up in January 2008, and Mogilevich was arrested in Moscow in February 2008. He was charged with aiding a Russian businessman, Vladimir Nekrasov, the alleged owner of the chain of Arbat Prestige perfume stores, in a tax evasion scheme. Documents from the Russian business registry in the possession of Jamestown, however, show that Firtash was instrumental in creating Arbat Prestige.

The day after the Ukrainian-Russian gas agreement was signed, the Russian press reported that a Moscow court had ordered that Mogilevich and Nekrasov remain in detention until March 23. Was the timing coincidental or was it linked to RUE’s debt to Gazprom?

The litany of contradictions voiced by top Russian officials in the RUE case, as well as documented evidence, suggests that organized crime is linked not only to RUE; it is a stark indication that corruption in the Kremlin has expanded since Putin’s election in 2000. Who stood to benefit from RUE? Putin claims it was the Ukrainian leadership — the facts suggest otherwise.

Source: Eurasia Daily Monitor

Will The Real Gazprom CEO Please Stand Up

MOSCOW, Russia -- The great Russian-Ukrainian gas war is over, and it is time to assess the outcome. On the surface, the result looks promising. Finally, Russia and Ukraine have concluded a normal long-term gas agreement.

Prime Minister Vladimir Putin
Both gas prices and transit tariffs are market-related and based on clear principles without shady intermediaries or arbitrariness. The gas prices will probably average $230 per 1,000 cubic meters in 2009, while investment bankers had expected $250.

Prime Minister Vladimir Putin claimed that Ukraine had an obligation to guarantee transit of Russia's gas since Kiev ratified the Energy Charter Treaty (which Moscow has not ratified).

Putin lamented that the "European Union is placing Russia and Ukraine in the same category," but the supplier in this transaction is also obligated to deliver. Vedomosti perhaps put it best: "Gazprom's reliability as a supplier is inseparable from Ukraine's as a transit state."

Corruption and Ukrainian domestic politics were major factors in a conflict in which the prime antagonists were Prime Minister Yulia Tymoshenko and Dmitry Firtash, partial owner of the shady intermediary RosUkrEnergo.

Both Tymoshenko and Putin claim that RosUkrEnergo through Ukrainian President Viktor Yushchenko's administration disrupted the gas negotiations on Dec. 31.

Tymoshenko walked away from this conflict with an outstanding victory. RosUkrEnergo has been excluded from the Russian-Ukrainian gas trade, losing profits of at least $1 billion a year.

At his news conference on Jan. 8, Putin implausibly denied that he knew Firtash, although both were co-founders of RosUkrEnergo in July 2004. Subsequently, Gazprom sold RosUkrEnergo's debt of $1.7 billion to Naftogaz, allowing Naftogaz to squeeze Firtash out.

"Finally, we eliminated a big political slush fund, which fed several political forces," Tymoshenko said. Firtash has spent lavishly on Ukrainian politics, mainly on former Prime Minister Viktor Yanukovych's Party of the Regions but also on Yushchenko's administration.

The elimination of RosUkrEnergo will cleanse Ukrainian politics of gas money. Although Yanukovych has sensibly kept a low profile, his campaign financing will most likely dwindle in the end.

Gazprom's cost in the gas war was very high. Its direct financial loss was about $2 billion, but its reputation has suffered even more since the gas monopoly has proven itself an unreliable supplier.

Its customers will try to reduce their dependence on the state-run gas monopoly, but when Gazprom is the problem new pipelines are of little help.

Before the conflict broke out, Gazprom opened a web site that criticized Ukraine. This suggests that Moscow was gearing up for a fight. Gazprom and Putin pulled no punches in going after Kiev. "The current situation shows a high degree of criminalization of power in Ukraine," Putin said.

During the January 2006 Russia-Ukraine gas conflict, Gazprom's stock price skyrocketed because investors were impressed when the company pushed for higher export prices at a time of rising energy prices.

During the latest gas war, however, Gazprom's stocks plummeted as investors objected when the company treating its customers recklessly by demanding unrealistically high prices at a time of sharply falling energy prices.

Meanwhile, European gas consumers suffered considerably, and the European Union looked terribly weak, having failed to learn anything from previous gas wars.

But one European politician stands out as a true leader -- German Chancellor Angela Merkel. During Putin's news conference with Merkel on Jan. 16 in Berlin, Merkel lectured him like a teacher to a schoolboy, placing the responsibility on Moscow, and Putin ate his teacher's humble pie.

Austria, France, Hungary, Germany and Italy have quietly built up gas reserves that could last for three months; they have learned the lesson from 2006.

Now, other European countries are likely to build up large reserves and further diversify their energy supplies, although this is very expensive.

Putin has the most complex motivation in all of this. By directly commanding Gazprom and taking over the negotiations, Putin confirmed the old assumption that he is the real CEO of Gazprom.

Although Ukraine had paid its gas bills by Dec. 30, Putin ordered the disruption in the gas supply, making him the main culprit.

Gazprom's damaged reputation will likely impair its stock price and debt rating. The conflict was also a disaster for Russia's foreign policy. President Dmitry Medvedev's hastily arranged "gas summit" attracted no heads of state and was the largest snub to Russian diplomacy in recent memory.

Putin has been identified as one of RosUkr-Energo's main beneficiaries, but now he has accepted the fact that this middleman will have to be eliminated from gas transactions. Moreover, he looked panicky when he lost himself in technical details, accusing Ukraine of "theft" of tiny gas volumes, far smaller than customary losses.

In the end, the gas war had to be settled by Russian and Ukrainian prime ministers. The press photos showed a strident Ukrainian prime minister, while Putin looked increasingly frustrated.

So why did Putin instigate the gas war in the first place? My suspicion is that his main purpose was to whip up Russian patriotism against Ukraine and enhance support for the government in a time of economic decline. This was perhaps his only success.

According to the state-run pollster VTsIOM, 63 percent of Russians believed that Ukraine was solely responsible for the conflict.

Another suspicion is that Putin hoped to destabilize Ukraine by exploiting its domestic divisions and its severe financial crisis. If this were his goal, he failed. Tymoshenko had little choice except to liquidate RosUkrEnergo since it was an issue of her political survival.

After Putin and Tymoshenko signed the gas peace treaty, Ukraine has eliminated a major source of corruption. Now it should reform its distorted energy sector to improve efficiency and save energy.

Ukraine must stop subsidizing its imports of gas, and it should also raise the government's purchasing price for domestically produced gas to stimulate domestic production.

And the EU should get more serious about its own energy security. Whatever Putin's motive was, he is likely to offer more shocks as the situation grows worse for both Russia and Putin in a deepening economic crisis. The EU must realize that it needs a Russia policy no less than it requires an energy policy.

Only two winners are apparent -- Tymoshenko and Merkel.

There are many losers: Firtash, European gas consumers, Gazprom, its shareholders, Yushchenko and, last but not least, Putin.

Source: The Moscow Times

EU Chief Says Ukraine Won't Reopen Gas Deal

BRUSSELS, Belgium -- The European Union said Tuesday that Ukraine's president has promised he will not reopen a 2009 energy deal with Moscow that restarted natural gas service to EU countries last week.

Ukraine's President Viktor Yushchenko (L) and European Commission President Jose Manuel Barroso hold a joint news conference after a meeting in Brussels January 27, 2009.
Russia halted gas shipments to Europe over Ukrainian pipelines for two weeks earlier this month amid a contract dispute over what Ukraine should pay for Russian gas in 2009.

Ukrainian President Viktor Yushchenko indicated last week he wanted to revisit the gas deal with Russia, saying its terms will further undermine his country's economy, but he backed off that view at EU headquarters.

In a joint news conference with Yushchenko, EU Commission President Jose Manuel Barroso said it was now key for both sides to improve relations and help Ukraine upgrade its energy and pipeline networks so it can regain the trust of EU gas clients.

Barroso said Ukraine "will honor its commitment" to the deal signed with Russia.

Yushchenko said his country would "perform its responsibility as a transit state."

"The agreements signed are not easy ones (but) Ukraine fully takes up full-fledged transit to the European consumers," Yushchenko said.

Barroso said he was convinced the Ukraine wanted to deepen its ties with the EU and added that the EU was keen to do that as well. Ukraine has been seeking membership in both the EU and NATO.

"But of course in the energy sector there was a problem, and we have to solve that problem," Barroso said. "We have to state very clearly that we were not happy, in fact we were very disappointed."

The European Union gets a quarter of its gas from Russia, most of that over Ukrainian pipelines. The gas cutoff left many EU nations reeling, searching frantically for alternative energy sources in the midst of winter.

Barroso said the EU would work with Ukraine to seek new international investors to modernize the ex-Soviet state's energy networks and to link the country into central European electricity grids. An investors meeting is planned for March 23, in Brussels.

Source: AP

Klitschkos Look To Hold All Four Belts In 2009

MOSCOW, Russia -- Vitali and Wladimir Klitschko are worried that promoters will deny them the chance of holding all four heavyweight titles. The Ukrainian brothers currently hold three of the belts - Wladmir is the IBF and WBO champion, and Vitali is the WBC champ.

Vitaly (R) and Vladimir Klitschko seen near their heavyweight champion belts during a news conference in Moscow, Monday, Jan. 26.
Only WBA champion Nikolai Valuev stands between a historic four-belt family sweep.

The Klitschko brothers claimed Monday that Valuev's promoters, American Don King and German Wilfried Sauerland, are holding up the chance for one of them to take his title by offering an unacceptable share of the purse.

"Around the world fans and experts want to see this fight," Vitali Klitschko said. "But these promoters are doing everything to make sure that this fight doesn't go ahead."

Vitali Klitschko said the purse should be split 50-50 because it would pit champion against champion.

Both Vitali, 37, and Wladimir, 32, said they would be ready to fight the 2.14-meter (7-foot) Russian, and Valuev himself has appeared agreeable to the idea.

"The most important thing is to bring the belt to the family," Wladimir Klitschko said.

If the fight does go ahead, Wladimir Klitschko said, it will likely be toward the end of the year due to all the planning required.

That might be too late for the brothers to achieve their dream of holding all four belts at one time.

Vitali Klitschko, who announced his retirement in 2005 but came back in 2007, is preparing for the mandatory defense of his WBC title against Juan Carlos Gomez of Cuba on March 21.

He had hoped to fight Britain's David Haye in June in London, but will instead take on the WBC's No. 1-ranked challenger in Stuttgart.

Wladimir Klitschko said he would now likely face Haye, though arrangements are in their infancy, and named Chris Arreola as another possible opponent this year.

The brothers reiterated they would never break a promise to their mother and square off against each other in the ring.

"Our mom will not survive this fight, and we have to take care of her," Wladimir Klitschko said.

Source: Kyiv Post

Ukraine Assembly Fails Again To Oust Cbank Head

KIEV, Ukraine -- Ukraine's parliament failed again to oust Central Bank Chairman Volodymyr Stelmakh on Monday, passing a resolution annulling his tenure that was dismissed by the president's office as "unconstitutional".

Volodymyr Stelmakh
This was the third attempt by Prime Minister Yulia Tymoshenko's faction in parliament to persuade President Viktor Yushchenko to sack the veteran chairman, blaming him for a fall in the hryvnia currency and the state of banks' refinancing.

The two former allies have fought constantly on virtually all issues for months, delaying policy making just as the global financial crisis grips the ex-Soviet state.

Under the constitution, only the president can initiate the dismissal of the central bank chief, which must then be approved by parliament. Although lukewarm towards the central bank, Yushchenko has refused to sack Stelmakh.

"This decision is illegal and unconstitutional," presidential spokeswoman Larysa Mudrak said by telephone.

The central bank's top economic adviser, Valery Lytvytsky, said Stelmakh would continue in his job after returning from holiday. He was not able to say when that would be.

"He knows that he is the legal head of the central bank and he will continue work after his holiday," Lytvytsky said by telephone.

A total of 227 members -- one more than the minimum needed -- approved the resolution. Parliament passed a no confidence vote in Stelmakh on Dec. 26 and again asked the president to dismiss him two weeks ago.

By voting to rescind the 2004 appointment, Tymoshenko's bloc hoped to find another mechanism of getting rid of Stelmakh.

Parliament also passed a resolution naming Yushchenko solely responsible for Ukraine's financial woes. Tymoshenko has called for his resignation in December.

Lytvytsky said the central bank was currently under the control of First Deputy Chairman Anatoly Shapovalov.

"The market is not going to be overjoyed by this latest twist in the story, but we hope that it will remain calm thanks to our intervention aimed at maintaining the positive trend (of the hryvnia's rate)," Lytvytsky said.

The hryvnia traded at 8.1 to the dollar, slightly weaker than last week when it stood at a touch stronger than 8/$.

Dealers said the central bank had communicated its policy well in January with almost daily interventions that have injected liquidity and helped strengthen the hryvnia from December historic lows of 9.5-10/$.

But parliament's very moves made them nervous.

"If management of the central bank changes, then there will be a question -- how will the bank behave?" said one dealer.

Source: Guardian UK

Putin Blames Bush For Ukraine Gas War, Is ‘Optimistic’ On Obama

MOSCOW, Russia -- Russian Prime Minister Vladimir Putin blamed George W. Bush for a dispute with Ukraine that left much of Europe without gas this month, saying the former U.S. president fostered political chaos in the region. Putin said he was “cautiously optimistic” about future relations with Barack Obama.

Ex-President Bush (L) and Premier Putin at a photo op.
The Bush administration supported NATO membership applications from Ukraine and Georgia, which Russia opposes, and planned to site a missile defense system in Poland and the Czech Republic. The U.S. under Bush also signed a “strategic partnership” with Ukraine.

“What happened in recent years in Ukraine is the result, to a significant extent, of the activities of the previous U.S. administration and the European Union, which supported it,” Putin, 56, said in an interview with Bloomberg Television yesterday. He said he was “cautiously optimistic” that relations with the U.S. will improve with Obama in the White House.

Ukrainian President Viktor Yushchenko and Prime Minister Yulia Timoshenko have feuded since they were swept to power four years ago in the so-called Orange Revolution, sparked by the victory of a pro-Russian candidate in a rigged presidential election. Bush said at the time the revolution was a “powerful example” of the movement toward freedom “for people all around the world.”

Russia, which supplies about a fifth of Europe’s gas through Ukrainian pipelines, and the EU “have become hostages of this domestic political situation,” Putin said near Velikiy Novgorod, the ninth-century trading hub between Moscow and St. Petersburg. “It was that domestic political situation in Ukraine that left no chance for us to reach final agreements on the gas issue.”

‘Certain Signals’

While U.S.-Russia ties reached a post-Cold War nadir in Bush’s last months, Putin said there are “certain signals” that Obama is reassessing policies that Russia opposes, including the missile defense system and fast-track membership for Ukraine and Georgia in the North Atlantic Treaty Organization.

Bush won approval to site the planned missile shield in eastern Europe after Russia’s five-day war with Georgia in August, saying it was intended to protect against attacks from Iran or North Korea. President Dmitry Medvedev, who succeeded Putin in May, said in November he would place short-range missiles and radio- jamming facilities near Poland to “neutralize” the system.

Obama has said he has “no commitment” to the shield and wants more analysis on whether it will actually work before deciding to proceed or abandon the project.

“In Mr. Obama’s inner circle, they’re saying there is no need to rush with it and it needs to be further analyzed, and we welcome such statements,” Putin said.

International Security

Russia is also hearing “positive signals on NATO expansion,” Putin said. “They are saying that it is possible to provide security for Ukraine and Georgia in various ways and it is not essential to accept them into NATO now,” he said. “We welcome that and are ready to take part in any discussion on working out the best options to ensure international security.”

Western European countries led by Germany on Dec. 2 maintained a veto on membership roadmaps for both countries, defying Bush’s attempts to accelerate NATO entry.

Two weeks later, the Bush administration signed a “charter on strategic partnership” with Ukraine that pledged “to strengthen Ukraine’s candidacy for NATO membership” and concluded a similar agreement with Georgia on Jan. 9.

In the accord, which was signed as Ukraine was negotiating gas prices and transit fees with Russia, the U.S. also vowed “to work closely together on rehabilitating and modernizing the capacity of Ukraine’s gas transit infrastructure.”

‘Dancing’ to U.S. Tune

Talks between Ukraine and OAO Gazprom, Russia’s gas exporter, broke down at the end of December, prompting Russia to halt fuel supplies to and then through Ukraine, affecting supplies in more than 20 countries for almost two weeks. Gazprom said the U.S.- Ukraine accord on pipelines was “suspicious” and suggested Ukraine was “dancing to music” being played by the U.S.

Putin and Timoshenko, with EU mediation, signed a deal on Jan. 19 to resume gas flows. The 10-year contracts oblige Ukraine to pay more for Russian gas and for Gazprom to pay more to Ukraine in transit fees. Yushchenko, though, is unhappy with the deal and wants new talks “no later than in the summer,” said Oleksandr Shlapak, first deputy chief of Yushchenko’s staff, on Jan. 23.

“A new attempt to review these agreements at the presidential level is the best confirmation” that the political instability in Ukraine is a threat to Europe’s energy security, Putin said yesterday.

Source: Bloomberg

NATO Has 'No Will' To Admit Georgia Or Ukraine

LONDON, England -- NATO is suffering from 'enlargement fatigue' and has no will to admit Georgia or Ukraine, according to Poland's foreign minister Radek Sikorski.

Radek Sikorski is a leading contender to become NATO's next secretary-general.
Mr Sikorski, who is a leading contender to become NATO's secretary-general when the Alliance selects a new chief in April, told The Daily Telegraph that membership for both countries was a "fairly distant prospect".

But he denied that Russia, which attaches great importance to thwarting NATO's enlargement, had achieved a victory.

Ukraine and Georgia were both promised NATO membership at a summit in Bucharest last April. But no timetable was offered and, four months later, Russia raised the stakes by invading Georgia.

Mr Sikorski said that NATO should "maintain the Bucharest consensus" and the "credible promise of membership".

Asked whether the will to admit Ukraine and Georgia existed, however, he replied: "Not at the moment. At the moment, there's a will to encourage them to reform themselves. But I believe all of our institutions, both the EU and NATO, suffer from enlargement fatigue."

He added: "It's always harder to enlarge in a recession."

Yet the onset of "enlargement fatigue" did not amount to a victory for Russia. "I don't have the feeling that Russia has increased its credibility in the last six months," he said.

"The Soviet Union never cut off gas supplies to Western Europe. Soviet strategists had a wonderful expression called 'correlation of forces' which meant all the factors - material and immaterial - affecting any situation. I don't believe that either through the Georgia crisis or the gas dispute Russia has improved the correlation of forces to its advantage."

Mr Sikorski, 45, escaped from Communist Poland and was given asylum in Britain in 1982. While studying at Pembroke College, Oxford, he was a member of the Bullingdon drinking club along with David Cameron and Boris Johnson.

Mr Sikorski took British citizenship - and diplomats say that he kept his British passport until he was made Poland's foreign minister in 2007.

During the 1980s, he was a foreign correspondent, covering the Soviet occupation of Afghanistan for The Sunday Telegraph. His firsthand experience of war in Afghanistan gives him a unique qualification for taking the helm of NATO, which now deploys 55,000 troops in the country.

The Alliance's 26 members will probably choose a new secretary-general at their 60th anniversary summit in April. When NATO Ambassadors meet on Monday, they will begin considering possible candidates, who include Anders Fogh Rasmussen, the Danish prime minister.

As for whether he might be NATO's next secretary-general, Mr Sikorski replied: "I believe that NATO needs continued leadership from the front. We have a war in Afghanistan that we mustn't lose. NATO is the most successful alliance in history and that needs nurturing. I believe that the appointment should be made on merit.

"I'm flattered by such suggestions because they imply that Poland is now a regular member and that indeed we've made worthwhile contributions to NATO and that therefore we deserve to be seriously considered for the top job."

Source: Telegraph UK

Victory: Tymoshenko

KIEV, Ukraine -- In the ongoing blood sport that is Ukrainian politics, Prime Minister Yulia Tymoshenko appears to have scored a key victory over her political rivals — especially President Viktor Yushchenko — in reaching a gas agreement with Russia last week.

Russia's Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia Tymoshenko meet in Moscow for talks Jan. 17, 2009.
But analysts say the battle among the country’s ruling elite is far from over, and could spell further instability in the coming months.

Millions in eastern Europe were stranded without electricity and heat just after the new year, when Russia cut off all gas deliveries through Ukraine because of a pricing dispute (about 80 percent of Russian gas headed for Europe traverses Ukraine). Tymoshenko traveled to Moscow Jan. 17, where she and Vladimir Putin, her Russian counterpart, held an all-night session behind closed doors, during which they hammered out an accord that permitted shipments to resume.

Under the accord, Ukraine agreed to pay $360 per 1,000 cubic meters of gas: The amount was 20 percent less than what Moscow was aiming for, but was significantly higher than the $200 that Kiev wanted. At the same time, Ukraine agreed not to raise Russia’s transit price.

Observers took note that it was the two countries’ prime ministers — and not their heads of state, Yushchenko and Dmitri Medvedev — who were tasked with, or more likely took on the responsibility for, brokering the deal. Equally significant was the fact that the two leaders seemed to work well together, a remarkable development given both the acrimonious atmosphere that had characterized the gas dispute and relations in general with the Ukrainian president.

Tymoshenko "has added to her image as a ‘can do’ leader,” wrote Christopher Weafer, chief strategist at the Russian bank UralSib.

“Tymoshenko was the winner,” agreed Mikhailo Pogrebinsky, director of the Kiev Center for Political and Conflict Studies. “She showed herself to be a more acceptable partner for Russia — one with which it is difficult, but in the end possible, to reach agreement.”

Pogrebinsky and others also said that Tymoshenko strengthened her position by apparently eliminating RosUkrEnergo — which is owned by Russian gas giant Gazprom and two Ukrainian businessmen — as the intermediary company that sells Russian gas to Ukraine.

RosUkrEnergo’s activities are highly opaque, but analysts believe — without any documentary proof — that the company, which enjoyed vast profits from its middleman position, is linked to Tymoshenko’s political rivals. By removing it, Tymoshenko has simultaneously added an element of transparency to the Ukrainian gas trade and possibly starved a major source of financial support for her competitors.

“Tymoshenko came out of the tawdry affair looking better than President Victor Yushchenko,” according to an editorial in the English-language Kyiv Post. “He emerged from the deal looking like an incompetent, corrupt bumbler who got caught trying to prop up the shady RosUkrEnergo for reasons of personal gain.”

Tymoshenko's victory may be fleeting, however. The ink was scarcely dry on the agreement before knives were drawn among the Ukrainian political elite, pointing towards further infighting and possibly political deadlock. Oleksander Shlapak, Yushchenko's economic aide, said that the deal might have to be re-negotiatiated. And the president himself lashed out at Tymoshenko, albeit without mentioning his one-time Orange Revolution ally by name.

"We must not blindly believe alluring promises,” he said. “We must not blindly believe politicians who, within an instant, betray the national interest.”

The prime minister gave as good as she got: “I believe that if the president could have secured better conditions, there was no one to stop him.”

Tymoshenko, 48, is a controversial figure in Ukrainian politics. She is a striking figure who sports a halo of blond braid wrapped around her head — almost giving her the air of a mythical heroine. Some supporters practically worship her. Her critics, meanwhile, claim she is corrupt and voraciously ambitious, and point to her extensive involvement with the country’s energy sector, both as a businesswoman and as government deputy minister. She is sometimes referred to as the “gas princess” or “Lady Yu.”

She is also the political leader most closely associated in the public mind with the economy, and as the country’s financial woes deepen, she may suffer for this. Analysts anticipate political and social unrest in the spring.

“The most important issue at the moment is the economic crisis,” said Volodymyr Fesenko, director of the Penta Center for Political Studies. “Tymoshenko’s victory may be relative and short-term.”

Source: GlobalPost

The CIA's Secret Triumph

MOSCOW, Russia -- Under the rules of the Swedish Academy, the Nobel Prizes archives may be opened 50 years after the awarding takes place. Thus, the documents of October 1958 may be declassified in January of this year.

Russian poet Boris Pasternak
This is a notable date for Russian culture. That year, the Academy awarded a Nobel Prize in literature to Soviet poet Boris Pasternak.

Now that the archives have been declassified, the circumstances of the loudest scandal in the history of Nobel Prizes will be finally scrutinized.

The story of the Pasternak award was crowned with quite a sensation. It transpired that the CIA made a contribution to the award. It was the CIA that printed the first Russian version of "Doctor Zhivago" without which Pasternak's nomination would not have been discussed because the Nobel Committee only reviews fiction in the original.

Needless to say, Pasternak himself had nothing to do with intelligence. His genius was simply used as a powerful weapon in the Cold War between the West and the East. Until recently, this detective story has been couched in a thick veil of secrecy. It was solely owing to the persistence of philologist Ivan Tolstoy (from the famous Tolstoy family) that the secret was revealed and made public. It took him 20 years to resolve the enigma.

Boris Pasternak started writing his legendary novel soon after the end of WWII, in 1946. It took him ten years. Upon completing it in January 1956, Pasternak started to wonder what to do next. The novel that was eventually called "Doctor Zhivago" (the initial title was "The Burning Candle") ran counter to the principles of Soviet literature. Should he just shelve it until better times? But when will these better times come, if at all? Also, he was no longer young.

Pasternak decided to try to get it published. He took the novel to the editorial office of the popular literary journal Novy Mir. At the same time he gave a huge folder with its typed version to the young Italian journalist Sergio D' Angelo.

A Moscow radio broadcaster, the Italian was looking for new Soviet novels for Giangiacomo Feltrinelli, a Milan-based ambitious young Italian publisher with communist views. Having found out about the new novel, the Italian journalist rushed to Peredelkino, outside Moscow, where the writer lived, and Pasternak handed it to him without any hesitation.

Having learned about this, Pasternak's wife Zinaida almost burst into tears. She had no illusions about the consequences - arrest, a labor camp, separation. The poet was trying to put a good face on the matter, and reassured his family but felt that the clouds were gathering over him.

Nonetheless, he decided to go to the end and gave two more typed copies to another two foreign visitors - British essayist and philosopher Isaiah Berlin, and French specialist in Slavic Studies Helene Peltier.

At this point, secrecy cast its first shadow on the story. The CIA found out about Pasternak's novel. Its Russian section understood full well what political benefits could stem from the publication of a novel which was bound to be banned at home. It only remained to get the text.

Here comes the most mysterious episode of the story. The aircraft carrying a passenger with a copy of the novel was ordered to land in the airport of Malta in the Mediterranean. The pilot apologized for the stopover.

The annoyed passengers went to the airport's departure lounge, while CIA agents found the right suitcase, took out the text, and photographed it page by page. They put the text back into the suitcase, and two hours later the aircraft was airborne again. The passengers arrived at their destination. The owner of the suitcase was in blissful ignorance of what had happened with it.

Approximately at the same time the KGB found out that Pasternak's novel had been taken abroad. The events began snowballing into an avalanche. The Novy Mir journal rejected the novel, and reprimanded the poet for the inadmissible text; the KGB and the Soviet Communist Party Central Committee exerted pressure on the publisher from Milan through the Italian Communist Party, but Feltrinelli published the novel and demonstratively quit the party.

On November 23, 1957, the novel went out of print in Italian and exceeded all expectations. Its first edition of 12,000 copies was sold out in a matter of days. More copies were printed every two weeks but a boom did not subside. It became world famous, and was translated into English, German, and French. In the spring of 1958, Albert Camus nominated Pasternak for a Nobel Prize.

However, under the Nobel Committee's rules, the novel had to be in the original. Here the CIA-copied version came in handy. Every hour counted in what was a now-or-never situation. Through proxy funds, the CIA gave money to urgently publish the novel in Russian. To cover up the traces of stealing, the CIA made galleys from the photocopies and printed the Russian version in the academic publishing house of Muton in the Hague without any copyrights in the August of 1958.

The Swedish Academy had no more obstacles for awarding Pasternak, and on October 23, 1958 the Nobel cannon shot at the Soviet government. Pasternak received a Nobel Prize for outstanding merits in modern lyric poetry and for continuing the traditions of the great Russian novel.

Pasternak sent a reply cable: "Immensely thankful, touched, proud, astonished, abashed."

He naively hoped to go to Stockholm and receive his Nobel Prize from the hands of the King but the authorities twisted the arms of the woman he loved, Olga Ivinskaya. Stunned by such consequences and gripped with fear for his beloved, Pasternak turned down the Nobel Prize, and sent a relevant cable to Stockholm.

The CIA operation was a success. The Soviet Union received a tangible blow.

The Pasternak story revealed the shattering power of anti-Soviet literature in the West. Pasternak paved the way to a whole series of anti-Soviet publications which were crowned with the sensational "Gulag Archipelago," for which the dissident Alexander Solzhenitsyn was also awarded a Nobel Prize.

Source: RIA Novosti

Cleaning Up Ukraine

LONDON, England -- Ukraine needs to reform its corrupt gas sector and reduce its dependency on Russia. It's in the EU's interest to help.

Russia spread its message in this website and in EU capitals that this was a "commercial" dispute, and that Ukraine was to blame.
The war in South Ossetia in August last year evidently taught Russian leaders the value of PR: however shaky your story, it's worth getting your side out there as loudly and as often as possible.

Well before the dispute began, the Russian side was spreading its message in foreign-language media and in EU capitals that this was a "commercial" dispute, and that Ukraine was to blame. They set up a website to provide "facts" about the dispute. The site also carried English-language media reports that followed their interpretation.

Even if we accept the argument that the spat began as a commercial argument, Moscow's PR efforts, combined with their actions during the crisis, have demonstrated a clear political aim: to discredit Ukraine and its leaders in the eyes of the EU and Ukrainians.

By showing Ukraine as an unreliable transit partner, Russia hoped to push its case for the Nord and South Stream pipelines bypassing the country and to gain some amount of control over Ukraine's pipeline network. In this way it hoped to undermine Ukraine's primary bargaining tool in gas negotiations: its control over gas pipelines.

Two of the main accusations about Ukraine's reliability need questioning. First, Russia accused Ukraine of siphoning gas from transit supplies, the reason originally given for cutting flows. The jury remains out on this, but EU energy commissioner Andris Piebalgs has said he has seen no evidence that Ukraine took gas without permission.

Second, Russia accused Ukraine of not keeping its side of the agreement to resume gas supplies to Europe on 13 January. But not only did the Ukrainian side complain that the gas was sent in such a way that made delivery impossible, this was also confirmed by independent analysts and EU sources.

To deliver the gas would have required supplies to be cut off to the populous areas in the east of the country, leaving the Ukrainian authorities between the devil (an angry EU waiting for deliveries) and the deep blue sea (a backlash from Ukrainians already angry at their handling of the economic crisis).

One of the more ironic accusations from the Russian side was made by Russian prime minister Vladimir Putin on 8 January, when he blamed the crisis on the "high degree of official corruption" in Ukraine and the fact the Ukrainian leaders were fighting for "the 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."

The intermediary concerned was RosUkrEnergo, set up by none other than then-Russian president Putin (along with ex-Ukrainian president Leonid Kuchma) – 50% of which is owned by Gazprom.

Gazprom itself has been described by one economist as "effectively an economic crime syndicate"; insiders have spoken of private slush funds and given detailed accounts of the complex nexus of political and business interests at its heart.

Ukrainian prime minister Yulia Tymoshenko has, by and large, been singing from the same hymn sheet in obliquely accusing Ukrainian president Viktor Yushchenko of corruption through RosUkrEnergo.

It suits both her and Putin to try to weaken Yushchenko. Tymoshenko is involved in a long-running political battle with the Ukrainian president, and should win points at home for showing she can do a deal with Russia and removing RosUkrEnergo from the trade; Putin is furious with Yushchenko for his moral support of Georgian president Mikhail Saakashvili during the war with Russia in August last year and clearly wants a more pliant leader in Kiev.

But there has been one clear winner in the gas crisis – Ukraine's pro-Russian opposition leader Viktor Yanukovych. Already benefiting from public dissatisfaction at the authorities' handling of the economic crisis, the man defeated by the Orange Revolution has been able to pose as the only one who could strike a good deal with the Russians and follow Moscow in blaming Ukraine's "Orange" leaders for the problem.

A recent poll put support for Yanukovych in the upcoming presidential elections at 23%, compared with Tymoshenko at 14% and Yushchenko at 5%.

The relative success of Russian PR (compared to previous efforts) has been enhanced by the Ukrainian leaders' propensity to consistently shoot the country in the foot with their infighting and inability to deal with the corruption that cripples the country's gas sector.

But the PR drive failed in its aim to obfuscate the corruption problems on Russia's own side of the gas trade and redefine our image of Gazprom as a purely commercial entity. In fact, by focusing on the Ukrainian side of the problem it has highlighted the country's potential role in a solution.

By giving Ukraine incentives to clean up its gas sector, the EU can put to the test the claims of all three of its top political figures to be pro-European and at the same time reduce Ukraine's dependence on Russia.

Source: Guardian UK

Gas Deal Gives Opportunites To Make Tough Decisions

KIEV, Ukraine -- Ukraine, by signing a normal, long-term contract with Russia for Central Asian gas, took a major step forward, bringing it in line with European economic realities.

An employee at the Orlovka gas-compressor station near the Ukrainian-Romanian border.
How will the new price arrangement impact on the Ukrainian economy in 2009 and beyond? Will the country be able to pay the new gas prices? Will it finally begin to revamp its energy intensive economy and live within its means?

For the past 10 years, Ukraine has been buying Turkmen gas, the price of which was not linked to the price of oil or to the laws of supply and demand. The formula for determining the final price was based on the arbitrarily negotiated price reached by Ukraine (later by Gazprom) with the unstable and highly corrupt former president of Turkmenistan, Saparmurat Niazov, plus the cost of transit from Turkmenistan to the Ukrainian border –roughly $40 for 1,000 cubic meters.

It is therefore incorrect to say, as Vladimir Putin often does, that Russia has been subsidizing the price of gas to Ukraine. RosUkrEnergo’s Dmytro Firtash also has spread this lie in his recent television appearances by claiming that he and RUE subsidized Ukraine to the tune of over $2 billion. The truth is that Turkmenistan sold gas at a lower price than Russia, and Ukraine took advantage of this. The only subsidy was the abnormally low transit tariff Ukraine charged Gazprom and RosUkrEnergo.

The large price difference between Turkmen gas and Russian gas – which was pegged to the price of oil – left a large margin of profit for intermediary companies such as RosUkrEnergo. It bought Turkmen gas as part of the Russian-Ukrainian gas contract and then resold part of the volume to European customers at close to European prices, making a huge profit on this.

According to experts, the average European price for gas in 2009, barring any major jump in the price of oil, will be in the range of $210-$240 for 1,000 cubic meters.

This will create mild hardships for the already ailing Ukrainian chemical and metallurgical industries, which will have to pay slightly higher prices for their energy-intensive production needs. These prices, however, will be lower than what European chemical and steel producers are paying, but higher than those paid by Russian producers, Ukraine’s main competitors.

Yet grave problems are bound to arise for Ukraine in the future. These need to be examined in order for future Ukrainian governments to prepare for the gathering storm.

The newly signed Ukrainian-Russian gas contract will expire in 2019. A major provision in the contract obliges Ukraine to pay the full European price for gas (without the 20 percent discount Ukraine will get in 2009) beginning in January 2010. Russia at that time will begin paying Ukraine the European transit tariff for gas going to Europe. Presently this tariff is $1.70 per 1,000 cubic meters for 100 kilometers; in 2010 it is scheduled to rise to about $4. According to press reports, the $4 transit fee will remain fixed until 2019, even if European transit fees increase – or decrease.

In the first quarter of 2009, when the new price of gas will be relatively high, Ukraine should be able to cushion the pain by continuing to rely on its own gas stored underground and not buy large quantities from Gazprom. By the second and third quarters of the year, the price should continue dropping in line with the price of oil 9 months earlier (thus in September 2009, the gas price will be calculated based on the price of oil in January 2009 - $50-$35).

If the world-wide recession ends by late 2009, oil prices are likely to rise. If the recovery continues into 2010 and beyond, it is almost certain that oil prices will rebound to $80-$90 or more per barrel and the European price for gas will reflect these price increases by mid-2011. Ukraine should be prepared to pay about $300-$325 for 1,000 cubic meters of gas at that time. If such a trend continues, it is altogether feasible that Ukraine will pay $350-$450 for 1,000 cubic meters of gas by 2015.

The price for Ukraine in 2015 will also be affected by the North Stream and South Stream pipelines (if they are operational by then) which would most likely lead to a decrease in the volume of Russian gas shipped via Ukraine –thus lowering income from the transit fee.

Ukraine has six years in which to complete a number of critical projects in the energy sphere:

It is essential for Ukraine to drastically reduce its consumption of gas.

The government of Ukraine must encourage new drilling for gas, including coal bed methane and remove the artificial barriers it has created which discourage foreign investors from entering the Ukrainian energy market.

Ukraine should proceed to build an LNG regasification terminal on the Black Sea in order to diversify suppliers. By placing all its bets on Central Asian or Russian gas producers, Ukrainian governments could well find themselves without gas in the future.

The price of gas sold to Ukrainian consumers, both industrial and household users, should be raised in increments to reflect the real price of gas and not maintain a foolish, politically motivated, subsidized price.

Those responsible for energy policy must once and forever come to terms with reality. There is no going back to the old, corrupt schemes with crooked Central Asian leaders or using fly-by-night intermediaries. If Ukraine is to survive as a country its leaders must make hard and painful decisions.

Source: Kyiv Post

Dubyna Hospitalized After Emergency Heart Surgery

KIEV, Ukraine -- Oleh Dubyna, chairman of Ukraine’s state gas company, Naftogaz, was hospitalized and underwent emergency heart surgery, Prime Minister Yulia Tymoshenko said appearing on TRK Ukraina television channel late on Jan. 23.

Naftogaz head, Oleh Dubyna.
“The head of Naftogaz is in intensive care; he had a very difficult operation on his heart,” she said adding that stress during the gas crisis likely built up upon Dubyna.

Tymoshenko said that Dubyna was under a lot of stress during the gas dispute because Ukraine's president, Victor Yushchenko, gave him "diametrically" different instructions from her government.

"It was very difficult for him," she adding that the president and lawmakers in the Regions party close to middlemen company Rosukrenergo purposefully tried to sabotage her chances of finalizing an agreement before the New Year.

Interfax-Ukraine reported that Dubyna was in stable condition at Kyiv's Feofania hospital, were the country's elite are traditionally treated.

Source: Kyiv Post

US 'Welcomes' End Of Russia-Ukraine Gas Dispute

WASHINGTON, DC -- The United States said Thursday it "welcomes" the end to the gas dispute between Russia and Ukraine, and offered to help the European Union's efforts to enhance energy security.

Employees at the gas-compressor station Orlovka in the Izmail region, by the Ukraine-Romanian border.
"The United States welcomes the resolution of the gas dispute between Ukraine and Russia. We understand gas flows have been restored to European customers," said acting State Department spokesman Robert Wood.

Both Russian state-run energy giant Gazprom and its Ukrainian counterpart Naftogaz confirmed that gas flows had resumed after they signed a 10-year contract on Monday to end their dispute.

"This incident underscores the need for transparent, market-oriented arrangements for the sale and shipment of natural gas and the importance of diversifying energy supplies," Wood added in a statement.

"The United States stands ready to support European Union efforts to enhance its energy security."

The crisis erupted on January 1 when Russia cut gas to Ukraine's domestic market over unpaid debts and demands for a higher price in 2009.

It escalated six days later, when all supplies for Europe transiting through Ukraine were halted, with Moscow accusing Kiev of stealing gas. Ukraine vehemently denied the allegation.

Source: AFP

Ukraine President, Prime Minister Row Again Before Key Meeting

KIEV, Ukraine -- Ukraine's president and prime minister, at odds over the merits of a deal to restore Russian gas flows to Europe, traded new barbs on Thursday ahead of a meeting of top officials about the agreement.


Prime Minister Yulia Tymoshenko, who praises the accord and the 2009 gas price as a "victory" for Ukraine, said the National Security and Defence Council had no right to derail the deal she struck at weekend talks in the Kremlin.

President Viktor Yushchenko says the deal's provisions for Ukraine to pay European prices less 20 percent damaged the national interest. He made no direct reference to the premier but warned in a speech against "alluring promises".

Yushchenko and Tymoshenko were allies in the 2004 "Orange Revolution" that swept Ukraine's pro-Western leaders to power. They have since been at odds on nearly all policy issues, particularly since Tymoshenko was made prime minister for a second time in late 2007.

In an address marking the 1919 proclamation of a shortlived Ukrainian state that was crushed by the Bolsheviks, Yushchenko said Ukrainians would not be duped by groundless pledges.

"We must not blindly believe alluring promises. We must not blindly believe politicians who, within an instant, betray the national interest," he told dignitaries.

Tymoshenko said a meeting on Friday of the National Security and Defence Council could in no way alter the deal's provisions to do away with what she denounces as "corrupt" intermediaries in trade between the Ukrainian and Russian gas companies.

"I will not allow the president to bring back corrupt intermediaries between (Russia's) Gazprom and (Ukraine's) Naftogaz, no matter what sort of council meeting he holds," Tymoshenko told a news conference.

"I believe that if the president could have secured better conditions, there was no one to stop him. A meeting of the Council should have taken place in the middle of the crisis."

The premier says the Council, whose decisions must in theory be implemented under the constitution, has no powers to overturn the deal clinched in two tough Kremlin negotiating sessions.

In her comments, Tymoshenko renewed her attack on the central bank, saying its "speculative manoeuvres led to such an abrupt and groundless fall in the hryvnia (currency), which has placed the economy in such a difficult position".

The hryvnia fell to 50 percent of its former value late last year, but has since regained ground.

Tymoshenko has urged the president to sack the central bank chairman and said parliament must determine his responsibility in the currency's decline, which has increased the cost of loans taken out by millions of Ukrainians to purchase cars or homes.

A year before a presidential election, Tymoshenko rides high in polls just behind Viktor Yanukovich, the Kremlin-backed candidate initially declared the winner in a rigged 2004 presidential poll that sparked the "Orange Revolution" protests. Yushchenko trails far behind in surveys.

Source: Kyiv Post

It's Been A Gas

KIEV, Ukraine -- As traumatic and as pointless as the three-week gas war seemed to be, Ukraine actually gained a lot from this open conflict. True, the nation’s reputation and its ambitions to integrate more closely with the West took a severe beating.

Prime Minister Yulia Tymoshenko
Many worldwide got the unfortunate impression that Ukraine is ruled by corrupt, incompetent leaders who don’t pay their bills, who steal gas and who don’t play by market rules.

Russia picked this fight for self-serving reasons and its reputation slid much further than Ukraine’s.

But the difference is that Russian leaders don’t care much about their international reputation or, particularly, about integrating with Western institutions. Ukraine does.

Still, the agreement brokered by prime ministers Yulia Tymoshenko and Vladimir Putin – at least as we, Brussels and Washington understand it – will be a big help for two reasons: market prices and transparency.

If Ukraine is finally forced to buy gas at market prices, then perhaps the nation will be less wasteful and more resourceful about its vast energy needs, as well as less subservient to manipulation from Moscow.

Also, if the deal eliminates RosUkrEnergo and other shady intermediaries once and for all, then the notoriously corrupt gas trade stands a chance of being cleaned up.

Tymoshenko came out of the tawdry affair looking better than President Victor Yushchenko.

Yushchenko emerged from the deal looking like an incompetent, corrupt bumbler who got caught trying to prop up the shady RosUkrEnergo for reasons of personal gain.

When Putin, who rules as a Mafia don, can justifiably call you on the carpet for corruption, you are finished politically.

In the end, Yushchenko was left lamely complaining about the price Tymoshenko negotiated.

Still, no true leadership has emerged yet in Ukraine.

Real statesmanship would find ways to improve Ukraine’s reliability, as well as improve its vast but neglected state-owned pipeline network.

Such domestic improvements would let the air out of the arguments for building costly alternative routes – such as North Stream, South Stream and Nabucco – that bypass Ukraine.

Without gas to transport, Ukraine will find itself with hundreds of kilometers of useless pipes.

Source: Kyiv Post

Putin Emerges From Gas Wars With Ukraine’s Yushchenko Sidelined

MOSCOW, Russia -- Russia’s gas agreement with Ukraine will warm up Eastern Europe after 12 freezing days without sufficient heat or power. It may also warm up relations between Prime Minister Vladimir Putin and Ukraine, where the deal elevates Putin’s preferred political power broker and weakens his rival.

Russia's Prime Minister Vladimir Putin (R) and Ukraine's Prime Minister Yulia Tymoshenko shake hands after signing documents during a ceremony in Moscow, January 19, 2009.
The accord let Putin portray himself as a strong leader at a time of economic turmoil and boosted Ukrainian Prime Minister Yulia Timoshenko over Putin’s political foe, President Viktor Yushchenko.

“It certainly looks like a good deal for Putin,” said Chris Weafer, chief strategist at UralSib in Moscow. “He has won his game of chicken with Ukraine. It also looks like a victory for Timoshenko. She has emerged as the can-do politician who brokered a deal.”

Yushchenko is pushing for Ukraine to join the European Union and the North Atlantic Treaty Organization over Russian objections. While he and Timoshenko came to power on a pledge of pulling Ukraine from Russia’s influence in the 2004 Orange Revolution, Yushchenko’s popularity has tumbled since a similar gas price dispute in 2006 and Timoshenko has been more willing to deal with Russia.

Russia emerged with its reputation in better shape than after a previous attempt at pushing a West-leaning neighbor around: the August military invasion of Georgia.

Gas Standoff

Putin and Timoshenko presided over the signing of a 10-year contract yesterday, ending a standoff that deprived millions of Europeans of heat and power. Both countries’ reputations have been battered as European leaders called for the building of alternative pipeline routes and faster implementation of nuclear power projects.

Putin took pains to praise Timoshenko after the accord was signed and promised to do “everything we can to support Ukraine.”

“These are the best possible agreements and are fully in the interests of both Russia and Ukraine,” he said. “In this very complicated situation, she took upon herself the responsibility for making these most important decisions, which allowed us to find a way out of a dead end.”

Putin has weakened Yushchenko, 54, more than he was able to undermine Georgian President Mikheil Saakashvili after Georgia’s army was routed in a five-day August war. Russia invaded to protect local Russians in the separatist region of South Ossetia.

Sagging Popularity

Saakashvili, who also is pushing to join NATO, remains in power as his opposition flounders. Yushchenko’s party has a popularity rating of 4.5 percent, according to a survey last month by the Kiev-based Razumkov Center for Economic and Political Studies.

Saakashvili, 41, also can boast pledges from Washington to rebuild the nation’s shattered military and a promise to provide Georgia with $1 billion in humanitarian and economic assistance.

“Saakashvili is luckier,” said Yulia Latynina, a political commentator on the Ekho Moskvy radio station.

In Ukraine, the currency has tumbled 80 percent, the government has sought $16.5 billion in aid from the International Monetary Fund and yields on Ukraine’s $105 billion of government and company debt are the highest of any country with dollar- denominated bonds except Ecuador, which defaulted in December.

To be sure, even if Yushchenko is knocked out of the political arena, Timoshenko, 48, would still face a serious fight against pro-Russian opposition leader Viktor Yanukovych.

‘Continued Infighting’

Ukraine is tired of the “continued infighting between the president and prime minister,” said Kaan Nazli, director of Medley Global Advisors LCC, a New York-based policy intelligence service. “The conflict will first and foremost benefit Yanukovych as the polls show a majority of the Ukrainian public disagree with the government’s handling of the conflict.”

Russian gas flows via Ukraine were halted on Jan. 7 after OAO Gazprom accused Ukraine of siphoning off transit flows for its own needs, a charge the country denies. Europe relies on Russia for a quarter of its gas, 80 percent of which is carried via Ukraine.

The deal will see Ukraine pay higher, European prices for Russian gas starting in 2010, after a 20 percent discount this year. At the same time, 2009 transit fees paid by Russia to send gas through Ukraine will remain at last year’s level.

Russia can use the money. While gas prices are based on oil prices, currently falling, Gazprom would have earned an extra $12 billion last year had it charged Ukraine market prices for gas, according to Uralsib. The deal comes as Russia’s economy is poised to enter a recession this year and budget revenue is falling on depressed demand for the nation’s main export.

Putin, 56, touted the accord as putting an end to Soviet-era discounts for Russia’s neighbors and a final shift to transparent market pricing.

“Today’s decision unblocks a range of issues in the economic sphere,” he said after the signing.

Source: Bloomberg

Gas Issue Points To Ukraine's Failures

KIEV, Ukraine -- In the heady months following the Orange Revolution, after the crowds had swept the democratic opposition into power but before the hopes inspired by the movement had begun to fade, Ukraine's new, American-backed leaders decided to renegotiate the terms on which the country purchased natural gas from Russia.

A worker in Kiev views an indicator board at the main gas distribution center of Naftogaz, the state energy company.
President Viktor Yushchenko, the former banker who defeated the Kremlin's favored candidate, had campaigned on a promise to fight corruption, using the rallying cry, "Put the bandits in jail!" The gas contract with Russia, a notorious source of patronage and cash for the old regime, was a natural target for his new government.

But now, as Ukraine prepares to sign an accord ending an 18-day Russian gas embargo that disrupted energy supplies in much of Europe, the consensus here is that instead of cleaning up the gas trade, Yushchenko's first gas deal left this former Soviet republic more vulnerable to bullying by Russian leaders determined to thwart its turn to the West.

Concessions made three years ago -- under suspicious circumstances, some say -- sharply reduced Ukraine's leverage against Russia in this month's crisis.

More broadly, according to a wide spectrum of political figures, journalists, diplomats and analysts, the Orange Revolution's failure to eliminate the corrupting influence of cheap Russian gas poisoned Ukraine's transition to democratic politics, tarnishing its reputation abroad and leaving much of the public here disillusioned.

"There are no reformers left," said Alexander Dubinsky, a business journalist for the Ekonomicheskie Izvestia newspaper. "After a reformer gains power, he becomes corrupt, too. That's what people think now."

In explaining the importance of access to Russian gas in Ukrainian politics, he added: "All the big money here was made in gas. If you control the gas, you can control industries, you can control politicians."

Early Sunday, Russian Prime Minister Vladimir Putin and his Ukrainian counterpart, Yulia Tymoshenko, emerged from late-night talks in Moscow with the outline of a deal to end the midwinter standoff over gas prices that has left large parts of Europe struggling to maintain heat and electricity for 12 days.

Russia said it would grant a 20 percent discount to Ukraine on European gas prices this year, while Ukraine agreed not to raise the low fee it charges Russia to use its pipelines to deliver gas to Europe.

Tymoshenko was scheduled to return to Moscow on Monday to sign the contract, but the details, which have derailed previous deals, were still being worked out.

Depending on the fine print, the agreement will probably mean a gas price not far from the final negotiating positions of both sides before talks broke down, suggesting that the standoff has always been less about commercial differences than political ones.

Many in Ukraine and the West have seen it as an attempt by Russia to assert its influence in the region and weaken the pro-Western government of a neighbor, a sort of non-violent sequel to its August war against Georgia.

But the crisis also highlighted much of what has gone wrong with Ukraine's experiment in democracy, including a crippling feud between the Orange Revolution's leaders, Yushchenko and Tymoshenko, and a weak judiciary that has been unable to address pervasive allegations of corruption.

The political disarray has played into the Kremlin's efforts to portray Ukraine to the world as a failed state, unfit for membership in NATO and the European Union, and to convince the Russian people of the superiority of Putin's more authoritarian model of government.

"They simply didn't know what to do, and therefore made many mistakes," said Viktor Yanukovich, the pro-Kremlin politician who was defeated in the Orange Revolution and who now leads the largest party in parliament.

Russia has sold natural gas to Ukraine at below-market prices since the fall of the Soviet Union, a legacy of the communist planned economy. But many scholars say cheap gas has hurt Ukraine more than it has helped, creating opportunities for corruption because billions can be made by those with access to the fuel.

The Orange Revolution raised hopes for reform, with the government launching an investigation into the gas sector.

But in September 2005, Yushchenko dismissed Tymoshenko as prime minister, and in January 2006, after a brief standoff, Ukraine and Russia struck a new gas deal. Yushchenko hailed the contract as a victory because it allowed Ukraine to continue receiving gas at subsidized prices for another year. In exchange, Ukraine agreed to charge Russia a low fee to use its pipelines.

It soon became public, however, that the contract allowed Russia to increase gas prices every year but fixed Ukraine's transit fee for five years, a condition that severely weakened its negotiating position this month.

In addition, the deal gave a shadowy intermediary company, RosUkrEnergo, full control of gas imports from Russia, as well as access to the Ukrainian domestic market. Gazprom, the Russian gas monopoly, owns half the firm, and two Ukrainian tycoons say they own the other half. Tymoshenko says the company is a vehicle for corruption benefiting both Russian and Ukrainian officials.

"It was a huge opportunity lost," said Edward Chow, a senior fellow at the Center for Strategic and International Studies in Washington, who argues that Ukraine's failure to reform its gas sector continues to "destroy public trust in its politics, and undermine the interests of its European neighbors."

The gas deal came under attack in the newly assertive Ukrainian press. Yushchenko stood by it while his allies accused its most prominent critic, Tymoshenko, of being upset because her own attempts to profit on the deal had been thwarted. No investigation ever sorted through the competing accusations.

Igor Burakovsky, director of the Institute for Economic Research and Policy Consulting in Kiev, said the situation is typical of Ukraine's incomplete democratic transition. There is free speech and wide access to information, he said, but fervent debate rarely leads to action because of the weakness of the courts and other institutions.

"It creates a cloud of cynicism," he said. "People believe everyone is a thief, but nobody is ever punished."

U.S. officials have urged Ukrainian leaders to reform the gas sector by boosting domestic production, improving energy efficiency and eliminating RosUkrEnergo. But analysts say corruption has worsened because political uncertainty has encouraged short-term thinking. Yushchenko has appointed four prime ministers in as many years.

In 2007, the state energy firm, Naftogaz, tried to determine what it should be charging Russia to use its pipelines. Yuri Vitrenko, the economist who supervised the analysis, concluded Ukraine was getting paid much less than it cost to operate the pipelines and recommended a sharp increase. But the government responded by asking him to justify the lower fee. "They just wanted to keep the old deal," he said.

Yushchenko's failure to bring corruption under control has contributed to a precipitous drop in his approval ratings, from highs near 75 percent after the Orange Revolution to less than 5 percent now.

Bohdan Sokolovsky, Yushchenko's representative on energy security, said the president was not directly involved in the 2006 gas deal and argued it may have been the best contract possible at the time. But he acknowledged that the government needed to do more to reform the gas sector.

"We remain critical ourselves about the too-slow pace," he said, especially "because there were higher expectations" after the Orange Revolution. He added that the government was continuing to work on the problem "step by step."

"The less politics in the energy sector, the more just and open it will be," he said. "This is the position of President Yushchenko."

Tymoshenko, who was appointed prime minister again in late 2007 and is expected to challenge Yushchenko for the presidency this year, told reporters last week that Ukrainian politicians derailed a December deal because she had insisted on cutting out RosUkrEnergo. She did not accuse Yushchenko directly, but only the president would have the power to overrule her.

An official in the president's office fired back Friday, accusing Tymoshenko of being "hooked by Russian special services" and recalling that she made a fortune in the 1990s as chief of a gas trading firm that was investigated for criminal activity.

"We think it was a crime," Hryhoriy Nemyria, one of her deputy prime ministers, said of the 2006 gas contract. "It basically created a situation of strategic vulnerability for Ukraine."

Source: Washington Post

Russia And Ukraine Announce Deal On Gas Dispute

MOSCOW, Russia -- The prime ministers of Russia and Ukraine announced a deal early Sunday to settle the gas dispute that has drastically reduced supplies of Russian gas to Europe for nearly two weeks.

Russian Prime Minister Vladimir Putin (L) speaks with Ukrainian Prime Minister Yulia Tymoshchenko (R) in Moscow. Gas supplies to Europe will resume "shortly" after Russia and Ukraine clinched a deal Sunday to resolve their energy crisis in talks in Moscow, Putin said.
Russian Prime Minister Vladimir Putin said Ukraine will pay 20 percent less than the European price for the gas this year. This means a substantial increase for Ukraine in the first quarter but the price could fall significantly later in the year as gas prices are expected to drop.

Ukraine Prime Minister Yulia Tymoshenko said natural gas supplies would resume once the two countries' gas companies sign a contract. It was not clear how soon this would happen. Russia's Gazprom and Ukraine's Naftogaz, both state controlled, were told to prepare the documents.

The two leaders reached the agreement in talks that stretched into the early hours of the morning after a meeting Saturday with leaders from the 27-nation European Union ended without a resolution.

The EU normally receives about one-fifth of its gas supplies through Ukraine. Nations in eastern Europe that rely on Russia have been left with virtually no new supplies.

The EU threatened to review its relations with both countries if their dispute is not resolved this weekend. EU spokesman Ferran Tarradellas said Saturday the EU delegation was "encouraged by the discussions" because Russia and Ukraine were seeking solutions rather than just blaming each other, but "what matters are results."

Ukraine paid $179.50 per 1,000 cubic meters of gas in 2008, less than half the price paid by European countries. The European price for the first quarter of 2009 is about $450 but is expected to fall to reflect the decline in world oil prices.

Before talks broke down on Dec. 31, Russia had offered Ukraine a price of $250 for 2009, which Ukraine refused.

The two countries also reached a deal Sunday on the price Russia will pay Ukraine for transporting gas to Europe through its pipelines. Ukraine had insisted that if it paid more for gas, Russia should pay market prices for transit.

But Putin said Sunday the discounted transit price would remain in place for 2009. Beginning on Jan. 1, 2010, however, Ukraine will pay full price for gas and Russia will pay market prices for transit, he said.

Before flying to Moscow for the talks, Tymoshenko acknowledged that her country's image had been damaged by the dispute. But she said reaching a deal would be extremely difficult.

Putin, in Germany early Saturday, reiterated accusations that Ukraine has stolen gas and is trying to use its control over pipelines to "blackmail" Russia into selling Ukraine gas at an unreasonably low price.

Putin has promoted a possible stopgap solution, enlisting leading European gas companies for a consortium that would pay for "technical gas" needed to get Ukraine's pipeline up and running and ensure deliveries.

Russia's President Dmitry Medvedev said Saturday that proposal was still on the table, but it was unclear whether Ukraine would agree. An aide to Ukrainian President Viktor Yushchenko, who refused to come to Russia for the conference, earlier this week dismissed the idea as a Kremlin attempt to acquire control of Ukraine's pipeline network.

Another possibility, Medvedev said, would be a credit in a European bank that would be used to ensure Russia is paid.

Russia stopped shipping gas to Ukraine for domestic use on Jan. 1 when the countries could not agree on a price. It then accused Ukraine of siphoning off gas bound for Europe and turned off the taps entirely on Jan. 7.

Russia resumed piping a limited amount of gas toward Ukraine on Tuesday after the EU secured a deal for its monitors to check flows, but the gas did not reach Europe. Russia says Ukraine is blocking shipments to European consumers, while Kiev says Russia wants to send gas along a route that would disrupt supplies to Ukrainian consumers.

Geopolitical struggles over Ukraine's future and export routes for the energy riches of the former Soviet Union underlie the commercial dispute.

Russia and Ukraine have been at odds since the 2004 Orange Revolution brought Yushchenko to power. His avid push for Ukraine to join NATO and the EU has angered Moscow.

Source: AP

German Warning For Russia: Maintain Europe’s Gas Flow

BERLIN, Germany -- Germany, the Western European country with the closest ties to the Kremlin, warned Russia on Friday to abide by its contractual relations, saying its reputation as a reliable supplier of gas could no longer be taken for granted as a result of the two-week gas dispute between Ukraine and Russia that has left millions of homes without heat.

A gas-compressor station near the Ukrainian-Romanian border. Russia and Ukraine were set for a new round of talks Saturday in a bid to resolve their gas dispute that has Europe struggling through winter without crucial gas supplies from the ex-Soviet giants.
Chancellor Angela Merkel of Germany, who met Prime Minister Vladimir V. Putin of Russia in Berlin on Friday evening, made it clear that Russia’s “credibility” was now on the line. “We have to restore trust and responsibility,” she said before the meeting.

A government spokesman, Thomas Steg, said Friday that it was crucial that both Ukraine and Russia “abide by their contractual obligations.”

Large parts of the Balkans, especially Bulgaria, have been without natural gas over the past 10 days during one of the coldest spells of the winter, while Russia and Ukraine have haggled over what price Ukraine will pay for its gas and what price Russia will pay for sending gas across Ukraine.

More than 80 percent of Russian gas destined for markets in Europe is sent through the Ukrainian transit system.

Mr. Putin, in Berlin to meet with energy officials and attend an agricultural fair, proposed the establishment of a consortium of European gas firms that would provide gas to Ukraine and get pipelines to Europe working again “reasonably fast.”

The consortium would provide “technical gas” to Ukraine to build enough compression in the pipeline to begin deliveries to Europe.

Normally, Russia supplies such gas.

However, the idea of a consortium of any sort is likely to raise hackles in Ukraine, where it would almost certainly be viewed as an attempt by Mr. Putin to wrest control of Ukraine’s transit pipeline.

A 2005 pricing dispute was widely regarded by Ukraine as such a power play, while an earlier Russian proposal for a consortium played a significant part in the events that led to Ukraine’s pro-Western Orange Revolution of 2004.

Mr. Putin is scheduled to meet with Ukraine’s prime minister, Yulia V. Tymoshenko, in Moscow on Saturday to discuss ways to resolve the dispute.

Ms. Tymoshenko has had difficult relations with her partner in Ukraine’s governing coalition, President Viktor A. Yushchenko, and Mr. Putin has offered her his support in the past in what his detractors called a transparent effort to split the pro-Western government.

Russia also appears to be trying to gain the backing of the European Union in pressing Ukraine to accept the consortium arrangement; on Friday in Berlin he emphasized that the group’s refusal to criticize Ukraine was an implicit form of support.

In Moscow, Russia’s president, Dmitri A. Medvedev, pursued much the same line. “We are ready to look for any long-term solution,” he said, according to Agence France-Presse. “We hope Ukraine is ready to do the same and that our European partners will help bring about the necessary decisions.” So far, these entreaties have been rebuffed in Europe.

With frustration rising in Europe over the standoff, the European Commission threatened Friday to review its entire relationship with Russia and Ukraine unless there was a breakthrough this weekend.

“We will have to look,” said Johannes Laitenberger, the European Commission spokesman, “point by point, at our relationship with Russia and Ukraine and whether we can continue to do business as usual in these circumstances.”

Source: New York Times

Europe Makes New Threat To Russia And Ukraine On Gas Supplies

BRUSSELS, Belgium -- After days of fruitless diplomacy, the European Commission threatened to review its entire relationship with Russia and Ukraine unless there is a breakthrough this weekend that leads to the restoration of gas supplies to Europe.

A pressure gauge points to zero at a gas compressor station near the border between Ukraine and Poland in the settlement of Drozdovychi, 120 km west of Lviv, January 15, 2009.
Johannes Laitenberger, the European Commission spokesman, said that failing a resolution of the crisis that has left Europe without most of its Russian gas supplies since Jan. 6 the whole range of ties would be reviewed. "We will have to look," he said, "point by point, at our relationship with Russia and Ukraine and whether we can continue to do business as usual in these circumstances."

Absent a resolution, the areas likely to be reviewed are talks on a new partnership agreement with Russia as well as support for Moscow's accession to the World Trade Organization. For Ukraine, the areas to be revisited would include the negotiation of a new association agreement with the European Union, and energy cooperation.

The European Union put its credibility on the line by intervening in the dispute between Russia and Ukraine, which centers on the price Ukraine will pay for its own supplies of Russian gas.

But the diplomatic gamble has failed to get the Russian gas flowing across large parts of Europe. It has also damaged the diplomatic prestige of the 27-nation bloc.

Exasperated European officials are now pinning their hopes for a breakthrough on a meeting Friday in Berlin between Angela Merkel, the German chancellor, and the Russian prime minister, Vladimir Putin. It is Putin's first visit to Berlin since he stepped down as president last March.

Russian officials, who said the country's gas monopoly, Gazprom, had lost significant revenues as a result of the dispute, have sought to place the blame on Ukraine.

But political experts say that neither side is motivated to compromise, because the dispute has never been about the stated issues - natural gas prices and transit fees. Instead, it has been a proxy for more fundamental and insoluble matters, particularly Ukraine's 2004 turn to the West in the "Orange Revolution," which deeply disturbed Russia's nationalists.

Source: International Herald Tribune

Putin Reaps Praise At Home For Freezing Ukraine, European Union

MOSCOW, Russia -- Russian Prime Minister Vladimir Putin’s standoff with Ukraine over supplies of natural gas may have angered European Union leaders and denied heat to millions; at home, it’s winning him plaudits.

Vladimir Putin
In turning off gas supplies to Ukraine and Europe, Putin showed Russians that he is in charge as a recession looms, and that the West must treat him as a key player in global energy. He also is pushing for higher long-term revenue for state-controlled OAO Gazprom, and has damaged West-leaning Ukrainian President Viktor Yushchenko.

“The more they criticize Putin abroad and the more they fight with Russia, the greater his political weight grows,” said Mikhail Delyagin, an economic adviser to former Russian Prime Minister Mikhail Kasyanov and director of the Institute for Globalization Studies in Moscow.

Russia has invited Ukraine and such gas-starved countries as Bulgaria and Slovakia to meet at an emergency summit in Moscow tomorrow. The stalemate has left parts of eastern Europe without fuel during sub-freezing temperatures. Russia and Ukraine blame each other for a failed Jan. 13 deal to resume gas flows, while EU leaders are struggling to end the crisis.

Putin will also get a chance to confront his biggest European customer today when he meets German Chancellor Angela Merkel in Berlin. The get-together probably won’t be acrimonious, according to Jan Techau, a European and security affairs expert at the Berlin-based German Council on Foreign Relations.

‘Friendly Distance’

“Merkel will maintain her friendly distance from Putin,” Techau said. “There is a consensus in Germany that good relations with Russia are important.”

Still, Merkel herself said yesterday that she saw “a general danger that Russia to a certain extent will lose its reliability if we see very long interruptions in gas deliveries.”

The dispute and Russian state-controlled media coverage of it has spotlighted Putin, 56, more than President Dmitry Medvedev, his chosen successor when he stepped down from the presidency last May. As the former KGB colonel was shown pacing Gazprom’s headquarters Jan. 13 on the Vesti-24 channel, Medvedev hosted a Kremlin banquet to honor parents with large families.

Putin’s approval rating was 83 percent in an October poll published by the Moscow-based Levada Center, and almost 90 percent in September after Russia trounced Georgia in a five-day war condemned by the EU and the U.S. No polls have been released since the gas crisis began earlier this month.

Don’t Mess With Russia

“Putin has again shown to the domestic Russian audience that he is a strong leader,” said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow. “His message to the people is that nobody should mess with Russia when he is around.”

He has less sway over the economy. It may contract in the first half, plunging Russia into its first recession since 1998, presidential aide Arkady Dvorkovich said last month. The 2009 budget may show its first deficit in a decade, and Urals crude oil has plunged 70 percent from its July high.

The ruble has lost 27 percent against the dollar since the start of August, reaching a record low yesterday. Russia’s benchmark Micex stock index has tumbled almost 60 percent.

European alternatives to supplies from Gazprom are limited and no final decision has been made on financing the planned Nabucco pipeline, a rival route intended to carry central Asian gas to Europe by 2013.

Long-Term Dependence

“The dependence on Russian gas will remain the European reality for some time,” said Masha Lipman, a political analyst at the Moscow Carnegie Center.

Even if Europe is able to arrange alternatives, Gazprom’s share of the gas market in Europe is unlikely to fall below a quarter in the coming decade, according to Troika Dialog analyst Valery Nesterov.

While the dispute has cost Gazprom $1.2 billion in lost exports since the start of the year, according to Deputy Prime Minister Igor Sechin, the company is poised to benefit in the long run.

It is trying to charge market prices in Ukraine for the first time after allowing discounts that are a relic of the Soviet Union. Had Gazprom received the going rate for Europe last year from Ukraine, it would have garnered an additional $12 billion in revenue, UralSib’s Weafer estimates.

In the end, Yushchenko, who has courted the EU since leading the 2004 Orange Revolution with promises to wean Ukraine off its dependence on Russia, may suffer from his anti-Russian views. He has accused the Kremlin of playing a role in the poisoning attempt on his life during the 2004 presidential election. He also sided with Georgia during the August conflict.

“There is also a personal side to all this, as with the war with Georgia,” said Yulia Latynina, a political commentator on the Ekho Moskvy radio station. “What we are seeing now is a war with Yushchenko.”

The EU may have to weigh Ukraine’s aspirations to become a member against ensuring Russia can fill its energy needs.

“Friendship has certain boundaries,” Nesterov said. “Europe won’t sacrifice its gas to protect the interests of Ukraine.”

Source: Bloomberg

Europeans Souring On Ukraine, Georgia

KIEV, Ukraine -- Feted just a couple of years ago as heroes of democratic revolutions, the leaders of Ukraine and Georgia have fallen from grace among European policymakers.

Georgian President Mikheil Saakashvili (L) and Ukrainian President Viktor Yushchenko.
While there is scant sympathy in Europe for Russia's rough treatment of the two former Soviet republics, European Union officials have been exasperated by the behaviour of the governments in Kiev and Tbilisi.

In private, many EU policymakers blame Georgian President Mikheil Saakashvili for igniting last August's disastrous war with Russia by launching an attack on rebels in breakaway South Ossetia that gave Moscow a pretext to send in the tanks.

And they accuse Ukraine's feuding leaders of exacerbating the current gas crisis with Moscow by undermining each other's negotiations, breaking undertakings to the EU on the smooth transit of gas and dealing with murky intermediaries.

Some charge neo-conservatives in the United States, who have campaigned actively to get both countries into the NATO military alliance, with goading them into conflict with the Kremlin.

"The neo-con agenda in that region has been a disaster for Europe," said an EU foreign policy official, who declined to be identified because of the sensitivity of the issue.

EU officials have been loath to fault either government in public, partly because they enjoy support among ex-communist east European member states, but also because Brussels remains sympathetic to the goals of their democratic revolutions.

However, the crisis over the cut-off of Russian gas supplies to Europe through Ukraine in a dispute over pricing and debt has crystallised European disenchantment with the leaders of Kiev's "Orange Revolution".

European Parliament President Hans-Gert Poettering told Reuters on Tuesday: "If the gas is blocked in Ukraine, then this will seriously damage relations between Ukraine and the EU. It is not in Ukraine's interests to do this."

WORST ENEMIES

An EU energy official close to the negotiations said of Ukrainian President Viktor Yushchenko and Prime Minister Yulia Tymoshenko: "They are their own worst enemies."

The crisis could have been averted, he said, if Yushchenko had not vetoed a New Year's Eve deal negotiated by Tymoshenko with Russian Prime Minister Vladimir Putin on gas prices for 2009 and getting rid of a Swiss-based intermediary company, RosUkrEnergo, which sells all Russian gas to Ukraine.

Yushchenko denied that version of events on Tuesday and insisted he had no links to any gas supply intermediaries.

The rival Ukrainian leaders often seem unaware of how their feuding looks to investors, international financial institutions and the rest of Europe.

They conducted some of their most vicious public exchanges just as an International Monetary Fund delegation was in Kiev last October to negotiate a $16.4 billion emergency loan to Ukraine in the financial crisis as the hryvnia currency tumbled.

The European Commission would like to draw Ukraine and Georgia closer to the EU through European Neighbourhood Policy agreements on trade, economic aid, energy cooperation, institution building and the rule of law, while leaving aside the long-term question of possible membership of the bloc.

But EU officials are dismayed that Ukraine has done so little in economic reform, tackling corruption and improving transparency and the rule of law to qualify for more assistance.

"Instead of fighting corruption, they spend their time fighting each other," the energy official said.

It was politically inconvenient that both states voiced enthusiasm for joining the EU just as the bloc was suffering enlargement fatigue after taking in 10 new members in 2004.

European states led by Germany and France blocked a drive by U.S. President George W. Bush at a NATO summit last year to grant Ukraine and Georgia a roadmap to membership. That prompted some supporters of Bush's "democracy agenda" to accuse the Europeans of appeasing Russia, which vehemently opposes NATO expansion up to its southern border.

The allies declared instead that both countries would eventually join the Western military alliance, but set no date.

NATO foreign ministers shelved the issue in December after Washington recognised its campaign was splitting the alliance.

Now the Europeans are hoping incoming President Barack Obama will not resurrect the issue at NATO's 60th anniversary summit in April. Neither country's behaviour since the last NATO summit has made it a more attractive candidate for membership.

Source: Kyiv Post

Ukraine, Russia To Resume Gas Talks In Moscow On Saturday

KIEV, Ukraine -- In a midnight Jan. 14 phone conversation, Ukrainian Prime Minister Yulia Tymoshenko and Russian Prime Minister Vladimir Putin agreed that both governments will hold gas talks on Jan. 17 in Moscow, according to the Ukrainian government.

Russian Prime Minister Vladimir Putin with Ukrainian Prime Minister Yulia Tymoshenko.
According to the website of the Cabinet of Ministers of Ukraine, Tymoshenko and Putin discussed ways to solve all problems in the gas sphere.

The prime ministers of Ukraine and Russia also discussed conditions to restart Russian gas transit to European Union countries, the press service said.

Moreover, the website says that Tymoshenko sent a telegram to Putin in which she guaranteed that all natural gas which Russia sends through the gas transport system of Ukraine will reach EU nations, minus 8 percent of the gas to be used for technical purposes (for working the gas-compressor units of the transport system).

In same telegram, Tymoshenko promised that Ukraine will pay for natural gas used for technical purposes immediately after the price of Russian natural gas for Ukraine in 2009 is agreed.

"The dialogue between the prime ministers of Ukraine and Russia was constructive and is a positive sign for solving all the problems in the gas sphere. Prime Minister Tymoshenko believes that it will be possible to find a compromise," according to the government website.

Source: Kyiv Post

Power, Politics Fuels Ukraine-Russia War

MOSCOW, Russia -- More than a week after Russia halted natural gas shipments to Europe through Ukraine, about one-fifth of Europe's supplies remains hostage to a conflict that goes far beyond energy prices.

Russian gas monopoly Gazprom Head Alexei Miller (L) and Prime Minister Vladimir Putin, seen at a meeting with Prime Ministers of Slovakia, Moldova and Bulgaria at Meiendorf Castle outside Moscow, Jan. 14.
While the dispute has commercial roots, it is revealing itself increasingly to be a political struggle rooted in Ukraine's embrace of the West, domestic politics on both sides, and the Kremlin's ambition to expand its role as an energy superpower.

So far neither side seems in a hurry to resolve the crisis, which has crippled parts of eastern Europe particularly. Instead, each may be jockeying for long-term advantage in a high-stakes confrontation that could reorder Europe's energy grid.

Negotiations broke down Dec. 31, leading Russia's Gazprom to cut off the delivery of gas intended for Ukraine's domestic consumption the next day. Gazprom cut off all shipments through Ukraine to Europe a week later, claiming Ukraine was siphoning gas that had been meant to transit its territory westward to Europe.

Russian Prime Minister Vladimir Putin has taken a tough line on negotiations - demanding Ukraine's Naftogaz pay Russia the same as far wealthier western European customers, publicly accusing Ukrainian officials of corruption and refusing to ship gas without a contract.

Efforts by the European Union to mediate the dispute have resulted in frustration and confusion. An agreement collapsed Tuesday just hours after gas shipments resumed - when Russia pumped 1.6 million cubic meters of gas, and then accused Ukraine of failing to ship it west.

Some in Europe see this as a heavy-handed Russian power play and Moscow meanwhile has lost significant revenue. But Europe's frustrations could play to Putin's advantage if they help to swing EU opinion in favor of Gazprom's $15 billion Nord Stream pipeline project.

That project would carry gas directly from Russia to Germany through the Baltic Sea, bypassing Ukraine and other former Soviet bloc countries that have developed frosty relations with the Kremlin since the collapse of communism.

Germany supports the project. But some European critics, including Poland, worry that it would increase the continent's reliance on Russian gas.

By playing hardball, Moscow risks spurring Europe to seek alternate sources of natural gas. But they're difficult to find. Efforts to build the so-called Nabucco pipeline to carry gas from Central Asia to Europe has had routing problems. And Russia has signed high-priced contracts with Turkmenistan, the region's main supplier.

Since the end of the Soviet era, Moscow has repeatedly pressed Kiev to sell all or part of its pipeline network. Ukrainian leaders have resisted, regarding the pipelines as their trump card in relations with an increasingly assertive Russia.

Control of the pipeline would save Russia's gas giant Gazprom at least part of the $3 billion it now pays Ukraine in annual transit fees. Last year, Ukraine bought about $8.5 billion worth of gas from Russia.

Russian control of the pipeline network would increase Moscow's economic and political influence in Ukraine, a one-time ally that has tried to forge closer ties to the West since the Orange Revolution of 2004, which brought Yushchenko to power.

Ukraine's president has sought membership for Ukraine in NATO and the European Union, and supported Georgia in its August war with Russia - moves that have infuriated the Kremlin.

For more than a decade after independence, Ukraine was Russia's largest and closest ally in the former Soviet Union, and Moscow sold Kiev gas at a steep discount.

Low prices proved addictive, and today Ukraine's inefficient industries and government-run district heating plants burn vast quantities of the fuel.

A 2007 report by Simon Pirani of the Oxford Institute for Energy Studies said Ukraine has "the world's most energy-intensive economy." In 2005, the report said, Ukraine consumed 73 billion cubic meters of gas, "an amount similar to Japan, Italy, Saudi Arabia or the entire African continent."

Experts say Ukraine wastes so much gas because low prices gave it little incentive to conserve fuel.

Domestic politics in both countries also have made it harder for Russia and Ukraine to settle their dispute.

Yushchenko and Tymoshenko - former Orange Revolution allies - now control competing power centers and are rivals in presidential elections that could come as early as the end of this year.

Neither can afford to be seen surrendering to the Kremlin, nor do they want to be blamed for higher natural gas prices.

Economists warn that the Ukrainian economy, hit hard by the global economic crisis, could be crippled by the price Moscow is demanding. Dozens of major businesses could be forced into bankruptcy.

Russia, too, may be approaching a political watershed in which the gas dispute could play a role.

Some analysts predict that Medvedev will step down in the next few months and call special elections, paving the way for Putin to run for the presidency. Putin stepped down last year, honoring a constitutional limit on Russian presidents serving more than two consecutive terms.

But Putin remains Russia's most prominent political figure, and has taken the leading role in the current gas crisis. A victory over Ukraine in the gas war could rally popular support for Putin's return to the Kremlin.

Source: AP

Putin: Ukraine Is Holding Consumers Hostage

HILVERSUM, Holland -- The Russian Prime Minister Vladimir Putin has severely criticised Ukraine's position in the conflict over gas between the two countries.

President of the EC Jose Manuel Barroso said Europe is losing its patience.
Putin says, Ukraine is holding European consumers hostage by refusing to allow gas through and is abusing its position as transit country.

Putin has called on the EU to take steps against Ukraine.

Kiev has in turn blamed Moscow for the lack of gas getting to eastern Europe.

It says Russia is supplying the gas via the wrong pipelines, making it impossible for Ukraine to transport.

The European Commission meanwhile has had enough of the gas row between the two countries.

President of the EC Jose Manuel Barroso is advising companies affected by the conflict to take legal action.

Source Radio Netherlands

Experts: Ukraine And Russia Have Soiled Their Reputations In Gas Dispute

WASHINGTON, D.C. -- Even though it is still difficult to predict the exact price of the Russian-Ukrainian gas deal, one result is already known: Both countries have damaged their reputations, according to experts who spoke in Washington, D.C., with a video connection to Moscow.

Prince Vladimir, who converted the Kyivan Rus empire to Christianity in 988, may be dismayed at the way the medieval empire's modern-day successor states, Ukraine and Russia, squabbling.
“I do not understand how this can be a Ukrainian-Russian conflict; this is a conflict between very shady businessmen… This is a shady deal and there’s no reason for any state to accept it. We have to understand that [Russia] Gazprom is effectively an economic crime syndicate,” said Anders Aslund, an expert from the Peterson Institute for International Economics at the Carnegie Endowment for International Peace in Washington, D.C., on Dec. 30. The reports on Gazprom say “wonderful profits but no cash flow – this is how Gazprom functions,” according to Aslund.

As for Ukraine, “RosUkrEnergo might be paying as much as half of Ukrainian politics,” the expert believes.

Aslund also highlighted “an amazing tolerance of the European Union countries of these shady organized-crime deals.” There have been many issues in terms of reliability of Gazprom as a supplier for Europe. On the Ukrainian side, other issues exist “about whether Ukraine is a reliable transit country,” according to James Collins, the former U.S. ambassador to Russia.

While negotiations are in process, Gazprom is actively blaming Ukraine by using the website created about this conflict by Gazprom: www.gazpromukrainefacts.com, which struck many as provocative and politically motivated, considering that Ukraine is an important client. “If you open a website against one of your main customers, you cannot be perceived as a commercial organization,” Aslund stated.

The annual conflict between Gazprom and Ukraine has become “a rather regular New Year’s event,” Collins said. However, the situation changed from what it was three years ago. Ukraine cannot expect foreign governments and media to see Russia’s actions as an attempt to stifle the Orange Revolution and “lenient treatment” will not be given, according to Dmitriy Trenin, director of Carnegie Moscow Center.

Ukrainian leaders are spending most of their time attacking each other. Ukrainian politicians are on the payroll of shady businesses. This is the bottom line, according to briefing participants.

The Europeans have warned Ukrainians this time that the nation has “no right to disrupt … they had to meet their obligations as well to allow gas to flow,” according to Martha Olcott of the Carnegie program. She also emphasized that European media have been “trying to keep a low profile to this issue for as long as possible,” an indication that EU support for Ukraine won’t be so forthcoming in this dispute.

But Trenin said that Russia will also suffer as a result of the cutoff. The Western public will react negatively, just as a new U.S. administration comes to power on Jan. 20.

The gas case is more complicated this year because Gazprom’s production fell by 10.6 percent in November 2008 from the year before. One reason is that Central Europeans are trying to avoid Gazprom whenever possible, Aslund said. In addition, Gazprom has lowered prices to Kremlin-friendly Belarus. “Gazprom is strapped for cash,” Trenin said. “They want every dollar they can lay their hands on.”

Russia has no reason to give Ukraine a price break after Ukrainian President Victor Yushchenko tried to actively pull the country towards the NATO military alliance and after his fervent support for Georgia in the five-day August war with Russia.

“There is a feeling in Russia that Russia … owes Ukraine nothing and has every right to pursue this really tough policy… on the other hand … you can get the feeling that they’re not enjoying it very much,” Trenin said, describing the position of Kremlin leaders.

However, rather than a commercial dispute, Aslund said the main objective of the Kremlin is to “destabilize Ukrainian politics, to show how bad democracy is in this part of the world so that it shouldn’t be tried in Russia.”

But both could lose at this game.

The Ukraine-Russia gas dispute makes both nations seem unreliable in the world’s eyes. “People in Europe will, in fact, look much more concertedly at alternatives to the singular dependence on the current system that has been very controversial,” Collins, the former U.S. ambassador to Moscow, concluded.

Source: Kyiv Post

Old Equipment, Multiple Routes Make Ukraine Gas Transit Difficult To Guarantee

KIEV, Ukraine -- There was good news when Russia's gas giant Gazprom announced on January 13 that it was pumping the first gas in a week into pipelines leading through Ukraine into Europe.

A gas compressor station, 120 kilometers west of Lviv, on the Ukrainian-Polish border.
The bad news came a few hours later when reports emerged that the gas never made it out of Ukraine.

Russia accused Ukraine of blocking the shipments. But Bohdan Sokolovsky, the energy adviser to Ukrainian President Viktor Yushchenko, said Russia deliberately shipped the gas along a technically complex route that would require Ukraine to cut off its domestic consumers in order to deliver gas to Turkey and the Balkans.

Yushchenko himself later offered a slightly different explanation, saying Ukraine's multiprong pipeline system makes it impossible to direct gas flows fully in any one specific direction. The Ukrainian leader denied his country had any role in halting gas flows.

Soviet-Era Pipelines

Charles Esser, the energy analyst at the Brussels-based International Crisis Group, says many sections of Ukraine's pipeline system date back to the Soviet era and make it difficult to control gas flows.

"There is to a certain extent an integration of the pipeline system in Ukraine," Esser says. "I don't know what ability Ukraine has to actually close certain pipelines, so that the gas flows only in certain directions.

"Theoretically, it shouldn't be a problem if they have the proper capabilities, but in some places -- because there are Soviet-era pipelines [built at a time] when there was not such a concern about sending it to just this particular customer or that particular customer when it was designed -- there may be a limited ability to do that," Esser says.

The dispute has also focused on the issue of "technical" gas.

"The Russians have accused the Ukrainians of taking what is called the 'technical' gas out of the pipelines as well, which is the amount of gas needed to sort of get things flowing," Esser explains.

A certain volume of of gas needs to be added to volume daily in order to keep gas moving through Ukraine's pipeline.

It is unclear who is responsible for providing, or paying for, the technical gas. A European Commission official last week suggested that current transit contracts stipulate that the onus is on Ukraine to provide the extra gas.

Ukraine, however, has refused, saying it is Russia's responsibility.

Who Pays?

Esser says he expects Russia will ultimately opt to supply the technical gas in order to restore the flow to consumers in Europe, but will likely put the cost back on Ukraine in future negotiations. Without the technical gas, Esser says, the pipelines cannot function.

"There has to be a certain amount of gas, which I think is about 18 million cubic meters, that has to be put in of this so-called technical gas in order to get sufficient pressure in the system for the gas to flow," Esser says. "And as far as I know, that is not there."

Another issue is the initial amount Russia made available to the pipeline system early on January 13. Esser said the volumes Gazprom shipped into the Ukrainian pipeline system were roughly 25 percent of the amount needed to fill the pipelines.

"The amount of gas flowing through is smaller than normal," he says. "I've seen figures of only 76 million cubic meters per day, as opposed to the usual 300 million. Flows will probably be somewhat weak and slow."

Russian officials had argued that they would begin with reduced flows until they had received assurances that Ukraine was not tampering with the supplies. But European officials said conditions had been set for the full resumption of gas shipments.

Assuming Russian, Ukrainian, and European Union negotiators can resolve these latest complications, there are still other concerns that need to be addressed.

"These pipelines are from the Soviet period -- the 1970s, particularly -- so they're over 30 years old," Esser says. "They are in better condition than some of the pipelines in [former] Soviet Central Asia, but still not in perfect condition. Hence, there are some leaks that waste gas."

Esser noted that while Gazprom says it is prepared to resume full supplies to Europe, the process of filling the pipelines, bringing the pressure up, and then getting it to all Gazprom's customers could take a while -- three days before small volumes begin reaching all the areas supplied by Russian gas, and even longer before the situation returns to what it was at the end of last year.

Source: Radio Free Europe

Ukraine Opposition Seeks To Oust Yushchenko Over Gas Crisis

KIEV, Ukraine -- Ukraine's powerful pro-Russian opposition on Tuesday called for the impeachment of President Viktor Yushchenko after a gas dispute with Moscow that seriously disrupted gas supplies to Europe.

Viktor Yanukovych, head of the pro-Russia Regions Party.
Viktor Yanukovych, head of the Regions Party and a former presidential candidate, also called for the dismissal of Prime Minister Yulia Tymoshenko's government during parliamentary debates on the gas crisis.

"We demand... the immediate dismissal of the government and the start of procedures for the impeachment of the president," said Yanukovych, who proposed that lawmakers schedule a vote for Thursday on dismissing the government.

"In the middle of a political and economic crisis, the authorities have left Ukraine without gas and without prospects. Ukraine is in the process of losing its status as a transit country," he added.

Communist Party leader Petro Simonenko joined Yanukovych in the call to imepach Yushchenko, who was not present at the debates.

The popularity of Ukraine's pro-Western president has plummeted amid the gas crisis, which began January 1 when Russia cut supplies to Ukraine in a payment dispute and which has left hundreds of thousands of Europeans without gas.

Yushchenko's approval rating hit 2.4 percent according to a poll published Monday by the Democratic Initiatives organisation, which is backed by Sweden's government.

Yanukovych lost to Yushchenko in a 2004 presidential election. He initially won but the result was later overturned amid charges of vote-rigging and after the massive street protests known as the "Orange Revolution."

The two of them, along with Tymoshenko, are all seen as potential candidates in Ukraine's next presidential election expected in 2010.

Source: EU Business

Analysis: Ukraine Needs Long-Term, Oil-Linked Gas Contract With Russia

LONDON, England -- Europe faces potential gas supply crises every winter unless Russia and Ukraine agree a long-term oil-linked gas contract that might require financial help from Europe, analysts said on Monday.


Russia has not offered Ukraine the kind of long-term deal enjoyed by its customers in western Europe which might settle the row for good.

Analysts said to do so would remove Moscow's favoured method of exerting politcal pressure on the pro-western government in Kiev.

"There has to date been little incentive to come to an amicable long-term relationship with Ukraine, so this is going to happen again and again. It suits Russia to return repeatedly to this gas relationship because it's a way of further destabilising the existing regime," Professor of Energy Policy at the University of Oxford Dieter Helm said.

"The Russians are holding them on a short-term exposure to the spot market and that's why we have this annual event," Helm added. "What is needed is a stable long-term pricing formula. That has to be pricing gas in relation to oil prices, which have fallen sharply."

Over a week after Moscow cut off Ukraine in its annual row over how much Kiev pays for its gas, the two sides have agreed an international monitoring deal that should see Russian supplies to Europe recover in a few days.

They have not agreed on how much economically-crippled Ukraine will pay for its gas this year, with Russia insisting Kiev should now pay "market prices" after decades of cheap supplies.

Ukraine's main objection to Russian gas export monopoly Gazprom's price demands is that western European buyers should see their bills halve by summer as a slump in oil prices since July feeds into oil-linked gas contracts.

Many analysts expect oil prices to remain low this year and possibly beyond as recession weighs on global demand.

This could give Ukrainian more time to recover from its worst recession in over a decade and give it a better chance of paying bills next winter.

But neither side of the bitter gas row has said publicly that a long-term deal is under discussion, posing the real threat of another crisis next year.

"They may well fudge a deal again this year, like they have done for the last three or four years, but then the same problem will crop up again next year until there is probably some help," David Cox, chief consultant at Poyry Energy Consulting in London, said.

"It is in Western Europe's interest that the Ukraine does start to pay market prices and the sooner the better. But in terms of making them move to fully market related prices they can't really do that in one step, or even in a couple of years -- it needs to be phased," he said.

EUROPE ROLE

"If we want the Ukraine in the EU and we want them on our side, rather than Putin's side, maybe we have got to pay a cost for that and that is partly helping them with the transition," Cox said.

Helm warned against Europe subsidising anybody's energy bills but said the European Central Bank could give additional funds to Ukraine, in addition to the $16 billion from the IMF, to help Ukraine get through its economic crisis.

"There is a good solidarity reason for the EU as a whole being in a position to help out particular countries," he said.

"So we might consider help for the Ukraine through its current financial difficulties. But it should not be tied to the gas."

Russia's price demands for this year have varied from $250 to $450 per 1,000 cubic metres of gas, with Moscow raising the price each time Kiev rejected its previous offer.

Analysts estimate the latest Russian offer of $450 per 1,000 cubic metres is much higher than other European countries will be paying for their Russian gas over the next few months.

They say Ukraine should not be expected to pay the same price as buyers in Germany or Austria because Russia uses Ukraine to ship 80 percent of the gas that it supplies to Europe.

"The Russians are trying to raise the prices to the same level at which they sell to western Europe. That's always been their intention, Niall Trimble, director of the Energy Contract Company in London said.

"Obviously Ukraine does not have the wealth these countries have, so it's very hard to do that." But some kind of oil-linked formula should ensure reliable winter warmth across Europe for years to come.

"That's what the rest of Eastern Europe's contracts are linked to as well, its not just Western Europe," Noel Tomnay, principal global gas research for Wood Mackenzie said.

"There are reasonable arguments being made here and its really up to the sides to conclude them."

Source: Kyiv Post

Russia And Ukraine Sign Deal To End Gas Standoff

PARIS, France -- Russia and Ukraine on Monday signed an agreement to deploy international pipeline monitors, clearing the way for a resumption of gas supplies to Europe, the head of the European Commission said Monday.

Pipelines at a gas compressor station in Sudzha in Russia's Kursk region on Sunday.
José Manuel Barroso, the EC president, said in Brussels that Russia had pledged to restore the flow of gas by 8 a.m. Tuesday if there were no further obstacles.

The agreement came after Ukraine, Russia and the European Union approved a deal to deploy the monitors.

The deal should restore shipments of Russian gas to millions of Europeans during a bitter winter cold spell, but it will not resolve the underlying dispute — Russia's demand that Ukraine sharply increase what it pays for gas for its own use.

Even with a resumption of gas flows, however, it may take three days for service to be fully restored, officials have said.

On Sunday, the governments of Russia and Ukraine and the European Union had agreed to deploy independent monitors of pipelines that carry Russian gas to the west. The protocol was a precondition set by Russian energy officials to turn on the gas flow again. Russia shut off the valves last Tuesday after an extended dispute with Ukraine over pricing and accusations of stealing gas from the export pipelines.

Russia is prepared to resume gas shipments to Europe "as soon as possible," a spokesman for Prime Minister Vladimir Putin said Monday.

Shipments will restart "as soon as we are sure that the observers are on site in Ukraine," the spokesman, Dmitry Peskov, told journalists in a conference call, though he noted a few days would be needed to completely restore service. "Gazprom is ready and willing to renew the transit of gas as soon as it is possible," Peskov said.

Peskov said the Gazprom chief executive, Aleksy Miller, and Igor Sechin, the Russian deputy prime minister, would be in Brussels on Monday where they would be prepared to sign the agreement. A deal would restore transshipments of Russian gas to millions of Europeans who are without heating at the peak of a bitter winter cold spell, but it would not resolve the underlying dispute — Russia's demand that Ukraine sharply increase what it pays for gas for its own use.

"We hope that the problem of Ukraine in signing a proper document is solved," he added, "and we hope this is confirmed in the coming minutes or hours." He laid the blame for the delay in resuming shipments on Ukraine.

Earlier Monday, Gazprom said that Ukraine had signed the agreement "without any clauses."

Neither the Ukraine pipeline operator Naftogaz nor the European Commission immediately replied to requests for comment. A spokeswoman for Prime Minister Yulia Tymoshenko of Ukraine, said she could not immediately confirm that a new deal had been reached.

Over the weekend, the Czech prime minister, Mirek Topolanek, secured Putin's signature in Moscow and then flew to Kiev, where Tymoshenko also signed the agreement. But Tymoshenko included a note beside her signature early Sunday morning, after the document had already been signed by Putin. In English, she wrote, "with declaration attached."

Tymoshenko's declaration, a copy of which was obtained by The New York Times, said that Ukraine had not been guilty of stealing gas from the export pipelines, a statement essentially asking Moscow to retreat on the allegation that had underpinned its justification for halting shipments to Europe.

The European Commission said Sunday that the Ukrainian declaration was "a mixture of factual restatement of what is in the terms of reference" and "Ukraine's interpretation of what has been agreed." The commission said it was its view that "nothing in the Ukrainian declaration adds to, or subtracts from, the terms of reference signed by the five parties."

It also said the monitoring teams were on the ground and ready to begin their work.

Source: International Herald Tribune

Gas Deal In Europe Is Undone And Redone

MOSCOW, Russia -- A European Union-brokered deal between Russia and Ukraine to restore the flow of heating fuel to the Continent seemed to be falling apart Sunday evening, less than a day after it had been signed, with Moscow objecting to conditions that Ukraine attached to the agreement after Russia had already signed it.

Prime Minister Mirek Topolanek of the Czech Republic and Ukraine’s prime minister, Yulia V. Tymoshenko, in Kiev. Mr. Topolanek had secured a deal between Russia and Ukraine.
In what appeared to be a first step toward resolving a dispute that has cut off about one-fifth of the natural gas used in Europe, at the peak of the winter heating season, the governments of Russia and Ukraine and the European Union agreed to establish independent monitors of pipelines that carry Russian gas to the west.

The protocol was a precondition set by Russian energy officials to turn on the gas flow again. Russia shut off the valves on Tuesday after an extended dispute with Ukraine over pricing and accusations of stealing gas from the export pipelines.

In a flurry of shuttle diplomacy over the weekend, the Czech prime minister, Mirek Topolanek, secured the signature of Russia’s prime minister, Vladimir V. Putin, in Moscow and then flew to Kiev, where Ukraine’s prime minister, Yulia V. Tymoshenko, also signed the agreement.

Yet by late Sunday, the off-again-on-again deal appeared to be off again. Russia’s president, Dmitri A. Medvedev, was quoted by Russian news agencies as saying he would not honor the pact.

At issue was a handwritten phrase that Ms. Tymoshenko wrote beside her signature early Sunday morning, after the document had already been signed by Mr. Putin. In English, she wrote, “with declaration attached.”

Ms. Tymoshenko’s declaration, a copy of which was obtained by The New York Times, said that Ukraine had not been guilty of stealing gas from the export pipelines, a statement essentially asking Moscow to backpedal on the allegation that had underpinned its justification for halting shipments to Europe.

Heading into Monday, the prospects for a deal were marked by confusion and uncertainty.

Bloomberg News reported that a European Union official had said that Ukraine had agreed to sign a new version of the accord to authorize the monitoring of the pipelines, paving the way to resume gas shipments. The report said that the new deal came after a phone call between Mr. Putin and the European Commission president, José Manuel Barroso, and would be separate from Ms. Tymoshenko’s declaration.

“Barroso has spoken to Tymoshenko, and they have agreed to separate the two documents,” Ferran Tarradellas Espuny, a commission spokesman, said in Brussels, according to the report. “On one side the declaration, and on the other side the terms of reference.”

The declaration from Ms. Tymoshenko also demanded that Russia, if it wanted to export gas to Europe across Ukraine, provide fuel to operate pumping stations along the pipeline route. Russia has refused to do that, saying it is Ukraine’s obligation as the country responsible for transit.

The Russian authorities quickly said this rendered the agreement void.

Mr. Medvedev blamed Ukraine for collapsing the deal and sharply criticized the Ukrainian addendum.

“I instruct the government not to use the document that was signed yesterday,” he said.

“These clauses and annexes are a mockery of common sense and an offense against the agreements that were reached earlier,” Mr. Medvedev said in comments published by the Interfax news agency. “These actions are seeking to destroy the existing agreements on the control over the gas transit; they have an expressed provocative and destructive nature.”

Mr. Putin, in a phone call on Sunday to Mr. Barroso, said Russia would not accept conditions added after he had signed the protocol, Interfax reported.

Seeking to sooth Russian concerns, Mr. Topolanek called Mr. Putin to say that Ms. Tymoshenko’s declaration was not binding. Later Sunday, Mr. Barroso said Ms. Tymoshenko had agreed to address Russian concerns over her statement with the goal of restoring gas flows to Europe, Reuters reported.

A spokesman for Gazprom, the Russian gas monopoly, said the company’s chief executive, Aleksei B. Miller, would fly to Brussels on Monday to continue negotiations.

Even once an agreement is in place, it may be days before relief comes to European countries down the line from Ukraine, especially Poland and Bulgaria, which have suffered greatly without heating fuel in the bitter winter weather.

If Russia immediately turned on the flow, it would take about three days to repressurize the European natural gas pipeline system and restore full service, experts said. And the underlying price dispute has still not been resolved.

The Russian authorities maintain that Ukraine began siphoning from pipelines some of the Russian natural gas intended for export to Europe and has been using it to meet internal demand since Russia halted supplies to Ukraine on Jan. 1 because of a dispute over pricing.

Source: The New York Times

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.

Source: AP

Russia, Ukraine Sign Deal To Resume Gas Supply To Europe

KIEV, Ukraine -- Russia and Ukraine have signed an accord on natural gas transit allowing resumption of Russian supply to Europe as early as Sunday and an end to one of Europe's worst energy crises, officials said.

A new born baby sleeps next to an electric heater in Sofia's maternity hospital.
"We signed the protocol today so that Ukraine has nothing to answer for," Ukrainian Prime Minister Yulia Tymoshenko told journalists early Sunday after emergency overnight talks with Czech Prime Minister Mirek Topolanek.

The accord, setting out terms for placing international monitors at metering stations on Ukraine's gas pipeline network to verify gas transit volumes, was signed Saturday by Russia after Topolanek met Prime Minister Vladimir Putin.

Ukraine's signature of the protocol was the crucial element Russia demanded before it would agree to a resume pumping gas into the pipeline network that transits through Ukraine to supply numerous countries in Europe.

The next step is for the monitors to take up positions at key gas transit sites in both Ukraine and Russia to make sure the gas Russia pumps into the system also leaves the system and is delivered in full to Russia's customers.

Topolanek, whose country currently holds the EU's rotating presidency, said the deployment of the monitors was "a matter of hours."

Czech Trade and Industry Minister Martin Riman said it would be possible for the flow of Russian gas to Europe to start later Sunday, though EU officials have said it could take three days to restore the gas supplies to full volume.

"Gas supplies can resume Sunday if everyone works 100 percent," Riman said after Ukraine signed.

The gas crisis that has taken a heavy toll on a dozen states, notably in central Europe and the Balkans, began when Russia halted supply to Ukraine itself on New Year's Day over a payment and contractual dispute.

Within a week, it had mushroomed into a major energy crisis for Europe, leaving thousands of homes in several countries without heat amid bitterly cold weather and forcing shutdown of factories, schools and public facilities.

In his meeting with Topolanek at his country home outside Moscow, Putin vowed that Russia would restore gas supply "immediately" as soon as the monitors went to work.

But he warned that Russia would halt supply just as quickly again if it saw that gas shipped into Ukraine for transit to customers in Europe did not come out of Ukraine in the same volumes.

"I want this to be clear and understood ahead of time," Putin warned. "We simply will not tolerate theft under any circumstance."

Ukraine has vehemently denied Russian accusations that it was "stealing" transit gas, and President Viktor Yushchenko said Friday such charges from Moscow were designed to "humiliate" his country.

Tymoshenko said the agreement, signed for Ukraine by Deputy Prime Minister Grygory Nemyrya and the deputy chief of Ukraine's gas company Naftogaz, Volodymyr Trikolich, was "harsher" on Ukraine than a prior EU draft had been.

The fiery Ukrainian prime minister also seemed to want to limit the time the agreement on the international monitors would remain in effect, saying the "maximum period" for this should not exceed one month.

Putin by contrast had earlier suggested the monitors consider establishing a long-term presence at the metering sites, joking that they could live in tents like protesters in Ukraine's pro-Western Orange Revolution in 2004.

The text of the accord signed by Putin, Tymoshenko and the EU was not immediately made public.

The composition of the monitoring commission however was expected to include representation of the energy ministries and gas companies of Russia and Ukraine along with experts from a number of European gas companies and the EU.

Although the signing of the accord was expected to lead to a quick resumption of Russian gas flow to Europe, it did not resolve the bilateral dispute between Russia and Ukraine at the origin of the crisis.

"Three days of negotiations ended with nothing," the head of Ukraine's state gas company Naftogaz, Oleg Dubina, said after returning to Kiev from Russia.

At her press conference, Tymoshenko said: "We will try to continue negotiations with Russia through all possible channels" on a new gas contract.

Source: AFP

Ukraine 'Making Gas Crisis Worse'

MOSCOW, Russia -- Russian Prime Minister Vladimir Putin has accused Ukraine of "aggravating" the gas crisis in Europe.


He was speaking in Moscow during crisis talks with Czech Prime Minister Mirek Topolanek, whose country holds the European Union presidency.

Hundreds of thousands of European homes have no heating after gas shipments via Ukraine were halted Wednesday.

Mr Topolanek has vowed not to leave the region until Russian gas starts flowing to Europe again.

"Despite...efforts to resolve the crisis...I have just learnt that the Ukrainian side has aggravated it further," Mr Putin said in comments that ran on Russia's state-run TV.

He accused a Kiev court of passing a ruling to ban the transit of Russian gas through Ukrainian territory.

Monitor mission

But the EU representative vowed not to leave empty-handed.

"I have sent a signal to Ukrainian leaders that I will stay in the region until we get the gas flowing," Mr Topolanek said.

Moscow has accused Ukraine of stealing Russian gas intended for Europe, but Kiev has repeatedly denied the claims. The two countries have been locked in a bitter contractual dispute over gas prices and transit fees.

Mr Putin says that an agreement spelling out the terms of an EU observers mission in Ukraine is essential for resuming Russian gas shipments across Ukraine.

In a key concession, Ukraine has agreed to Moscow's demand to include Russian observers in the team.

But Russian and Ukrainian officials continued to argue over other details of the deal.

In the cold

More than 15 countries across central Europe have been hit by the shutdown of Russian supplies

Tens of thousands of homes in central Europe have been left without heating, and schools and businesses closing amid bitterly cold winter weather.

Although both countries had guaranteed that transit supplies to Europe would be unaffected, they were soon cut off amid mutual accusations between Kiev and Moscow.

Source: BBC News

Is Putin After Regime Change In Ukraine?

MOSCOW, Russia -- It looks like Russian President Vladimir Putin's beef with Ukraine is a bit deeper than unpaid gas bills. At a press conference yesterday, at his residence in Novo-Ogaryovo, Putin appeared to question the very legitimacy of the leadership in Kyiv.

Russian Prime Minister Vladimir Putin gestures during a meeting with journalists in the Novo-Ogaryovo residence outside Moscow.
"Ukraine's leadership is unable to organize normal, transparent functioning economy based on market principals," Putin said, adding that "we are witnessing a political collapse in Ukraine."

Was this just overheated rhetoric? Putin did appear a bit more agitated and jumpy than usual at the press conference.

Or was it a call for regime change? If so, it would follow a similar pattern to Russia's conflict with Georgia this summer, after which Moscow argued that President Mikheil Saakashvili had lost his legitimacy, refused to deal with him, and called for him to be replaced.

Can Viktor Yushchenko expect similar treatment soon?

Source: Radio Free Europe

Russia, Ukraine And Natural Gas: A Quarrel Among Thieves

SALT LAKE CITY, UT -- Three years after the last drama involving Russia, Ukraine and gas supplies to Europe, here we are again. Russia's monopoly supplier Gazprom cut off gas shipments to Ukraine on New Year's Day because of alleged unpaid bills, and by Jan. 7 no gas was moving across Ukraine to the European Union either.

A man warms himself near a stove in a bar in the town of Belovo, Bulgaria.
Since the EU depends on Russia for a quarter of its natural gas, and 80 percent of that gas moves west through Ukrainian pipelines, that was no laughing matter.It's the former Soviet satellites that are most dependent on Gazprom's gas, because that's the way the pipelines ran in Soviet times.

Some of them will run out very fast if their fellow EU members in western Europe do not share gas from their own strategic reserves. And Turkey (not an EU member) has turned to Iran to replace the missing Russian gas.

Only it's not really Russian gas at all. Most of it comes from the Central Asian state of Turkmenistan. And the dispute between Russia and Ukraine is not a normal commercial dispute (as both sides insist), nor is it some kind of Russian strategic move (as the believers in a new Cold War maintain). It is a thieves' quarrel.

Since it is Turkmenistan's gas, you would expect the Turkmens to sell it to European countries directly, and pay transit fees to Russia and Ukraine for shipping it west through their pipelines.

Instead, Gazprom secured long-term rights to Turkmenistan's gas by agreeing to pay it a rumoured $340 per thousand cubic meters -- which is almost double the $179.50 that Ukraine actually paid in 2008.

Times are hard all over (Gazprom's shares have fallen by 76 percent since September) and Russia actually needs the money badly, so the pressure to raise the price of gas to subsidized ex-Soviet customers is higher than usual.

But that is not what caused the gas to be cut off to Ukraine on Jan. 1, and to everybody else in Europe a week later. The reason for that is probably a murky internal fight over the division of the spoils.

Gazprom is an opaque organization with many leading Russian political figures on its board and its management committee. But it is a model of transparency compared to RosUkrEnergo, yet another middleman with the job (which clearly does not need doing) of buying gas from Gazprom and selling it to Ukraine.

It was set up after the 2006 Russian-Ukrainian confrontation over gas.

Half of RosUkrEnergo is owned by Gazprom, and the other half by Ukrainian businessmen who steadfastly refuse to reveal their identities. The cutoff in gas shipments to Ukraine allegedly occurred because the Ukrainian government had paid an outstanding gas bill for $1.5 billion to RosUkrEnergo by the end of the year, but the money had not yet appeared in Gazprom's account -- and probably more importantly, because Ukraine was refusing to pay an additional $615 million in fines for late payment.

Now wait a minute. Maybe Ukraine was technically a month late in paying the bill (and maybe not), but whoever heard of a 40 percent fine for one month's late payment?

The glaring lack of detail about this "fine" reinforces the suspicion that the sum involved is really money creamed off the sale of Gazprom's sales to RosUkrEnergo and on to Ukraine that is now in dispute between the Russian and Ukrainian beneficiaries of a sweet little scam.

The thieves would certainly include high-ranking people in the Kremlin and in Ukrainian President Viktor Yushchenko's government.

So it's easy to see how the quarrel could escalate into an interstate confrontation, with Russia accusing Ukraine of stealing gas and Kiev accusing Moscow of turning off the taps for all of Europe.

And there's really not much that the European Union can do except to wait until the thieves have made a deal.

This episode will reinforce the EU's conviction that it is unwise to remain heavily dependent on gas that comes through Russia and Ukraine, not so much because they fear the return of Joseph Stalin as because they dislike dealing with a bunch of Al Capones.

However, the short-term options for alternative sources are limited.

In the longer term, the solution is to stop burning fossil fuels to provide Europe's energy, but that isn't going to happen for quite a while

Source: The Salt Lake Tribune

Vladimir Putin 'Agrees To Resume Pumping Gas Through Ukraine From Russia'

MOSCOW, Russia -- The Czech EU presidency announced late on Thursday that an agreement over the monitors had been reached with Mr Putin, the Russian Prime Minister, in a surprising turnaround just hours after talks in Brussels had broken down.

Russian Prime Minister Vladimir Putin
However, it remains unclear whether all parties - including Ukraine and the national gas companies involved - have agreed to the deal.

Mr Putin and Mirek Topolanek, the Czech Prime Minister, agreed during a telephone conversation "on the conditions of deployment of the monitoring commission at all locations that are relevant for the flow of gas," a statement from the EU presidency said, adding: "This deployment should lead to the Russian supplies of gas to EU member states being restored."

About 10 monitors, who will be drawn from the European gas industry and the European Commission, are due on the ground on Friday.

Mr Putin has said monitors are needed in order to check that Ukraine is not siphoning off gas as it passes through on its way to mainland Europe.

Earlier this week, Gazprom, Russia's state monopoly gas supplier, shut off pipelines passing through Ukraine after a dispute over payments. The EU depends on Russia for about a quarter of its gas supply, 80 per cent of which is pumped through Ukraine.

Some European countries are receiving no gas whatsoever, while others have suffered a sharp cut in supplies, amid freezing temperatures around the continent.

Alexei Miller, the head of Gazprom, had earlier said that gas shipments would resume once monitors began working. However, Martin Riman, the Czech Industry Minister, said that Gazprom had rejected a proposal for the monitors to be independent.

Andris Piebalgs, the EU Energy Commissioner, also said that Moscow had refused to sign a deal to restore supplies because it wanted its own observers stationed in Ukraine.

Gazprom disputed that this had been the hurdle to a deal, blaming Ukraine of having "ruined the signing of such a document".

Mr Putin also earlier complained that Russia was not to blame for the crisis. He summoned western reporters to his residence and said: "Of course this is creating problems for us. But, forgive me for saying so, but I have not seen an objective evaluation of the situation.

"Foreign media, Western media are painting a completely unobjective picture of 'Russia Shuts Gas to Europe'."

Source: Telegraph UK

Gas Chiefs For Ukraine, Russia Hold Urgent Talks

BRUSSELS, Belgium -- The natural gas chiefs for Russia and Ukraine met twice in the last 24 hours Thursday to try to resolve a bitter dispute that halted energy supplies to Europe, while outrage swelled across the continent as factories closed, schools shut down and hundreds of thousands faced winter without heat.

Ukraine's Deputy Prime Minister Hryhory Nemyrya (L) is received by European Commission Chairman Jose Manuel Barroso for a negotiation on the Russian gas dispute at the European Commission Headquarters in Brussels January 8, 2009.
The meetings between Gazprom's Alexei Miller and Naftogaz's Oleh Dubina were their first since negotiations broke down on New Year's Eve over natural gas prices for 2009 and Ukraine's energy debt.

Natural gas supplies from Russia through Ukraine to Europe remained cut off for a second day, leaving more than a dozen countries scrambling to secure alternative energy sources.

"The heads of Naftogaz and Gazprom are talking now" in Brussels, said Jacek Saryusz-Wolski, the head of the European Parliament's foreign affairs committee. The two chiefs also held a surprise meeting in Moscow early Thursday, but no breakthrough was announced.

Gazprom stopped all gas shipments to Ukraine on Jan. 1 but kept supplies flowing to Europe through Ukraine's pipelines until Wednesday, when all deliveries stopped.

EU Commission President Jose Manuel Barroso has pressed both nations' prime ministers for a quick resolution to the standoff.

"If this matter is not solved, it will raise very serious doubts about the reliability of Russia as a supplier of gas to Europe and Ukraine as a transit country," he said.

Europe depends on Russia for one-quarter of its natural gas, and about 80 percent of that is shipped through pipelines crossing Ukraine. Other smaller pipelines run through Belarus and Turkey.

Austria, Bulgaria, Croatia, the Czech Republic, France, Greece, Hungary, Italy, Macedonia, Romania, Serbia, Slovakia, Slovenia and Turkey all reported a halt in Russian gas shipments by Wednesday. Germany and Poland reported substantial drops in supplies.

Barroso said Ukraine and Russia both agreed to accept international monitors that could verify the flow of gas. Russia has accused Ukraine of siphoning off gas meant for European customers, while Ukraine claims Russia is not sending enough gas to pump the rest of it west to Europe.

Ukrainian officials at the European Parliament claimed the higher prices being demanded by Russia were an attempt to cripple Naftogaz and the Ukrainian economy during the global financial crisis. But Naftogaz' Dubina was calmer, saying the dispute was commercial.

"I see no hidden politics. I can see purely economic differences between Gazprom and Naftogaz," he said in Brussels.

Dubina said Naftogaz would need around 36 hours to restore supplies and was ready to start transporting gas immediately if the two companies set a 10-day deadline to thrash out their problems.

The first gas supplies would be piped to Bulgaria, he said, where shortages have shuttered major factories and left cities shivering.

Angry Bulgarians protested in front of the Ukrainian embassy in Sofia on Thursday, holding signs reading "We are not hostages" and accusing Russia and Ukraine of being "gas terrorists."

Orthodox priests fired up wood-burning stoves in Bulgaria to keep their churches warm, while residents of the capital blew on their hands as they rode unheated trams.

Hungary, also facing shortages that closed major factories, said it will sell up to 2 million cubic meters of natural gas Thursday to Serbia, where the situation is even worse.

In Bosnia, which does not have any gas reserves, woodcutters braved below-freezing temperatures as people turned to their fireplaces or stoves for heat.

Russia is demanding that Ukraine pay significantly more for its gas. Last year, Russia charged Ukraine $179.50 per 1,000 cubic meters, about half what it charged its European customers.

Russia's last offer before talks broke down was $250, but President Dmitry Medvedev said Moscow will now insist that Kiev pay European prices "without a discount."

Naftogaz deputy chief Volodymyr Trikolich said Thursday his company continues to insist on a price of $201 per 1,000 cubic meters and wants to raise the transit fee Russia pays to use Ukraine's pipelines from $1.70 to $2 per 100 kilometers.

Medvedev also demanded full payment of Ukraine's $600 million alleged debt to Gazprom, which Ukraine has said it will not pay until the issue is settled in arbitration courts.

Czech Deputy Foreign Minister Alexandr Vondra, whose country holds the EU presidency, ruled out the possibility of EU countries paying any of Ukraine's debt.

"I don't think that is what we need to do," Vondra told reporters in Thursday in Prague.

Ukraine, which has a vast underground storage system full of natural gas, says it can weather the dispute until early April. But Kiev, the Ukrainian capital, was experiencing heating problems Thursday, with residents forced to bundle in winter clothes and turn on electric heaters to keep warm.

Gazprom, meanwhile, is losing substantial income during a peak season for gas consumption and during a global economic crisis in which its share price has plummeted.

Source: AP

Russia, Ukraine In EU Talks As Gas Crisis Engulfs Europe

MOSCOW, Russia -- Envoys from Russia and Ukraine go to Brussels on Thursday for emergency EU-brokered talks to resolve a bitter gas fight between the two ex-Soviet giants that has engulfed Europe in a major energy crisis.

Russian Prime Minister Vladimir Putin (L) confers with the chairman of Gazprom, Alexei Miller. Envoys from Russia and Ukraine go to Brussels on Thursday for emergency EU-brokered talks to resolve a bitter gas fight between the two ex-Soviet giants that has engulfed Europe in a major energy crisis.
Announcing the hastily-arranged crisis talks in Prague, European Commission chief Jose Manuel Barroso said the meeting would focus on the use of monitors to verify the flow of Russian gas through Ukraine to clients in Europe.

He said the heads of the Russian and Ukrainian state-run gas companies, Gazprom and Naftogaz, respectively, would be present for talks with other Russian and Ukrainian officials and representatives of the European Union.

The heads of the two companies held talks in the Russian capital overnight on ways to end their gas crisis, the first time they have met since Moscow cut gas to Kiev.

"Tonight in Moscow talks took place between (Gazprom chief executive) Alexei Miller and (Naftogaz chief) Oleg Dubina during which they discussed ways to end the intensifying crisis situation," Gazprom's official spokesman Sergei Kupriyanov was quoted as saying by Russian news agencies.

The organization of the Brussels talks brought some badly-needed focus to a chaotic dispute that began as a commercial disagreement between Gazprom and Naftogaz and has mushroomed into a full-blown international crisis.

While Russia and Ukraine have exchanged accusations of guilt, a dozen countries that rely heavily on Russian gas, most of them in the EU, have reported huge drops in gas supplies in the depths of a bitterly cold winter.

Slovakia and Romania have declared states of energy emergency, Bulgaria has ordered gas rationing for industry and Hungary, Croatia and Bosnia reported two consecutive days of complete stoppage of Russian gas supply.

Tens of thousands of people have been left without heating in their homes.

Gazprom ordered delivery of gas to Ukraine itself halted on New Year's Day after it failed to reach agreement with Naftogaz on payment of arrears for Russian gas already used by Ukraine and on prices for supply in 2009.

The move triggered a chain reaction: Russia accused Ukraine of "stealing" gas it was trying to ship to Europe and Ukraine countered that Russia had deliberately reduced supplies to provoke a crisis.

A spokeman for Russia's powerful Prime Minister Vladimir Putin on Wednesday insisted Gazprom had continued to pump volumes required by European consumers through the Ukraine pipeline network, and accused Kiev of "blackmail."

On Wednesday, Gazprom ordered a halt to gas shipments through Ukraine, asserting that Ukraine had already shut down all six pipelines that get the gas to Europe and accusing Kiev of diverting the gas for its own use illegally.

On the eve of the Brussels meeting, Russian President Dmitry Medvedev, in a telephone conversation with Ukrainian President Viktor Yushchenko, laid down a number of conditions for any resumption of Russian gas shipments via Ukraine.

They included a demand that Ukraine begin paying market prices for Russian gas immediately -- Russia has long sold gas to Ukraine at discounted prices -- and an independent EU monitoring plan to verify gas flows through Ukraine.

Gazprom has warned that leaving the pipeline network in Ukraine empty in freezing temperatures for a prolonged period could cause severe damage to the infrastructure. Long repair time would delay resumption of gas flow to Europe.

Source: AFP

EU Calls For Immediate Solution As Supplies Of Russian Gas Are Cut

PARIS, France -- All gas supplies to Europe via Ukraine were shut down Wednesday as the pricing dispute between Russia and Ukraine escalated. The European Union called for an immediate solution to the crisis and said the two countries had agreed in principle to have observers monitor the pipelines amid a war of words.

A technician controlling an E.ON compressor station in Werne, Germany, on Wednesday.
The cutoff showed the first signs of hitting the European economy as the Hungarian unit of the Japanese automaker Suzuki said it was halting production because of restrictions on industrial users of gas. The Hungarian news agency MTI quoted a spokeswoman as saying Suzuki hoped to restart production Monday.

The two countries have accused each other of stopping the flow of gas to Europe. The Ukrainian gas company Naftogaz said Gazprom, the Russian gas monopoly, halted all transshipments at 7:44 a.m. Wednesday.

But in a conference call with journalists, Aleksandr Medvedev, Gazprom's deputy chief executive, told journalists that it was Naftogaz, the Ukrainian company, that had closed a fourth pipeline, ending all transshipments to Europe. Russia continues to pump gas, he said, but it is not being delivered to European customers.

He said that in the current cold winter conditions, demand would normally be as much as 450 million cubic meters a day, but that Gazprom was only able to provide about 170 million cubic meters, and that only by employing pipelines that skirt Ukraine and underground reserves. "I hope it will not be necessary" to declare force majeure, he said, referring to a legal move that release it from its responsibility to meet contracts with European customers.

José Manuel Barroso, the president of the European Commission, said at a press conference in Prague that both Prime Minister Vladimir V. Putin of Russia and the Ukrainian prime minister, Yulia Timoshenko, had agreed to have monitors verify that gas was flowing at key points on the pipelines.

"I've received assurances both from Prime Minister Putin and from Prime Minister Timoshenko that they have accepted international monitors to verify on the ground," Barroso said. "It is critically important that the supply start immediately," he added. "If not, there will be a real problem of credibility of supply of Russian gas through the Ukraine for the EU."

Barroso said he had been told by Putin that Russia was pumping the gas, but that Ukraine was not delivering it. He said Timoshenko told him Ukraine was not interfering with EU gas deliveries.

"If both Russia and Ukraine behave as they say they are behaving, there should be no problem," he said. "So we hope that the Russians put the gas into the Ukrainian network and that the Ukrainians do not interrupt the gas from Russia to the EU."

"If this is agreed, nothing will stand in the way for transit supplies to be restored," added Mirek Topolanek, the prime minister of the Czech Republic, which holds the rotating presidency of the EU.

EU officials said they would meet Thursday in Brussels with representatives of Gazprom and Naftogaz to sort out the technical aspects.

The shutdown left Slovakia, the Czech Republic, Austria, Hungary and Romania with no Russian gas supplies amid a bitter cold snap across much of the Continent. Bulgaria, almost entirely dependent on Russian gas, was in a particularly dire situation. European Union countries have access to some other sources of gas - including Russian gas from other pipelines, and gas produced in Britain, Norway and the Netherlands - but the loss of the Ukrainian pipeline puts the European Union under pressure to push for a solution.

A number of European countries have warned that gas for industrial customers might have to be restricted if service is not soon restored. The Confederation of European Business, a lobbying group, warned in a letter to Barroso that: "This situation - which is becoming a regular January occurrence - cannot last longer without creating problems for companies and citizens."

The cutoff began Tuesday, causing shortages from France to Turkey. Gazprom said Ukraine was siphoning off for itself supplies destined for Europe, and that Russia would reduce shipments by an equivalent amount. Russia had already halted all supplies to Ukraine for domestic use, saying its western neighbor was not paying enough for the fuel.

Gazprom is seeking to raise the price Ukraine pays for gas to $450 per 1,000 cubic meters from $179.50 last year. It also wants to collect what it says are fines for late payments on previous shipments.

Putin personally announced Monday evening on state television that he was ordering a sharp reduction in gas flows, saying Ukraine was siphoning gas from the pipelines without paying. On Wednesday, he publicly endorsed the move in televised remarks, but said it should take place "publicly and in the presence of international observers."

For Putin, the escalation comes at a perilous time, as slumping energy prices threaten the fiscal health and political stability that have underpinned his popularity at home.

Some analysts of Russian politics had expected Putin to become more conciliatory as energy prices fell. Instead, he has taken a hard line in seeking to raise gas prices in Ukraine and perhaps create panic-buying on the international market, where prices of natural gas and oil, Russia's leading exports, have fallen sharply in recent months.

"They're still playing hardball, when they have to realize the rules have changed," Marshall Goldman, a senior scholar in Russian studies at Harvard and the author of the recent book "Petrostate: Putin, Power and the New Russia," said in a telephone interview. "It happened so quickly that I don't think they've had time to realize the implications."

With temperatures plunging, European leaders expressed mounting concern. Some countries announced rationing for industrial customers to reserve enough heating for residential buildings.

A spokesman for the European Commission said that the cut had come "without prior warning and in clear contradiction of the reassurances given by the highest Russian and Ukrainian authorities," adding, "This situation is completely unacceptable."

The cutoff appears to have multiple aims.

Ukraine has angered Russia by seeking membership in the North Atlantic Treaty Organization, as has Georgia, a country Russia fought a brief war against last summer.

Putin is also under heavy pressure domestically. Oil and gas exports provide about 60 percent of the Russian budget; oil prices, meanwhile, have fallen by about two-thirds since their peak last summer.

The effects are rippling through the economy. The ruble is being devalued, Russian companies are facing bankruptcy and the government's huge budget surplus will turn into a deficit next year if prices do not rebound, analysts say.

At the same time, Russia's relations with the West slumped to post-cold-war lows after Russia sent troops into Georgia in August.

Even as Russia will need foreign investment to offset dwindling energy export revenues, options are dwindling for attracting investors to a country that even in the best of times had a poor track record of property rights.

"The Russian elite mind-set right now is a residue of petro-confidence slamming into the financial crisis," said Cliff Kupchan, a director at the Eurasia Group, a global risk-consulting firm based in New York. "So in my view, they're confused about whether to seek help from the international financial system to solve their problems that way or continue a bare-knuckled approach to the world."

Executives of Gazprom blamed Ukraine. In an announcement on Monday, Putin and Gazprom's chief executive, Aleksei B. Miller, said they would cut 65.3 million cubic meters of gas supplies for Europe. In fact, the reduction totaled about 240 million cubic meters, according to Gazprom.

Company officials said that they had intended to ship more fuel on Tuesday, but that Ukraine had blocked export pipelines. Ukrainian energy officials denied this.

"We are shocked that we're not in the position to bring gas to the border of Ukraine because they shut down the pipelines," Medvedev, a deputy chief executive of Gazprom, said at a news conference in London on Tuesday. "There is no reason to blame Russia or Gazprom."

Oleh Dubyna, the director of Ukraine's national energy company, Naftogaz, said he would fly to Moscow on Thursday to resume negotiations.

Gazprom's spokesman, Sergei Kupriyanov, said the company was "ready to begin negotiations at any moment."

A compromise may be harder to find this year, Thane Gustafson, an expert on Russian energy at Cambridge Energy Research Associates of Massachusetts, said in a telephone interview from Washington. "We're talking about two sides that are under extreme constraint," he said.

Among the pipeline routes that were affected the most was the so-called Western Balkan route, affecting supplies to Romania, Bulgaria, Macedonia, Greece and Turkey, said Ferran Tarradellas, a spokesman for the European Union energy commissioner, Andris Piebalgs.

Substantial cuts could also affect Slovakia, Hungary, Slovenia, Italy and Austria, Tarradellas said.

In Turkey, flows of gas through a pipeline that runs from Ukraine stopped completely on Tuesday morning, said the country's energy minister, Hilmi Guler. The pipeline is a major source of gas for Turkey, which imports nearly all its energy.

Several other sources, including the Blue Stream pipeline, which carries gas to Turkey from Russia under the Black Sea, were unaffected, however.

Source: International Herald Tribune

Russian Gas Shipments To Europe Through Ukraine Are Halted

KIEV, Ukraine -- Russian natural gas exports through Ukraine to Europe halted for the first time in three years, threatening to create shortages as freezing weather spurred demand for power.

A local worker controls a gas valve and the gas pressure at the gas-main center of FGSZ Natural Gas in Vecses. All deliveries of Russian gas through Ukraine have been halted, officials from both sides said, amid growing prospects European consumers could suffer from the crisis amid freezing weather.
The two sides blamed each other for the disruption. OAO Gazprom, Russia’s gas-export monopoly, cut off all gas supplies to Europe through Ukraine at 7:44 a.m. Kiev time today, according to Ukrainian utility NAK Naftogaz Ukrainy.

Gazprom Deputy Chief Executive Officer Alexander Medvedev said Ukraine shut off a fourth pipeline after closing three others yesterday.

The move, stopping all deliveries to Austria, the Czech Republic and Slovakia, came after a halt in supplies to the Balkans yesterday and cuts to other countries. The dispute echoed a similar conflict in 2006 which interrupted shipments to Europe.

“If Ukraine fully stops delivery of gas to the west, for consumers in central and western Europe, we do not see sense in supplying gas to the border with Ukraine,” Gazprom Chief Executive Officer Alexei Miller said at Prime Minister Vladimir Putin’s Novo-Ogarevo residence near Moscow late yesterday.

U.K. natural gas for February delivery rose 1.4 percent to 61 pence a therm as of 7:40 a.m. in London, according to prices from ICAP Plc. That’s equivalent to $9.10 a million British thermal units. A therm is 100,000 Btus. The contract traded as high as 62.75 pence a therm with ICAP yesterday.

OMV AG, Austria’s largest oil and gas company, said Russian natural gas deliveries halted completely to the country after yesterday’s reduction of about 90 percent.

Austrian Reserves

OMV will cover the cut in Russian deliveries by tapping the 1.7 billion cubic meters it has in reserves. Austria gets 51 percent of its gas from Russia, Vienna-based OMV said.

Slovensky Plynarensky Priemysel AS, Slovakia’s dominant gas company, said deliveries of Russian gas to the country were halted overnight.

The Bratislava-based company said it began restricting supplies to the largest industrial companies in the eastern European country. Households are not affected, the utility’s spokesman Lubomir Tuchser said.

Gas supplies from Ukraine to Poland were at 15 percent of normal volume, unchanged from yesterday, as of 8 a.m. in Warsaw, Malgorzata Polkowska, a spokeswoman for pipeline network operator Gaz-System SA, said today.

She said she didn’t know how long it would take before Poland was affected by the complete cutoff of Russian supplies to Ukraine.

“Gazprom risks increasing negative publicity,” said Igor Kurinnyy, an oil and gas analyst with ING Groep NA. “What matters is that European customers are facing disruption.”

Diversified Supplies

Since a similar dispute in January 2006, European nations have diversified their sources of fuel and improved inventories. They are also using more gas, the source of 24 percent of the world’s energy consumption last year, to reduce emissions linked to global warming.

Naftogaz Chief Executive Officer Oleh Dubina said he would return to Moscow tomorrow to resume talks. In 2006, Russia turned off all Ukrainian gas exports for three days, causing volumes to fall in the European Union, and also cut shipments by 50 percent last March during related debt claims.

Gazprom’s Medvedev told Bloomberg Television yesterday that “unilateral action of the Ukrainians” was causing the shortfalls. Naftogaz spokesman Valentyn Zemlyanskyi said Gazprom, Russia’s state-run gas exporter, cut shipments to Europe through Ukraine yesterday to 74 million cubic meters a day, compared with about 300 million normally.

Miller said Gazprom would hold talks with European partners in Brussels tomorrow.

Arctic Air

As the dispute intensified, Arctic air from Siberia pushed into Central Europe, northern France, Italy and parts of the U.K., bringing snow and temperatures as low as minus 25 degrees Celsius (minus 13 degrees Fahrenheit) in parts of Germany.

Russia, which supplies a quarter of Europe’s gas, cut shipments intended for Ukraine’s domestic market on Jan. 1, and accused Ukraine of siphoning off gas destined for other buyers. Gazprom has warned that Ukraine risks amassing a debt of “billions of dollars” if the conflict continues.

Gas flows to Bulgaria, Turkey, Greece and Macedonia were halted early yesterday morning at the Ukrainian-Romanian border, Bulgaria’s Energy and Economy Ministry said. Russian gas is sent through Ukraine and then Romania to the southern Balkan states. Supplies were cut to Romania and Croatia too.

Lower Supplies

“The former Soviet bloc countries are between the devil and the deep blue sea,” James Nixey, manager of the Russia and Eurasia Program at London-based foreign policy research institute Chatham House, said by phone. “They are reliant on Russian energy more than Western countries and that’s a big problem because they are desperately trying to break free, but then the reality is that they just can’t.”

Further west, Russian gas supplies to Germany’s Waidhaus transit point, near the Czech border, stopped completely at times yesterday, according to Kai Krischnak, a spokesman for the Ruhrgas unit of E.ON AG, Germany’s biggest utility.

Other utilities across Europe experienced lower gas supplies yesterday, including Austria’s OMV AG, which operates Baumgarten gas hub, near Vienna, and Poland’s Polskie Gornictwo Naftowe I Gazownictwo SA.

Czech Prime Minister Mirek Topolanek, whose country holds the revolving presidency of the EU, said the dispute between Russia and Ukraine on gas prices is becoming “more serious” and the effects are spreading across Europe.

Alternative Sources

Other countries can’t be “held hostage” by Russia over gas supplies, Topolanek told reporters in Prague yesterday. Ukraine may have to compromise on gas fees in the disagreement, he added.

Italy, Poland and other nations said they were using stockpiled gas, and alternative delivery routes from Russia where possible, to help satisfy demand. Restrictions on which customers receive gas may prove necessary in some countries, should the stoppage prove prolonged.

Turkey may also draw on more natural gas from a pipeline from Iran, Energy Minister Hilmi Guler said.

Gazprom raised its demands on Jan. 4 as Miller cited a possible price of $450 per 1,000 cubic meters for deliveries to Ukraine this month, reflecting the average price in countries bordering Russia’s neighbor. Ukraine paid $179.50 for its Russian gas last year and says $201 would be fair in 2009.

Ukraine’s political leaders, President Viktor Yushchenko and Prime Minister Yulia Timoshenko, are grappling with a financial crisis that has forced it to seek a $16.4 billion International Monetary Fund bailout.

Gazprom’s Medvedev said yesterday in London that the company is working to diversify its export routes to Europe, including two planned pipeline projects that bypass Ukraine.

The Nord Stream link, in which Gazprom owns 51 percent, is planned to run from Russia via the Baltic Sea to Germany. South Stream, where Eni SpA is a partner, will run from the Black Sea to Bulgaria, where it will split into a southern route to Italy and a northern route to Austria.

Source: Bloomberg

Europeans Shiver From Russia-Ukraine Dispute

MOSCOW, Russia -- Moscow's decision to cut back on natural gas deliveries to Ukraine has left some Eastern Europeans without heat in sub-freezing temperatures and renewed Europe's fears about relying on Russia's state-controlled monopoly, OAO Gazprom, to supply a growing share of its energy needs.


As a cold snap gripped much of the continent, six Eastern European countries had to cut back natural gas use for power and heating, and two cities in Bulgaria were left with no gas as residents coped with frigid temperatures.

Russia cut back gas deliveries to Ukraine on Jan. 1 in a disagreement over prices and overdue payments, but promised to keep fuel flowing to European customers.

The Kremlin is now accusing its former Soviet-era partner of stealing gas meant for other customers, and reduced its shipments even further Tuesday.

Kiev claimed the lower Russian shipments have reduced pressure in the pipeline and, therefore, volumes.

The dispute is tarnishing the reputation of both countries as reliable partners in the natural gas delivery chain, analysts said Tuesday. And it will lead European customers to look elsewhere to meet their energy needs, with options ranging from different pipeline routes for Russian gas to alternative gas suppliers to different fuel sources altogether.

“If this goes on for more than a few days, it will lead people to shift away from Russia and Ukraine, and to look for a long-term shift in overall energy policy,” said Andrew Neff, senior energy analyst with IHS Global Insight.

He added, however, that Europe has few major alternatives to increasing gas imports from Russia's Gazprom, which is the world's largest natural gas producer and supplies a quarter of Europe's consumption of the relatively clean-burning fuel.

The European Union energy commission met with its natural gas industry Tuesday, and issued a joint statement condemning both sides in the dispute and urging the immediate resumption of full deliveries.

The head of the Ukrainian gas company Naftogaz, Oleh Dubina, spoke Tuesday to Gazprom chief executive officer Alexei Miller, and said he will travel to Moscow Thursday for new talks.

Russian Prime Minister Vladimir Putin's intervention in the dispute has raised fears once again that Moscow is using energy as a political weapon, though analysts said Ukraine has heightened the crisis by holding back supplies meant for other customers.

The current battle marks the second time in four years that Gazprom has become embroiled in contract battles with Naftogaz, which handles 80 per cent of Russian gas exports to Europe.

In a holdover from the Soviet days, Ukraine receives highly subsidized gas from Russia, which is now seeking to impose sharp price increases.

Gazprom is now planning two major pipelines – one under the Baltic Sea and one under the Black Sea – that would bypass Ukraine. At the same time, the European Union supports the Nabucco pipeline proposal, which would carry central Asian natural gas from Turkey to Austria, though many analysts question whether that project is feasible.

Mr. Putin has criticized calls within Europe for policies to shift demand away from Gazprom in the name of “energy security.” Mr. Putin is a staunch supporter of the new international supplier group, Gas Exporting Countries Forum, which has been formed to co-ordinate policies of major gas producers.

Still, European gas users will look to expand their capacity to increase imports of liquefied natural gas from countries such as Algeria, Egypt and Qatar, and invest in additional storage space to shield themselves from temporary disruptions in supply, said Robert Johnston, director of energy and natural resource analysis at the political-risk company, Eurasia Group.

“You've seen the energy security issue move up the agenda at the EU, and that trend will be reinforced by this current dispute,” Mr. Johnston said. “Europe will continue to diversify its LNG supply base … away from Russia as much as possible.”

Natural gas fuels some 20 per cent of Europe's electricity supply, and Mr. Johnston said the EU will work to cap it through greater reliance on nuclear, clean-coal technology and renewables like wind power.

Source: Globe and Mail

Ukraine Gas Official: Talks To Resume

KIEV, Ukraine -- Ukraine and Russia will hold new talks to end their bitter natural gas dispute that has cut off Russian gas to six other countries, the head of Ukraine's gas company said Tuesday, as officials in eastern Europe warned of a looming emergency.

Gazprom ready to resume gas talks with Ukraine.
Bulgaria, which gets almost all its gas from Russia, said it would seek the reopening of a nuclear power facility as two cities were left without gas.

Naftogaz head Oleh Dubina said he would travel to Moscow on Thursday. He said he made the decision after speaking to Alexei Miller, chief executive of Russia's Gazprom.

There was no immediate comment from Gazprom, a state-controlled monopoly gas supplier.

Ukraine and Russia are locked in a dispute over pricing and overdue payments, and Russia cut Ukraine off on Jan. 1 but had promised to keep gas moving to Europe.

The energy dispute sharply escalated Tuesday when countries on the other end of the pipeline network running from Russian through Ukraine reported a complete shutoff.

Bulgaria, Greece, Macedonia, Romania, Croatia and Turkey all reported a halt in gas shipments. Croatia said it was temporarily reducing supplies to industrial customers and Bulgaria said it had enough gas for only "for a few days."

Dimitar Gogov, head of Bulgarian pipeline operator Bulgargaz, said reserves were sufficient to cover the industry's needs "for a few days" while President Georgi Parvanov on Tuesday said Bulgaria should start immediate preparations to relaunch Unit 3 of the Kozlodui nuclear power plant.

Two 440-megawatt reactors were shut down on Jan. 1, 2007, under an agreement with the European Union. But Parvanov said they could be restarted under terms of Bulgaria's EU accession treaty, which says closed reactors could be used temporarily in the event of an acute energy shortage.

Parvanov said one of the reactors could be opened within one month. Kozlodui currently operates two reactors.

"We are facing a serious natural gas crisis in which Bulgaria is a victim of the conflict between Russia and Ukraine," Prime Minister Sergei Stanishev told reporters after an emergency Cabinet meeting.

Two cities in eastern Bulgaria, Varna and Dobrich, have been left without natural gas supplies. In Varna, on the Black Sea coast, the shortage left 12,000 households without central heating amid freezing temperatures, authorities said.

During a similar dispute between Ukraine and Russia in 2006, which lasted just three days, several West European countries saw their gas supplies drop by 30 percent or more. That crisis led to criticism of Russia as an unreliable energy partner and spurred talk of finding ways to diversify Europe's energy supply.

Other countries lost significant amounts of gas as well. Austria lost 90 percent of its Russian gas, which is about half its total supply. It said it had three month's reserves but called an emergency meeting at its Economy Ministry.

Slovakia Economy Minister Lubomir Jahnatek said gas importer SPP AS would declare a state of emergency Tuesday after its gas deliveries from Russia were down by 70 percent.

The aim of the measure is "to notify customers that a gradual limitation of deliveries to big customers could occur," Jahnatek said. He said households, hospitals and schools should not be affected.

The European Union in Brussels called the sudden cutoff to some of its member countries "completely unacceptable."

In a strongly worded statement, the EU complained that gas had been cut "without prior warning and in clear contradiction with the reassurances given by the highest Russian and Ukrainian authorities to the European Union."

Up to Monday, the EU has said that the dispute would not affect consumers in the coming weeks. The sudden drop Tuesday, however, increased the diplomatic pressure to find a solution.

Gazprom said it was sure that it will be able to provide Europe with enough gas "We are confident that we will be able to get through this situation without any damage to the gas production and transit system," deputy chairman Alexander Medvedev was quoted as saying by RIA-Novosti. "The only issue is gas transit to Europe through Ukraine."

Moscow and Kiev blamed each other. Ukraine's state gas company Naftogaz said Russia's gas giant Gazprom had sharply reduced its shipments to Europe through pipelines crossing Ukraine, triggering the cuts.

"Our Russian partners are playing cat and mouse with us," said Oleksandr Shlapak, economic adviser to Ukraine's president. "These actions today can lead to serious problems not only for the Ukrainian but also for the European gas transport systems."

The Croatian economics ministry reported that gas shipments from Russia via Austria and Slovenia had ceased and said it has introduced temporary measures to reduce gas supplies to industrial consumers to "a necessary minimum." It has also called on citizens to "rationally" use gas in their homes.

Romania's gas transport company Transgaz said Ukraine ceased pumping gas at 3 a.m. (GMT 0100) Tuesday.

Turkey's Energy Minister Hilmi Guler confirmed the cutoff and said the country was trying to compensate with supplies from other sources including another Russian pipeline beneath the Black Sea.

The Czech Republic and Hungary reported partial supply drops. The Czech gas company RWE Transgas said it expects to get only 25 percent of the gas it was supposed to get Tuesday, while Hungary predicted its cut would be greater than the 20 percent it saw the day before.

Poland said it was considering limits on deliveries to heavy industry, even though so far Russia has compensated for shortfalls through Ukraine by shipping extra gas to Poland through a pipeline in Belarus.

Late Monday, Gazprom said it would cut the amount of gas it ships to Europe through Ukraine by 65.3 million cubic meters, or about 20 percent — the amount it accuses Ukraine of diverting from its transit pipeline network over recent days.

Russia supplies Europe with about a quarter of its gas, 80 percent of which is shipped through Ukraine.

Kiev denies allegations it is stealing gas, saying it is diverting only the Russian-supplied gas it needs to run its pipelines, including the compressor stations that pump gas west.

Source: AP

Ukraine: Russia Cuts Gas To Europe By Two-Thirds

KIEV, Ukraine -- Ukraine's gas company Naftogaz said Tuesday that Russia's Gazprom slashed natural gas shipments to Europe by about two-thirds, while Balkan nations reported a complete shut off of Russian gas, in a sharp escalation of a struggle over energy that threatens Europe as winter sets in.

A pressure-gauge set on a gas pipe covered with snow at the gas-compressor station in the Ukrainian city of Boyarka. Russian Prime Minister Vladimir Putin on Monday ordered gas giant Gazprom to start cutting supplies to Ukraine bound for European consumers in response to Kiev's alleged siphoning from pipelines.
Bulgaria's energy ministry said Russian gas supplies to Bulgaria, Turkey, Greece and Macedonia were completely cut off Tuesday morning. Turkey's Energy Minister Hilmi Guler confirmed the cutoff of gas shipped through the Balkans.

Romania's gas transport company Transgaz said Gazprom ceased pumping gas into the pipeline in eastern Romania at 3 a.m. (GMT 0100) Tuesday morning.

Bulgarian pipeline operator Bulgargaz CEO Dimitar Gogov said the reason for the suspension was not clear, but that his country's gas reserves were sufficient to cover needs "for a few days."

Gazprom officials could not immediately be reached for comment. Late Monday, it said it would cut the amount of gas it ships to Europe through Ukraine by 65.3 million cubic meters, or about 20 percent.

In Ukraine, Naftogaz spokesman Valentyn Zemlyansky said Tuesday that the shipments to European consumers had dropped to just 81 million cubic meters of gas, down from about 300 million in recent days.

"That is all they are sending, in several hours Europe will feel it," Zemlyansky told The Associated Press. He said he could not confirm that gas shipments had been cut off to the Balkans.

Gazprom had said it would cut gas shipments by the amount it accuses Ukraine of diverting from its transit pipeline network. Russia supplies Europe with about a quarter of its gas, 80 percent of which is shipped through Ukraine.

Kiev denies allegations it is stealing gas, saying Russia is to blame for the disruption because it refuses to supply the gas needed to run its pipelines, including the compressor stations that pump gas west.

Each side says the other is responsible for supplying the gas to run the pipeline network, but there is no way to sort out the conflicting claims. Details of the transit contract are secret.

The rapidly expanding crisis, now approaching its sixth day, could eventually result in disruption of supplies for consumers in Europe, where gas is used for heating and electricity generation.

Some European countries had already reported experiencing supply problems after Russia cut off supplies to its neighbor on Jan. 1 over pricing disagreements and outstanding debt.

Officials in Hungary and Bulgaria have said supplies from pipelines through Ukraine remained down.

Russia's latest reductions appear aimed at putting pressure on Ukraine, which is refusing to pay $600 million Gazprom claims it is owed.

Russia is also demanding an increase in the price Ukraine pays for its gas. Now, Ukraine pays Gazprom $179.50 per 1,000 cubic meters of gas, less than half of the average price European countries are expected to pay this year.

Ukraine, one of the largest consumers of gas in the world, says it enough gas reserves to last for weeks.

During a similar dispute between Ukraine and Russia in 2006, which lasted just three days, several West European countries saw their gas supplies drop by 30 percent or more.

This time Gazprom's customers were better prepared, having built up substantial reserves.

While some Western analysts say Russia is using the current crisis to weaken Ukraine's government, Gazprom insists the dispute is purely a commercial matter.

Both nations have been hit hard by the global economic slowdown, neither seems to be in a position to afford a lengthy halt to the gas trade. Both say they are anxious to prove they are a reliable energy partner for the EU.

Source: AP

Russia Slashes Gas Exports To Europe Via Ukraine: Kiev

KIEV, Ukraine -- Russian energy giant Gazprom has drastically cut gas deliveries via Ukraine, which will disrupt supplies to Europe, Ukrainian state gas company Naftogaz told AFP on Tuesday.

Russian energy giant Gazprom has drastically cut gas deliveries via Ukraine, which will disrupt supplies to Europe.
"They have reduced deliveries to 92 million cubic metres per 24 hours compared to the promised 221 million cubic metres without explanation. We do not understand how we will deliver gas to Europe," said Naftogaz spokesman Valentin Zemlyansky.

"This means that in a few hours problems with supplies to Europe will begin," he added.

The nearly 60-percent reduction came a day after Russian Prime Minister Vladimir Putin ordered Gazprom to start cutting supplies bound for Europe via Ukraine in retaliation for Ukraine's alleged theft of Russian gas.

Ukraine denies that it is siphoning off gas and has accused Russia of being behind the current gas crisis, which began on January 1 when Gazprom stopped deliveries to Ukraine's domestic market because of a bitter payment dispute.

A number of European Union countries have reported shortfalls in gas supplies as a result of the dispute. The EU depends on Russia for around a quarter of its total gas supplies.

Some 80 percent of Russian gas exports to the EU are pumped through Ukraine.

Source: AFP

Putin Orders Further Cuts In Gas Pumped Via Ukraine

NOVO OGAREVO, Russia -- Russian Prime Minister Vladimir Putin on Monday ordered gas giant Gazprom immediately to cut gas pumped via Ukraine to Europe in response to Ukraine's alleged siphoning from pipelines.

Russian Prime Minister Vladimir Putin.
"Start reducing it from today," Putin told Alexei Miller after the Gazprom chief informed him of a plan to cut volumes of natural gas shipped through Ukraine by amounts equivalent to those Moscow has accused Ukraine of stealing.

Russia cut its gas supply to Ukraine's domestic market on January 1 and has since accused Ukraine of illegally removing gas transiting its country for clients further downstream in Europe, a charge Ukraine has denied.

Miller told Putin that Ukraine had since January 1 "stolen" 65.3 million cubic metres of gas that were supposed to have flowed through pipelines that cross its territory on to customers in the European Union.

The Gazprom chief vowed that the state-run monopoly "will do everything we can" to compensate for the reduction of gas shipped through Ukraine by increasing volumes pumped through Belarus, Poland and Turkey.

But he warned that, in addition to reducing Ukraine pipeline volumes by the amount Russia claims the country has removed, Gazprom would continue to cut gas pumped through Ukraine on a daily basis by amounts it considered stolen.

Referring to the debt Gazprom says it is owed by Ukraine, Miller said it was still above 600 million dollars, but added: "If they continue to illegally take gas it will soon be billions."

Source: AFP

Ukraine To Talk Gas?

KIEV, Ukraine -- Russian energy giant Gazprom early on Sunday called on Ukraine to resume negotiations in a row that has seen Moscow cutting off all gas to its neighbour, accusing it of siphoning off supplies meant for Europe.

A woman passes in front of a meter set on a gas pipe of the gas-compressor station in the small Ukrainian city of Boyarka, near Kiev. Russia on Sunday asked the European Union to provide monitoring of Ukraine's gas transit system and accused Ukraine of stealing gas bound for Europe, as Kiev levelled its own charges.
The appeal came as Kiev warned the European Union the bloc could face "serious problems" with Russian gas deliveries transiting its territory.

"Since December 31 Ukraine has refused to negotiate with Gazprom and has resorted to siphoning off gas intended for European consumers, in violation of its obligations as a country of transit," Gazprom deputy chief executive Alexander Medvedev said in a statement.

"We call on Ukraine to refrain from these illegal acts and to return to Moscow to negotiate, once and for all, a transaction on gas delivery that will be acceptable to the two sides," he said.

In what was seen as a softening of Gazprom's position Medvedev added: "We are ready to meet them immediately."

Gazprom to file lawsuit

On Saturday Gazprom had announced it had decided to file a lawsuit against Ukraine's state gas firm Naftogaz to ensure transit of Russian gas through Ukrainian territory to Europe.

"It's not just a threat but a reality, they are stealing gas from the pipelines and underground facilities," Medvedev said after talks in Berlin.

Medvedev, on a whistle-stop tour of European capitals to explain the Russian side of the gas dispute, said negotiating with Ukrainians was "like having a talk with people from the planet Mars."

Naftogaz rebutted by warning it would file a counter-complaint if Gazprom made good its threat, Interfax-Ukraine reported.

Ukraine warned on Saturday that the gas conflict with Russia could lead to serious problems for Europe within 10 days.

Several EU states were already reporting shortfalls of up to 10 percent in Russian gas being piped through Ukraine, as the effects of the standoff between Moscow and Kiev began to be felt beyond the borders of the former Soviet Union.

Accusations of theft

As the war of words intensified after Moscow turned off the tap on New Year's Day, Russia accused Ukraine of stealing gas intended for Europe while Ukraine alleged that Russia was under-supplying its EU customers.

"If the Russian side does not provide more gas (to EU member states) than at the moment, then in around 10 days there could be very serious technical problems," said top Ukrainian energy official Bogdan Sokolovsky.

"The transit of gas may be disrupted at some point," said Sokolovsky, President Viktor Yushchenko's representative on energy security. "It will not be our fault."

He said the problems would be caused by falling pressure in gas pipes due to the Russian cut of deliveries to Ukraine.

But Medvedev accused Ukraine of stealing 35 million cubic metres of Russian gas a day intended for Europe.

"All the gas which was illegally taken will have to be paid for," on top of the $600-million outstanding in other debts, he told reporters in the Czech Republic, which currently holds the EU presidency.

Naftogaz denied the charge, claiming the Russians are not delivering the due quantities to European clients.

Circumventing Ukraine

Gazprom chief executive Alexei Miller told a management meeting that Gazprom would be pumping additional gas to European customers via pipelines that circumvent Ukraine.

"In these circumstances, Gazprom is obliged to supply additional volumes of gas via other transport corridors," he said.

The stream of accusations and counter-accusations came as several Central and Eastern European EU member states reported a drop in gas supplies from Russia via Ukraine.

Deliveries to Romania have fallen by 30 percent since the start of the dispute, Ioan Rus, director of the gas pipeline operator Transgaz, said, while adding that stocks were adequate to meet demand.

Poland reported a drop of 11 percent in supplies from Russia while Bulgaria said deliveries had been cut by 10 to 15 percent.

Other countries, including Hungary, Croatia and Serbia, said however that their supplies were at a normal level.

Czech Deputy Prime Minister Alexander Vondra, who met Medvedev in Prague, sought to provide reassurance, saying there was plenty of gas in stock.

"There is no reason for being insecure over the future deliveries, there is no reason for concern," he said.

Around a quarter of the gas used in the EU — more than 40 percent of the bloc's imports — comes from Russia, most of it pumped through Ukraine via a Soviet-built pipeline network.

Source: AFP

Who Is To Blame For Russia Gas Row? The View From Kiev

KIEV, Ukraine -- For Ukrainians on the streets of Kiev, the row with Russia over gas supplies is just the latest example of ineptitude among their own feuding political elite.

Ukrainians throng the streets on a holiday on the main square in Ukraine's capital Kiev Friday, Jan. 2, 2009.
People in this ex-Soviet state of 47 million have lost the exuberance and hope sparked four years ago by the “Orange Revolution” which swept President Viktor Yushchenko and Prime Minister Yulia Tymoshenko to power and incensed Moscow.

“In Italy, they call it the mafia, in America, Cosa Nostra, in Ukraine, the Verhovna Rada (the parliament)” said Oleg Karlichyk, a plumber in his mid-30s. “This is just bandits sitting in the Kremlin arguing, deciding, talking to bandits sitting in Grushevska street,” he said referring to the seats of power in the two countries.

Maybe surprisingly, there is little animosity towards Russia - accused by some in the West of bullying its neighbours.

“This is Russia’s fault but also our fault. Russia is a very powerful neighbour so you have to deal with it very carefully. Russia dictates. You have to listen,” said one man, who did not want to give his name.

Few think anything will change after the presidential election in 12 months time, even though Yushchenko is expected to lose — his popularity ratings have sunk below 10 percent.

What does the future hold for Ukraine - its economy shattered, its politicians constantly bickering and at loggerheads with its neighbour in recent months over gas, Russia’s Black Sea fleet and Ukraine’s determination to join NATO?

Source: Global News

Ukraine: Serious Gas Shortages Possible

KIEV, Ukraine -- A top Ukrainian official has warned that European customers could see serious natural gas disruptions in about two weeks if the energy dispute between Russia and Ukraine is not resolved, and the Russian gas monopoly Gazprom accused Ukraine of boycotting contract negotiations.

The deputy chief executive of Russia's Gazprom, Alexander Medvedev, gives a press conference in Prague. Medvedev, accused Ukraine of stealing 35 million cubic metres of Russian gas a day intended for Europe.
As Russia and Ukraine traded accusations in their bitter dispute over energy prices on Saturday, four European nations — Romania, Hungary, Poland and Bulgaria — all reported some supply drops in natural gas Saturday.

Gazprom cut off gas shipments to Ukraine on Thursday. Then Gazprom and Ukraine embarked on dueling charm offensives, both trying to assure western European nations that they were reliable energy partners and the fault lay with their rival.

The Russian delegation hoped to convince investors in Prague, Paris, Berlin and London that Kiev is to blame for any gas shortages, saying Ukraine is siphoning off natural gas from Russian shipments, as well as refusing to pay $600 million in fines or negotiate a new price contract for 2009.

Russia supplies Ukraine with natural gas and also sends 80 percent of its gas supplies to Europe through pipelines in Ukraine. The stakes in the dispute are high because Europe relies on Russia for a quarter of its gas needs — and because heat is crucial in the biting northern European winter.

Meanwhile, Bohdan Sokolovsky, an economic aide to Ukrainian President Viktor Yushchenko, warned that serious disruptions could hit Russia's European customers, if Russia continues to refuse to ship gas allocated for Ukraine to Ukraine. Sokolovsky said even though Ukraine continued to pump Russian gas destined for Europe, European countries could see major shortfalls in 10 to 15 days.

Without Ukraine's share of gas in the shipment from Russia, the overall gas levels in the pipeline transit system begin to fall. Sokolovsky said if that continues, an automatic shutdown will be triggered because the system requires a minimum amount of gas to maintain pipeline pressure.

"It is obvious that this is political pressure on Ukraine," Sokolovsky said of Russia's gas cutoff. "This is pure politics."

Speaking in Prague on Saturday, Gazprom Deputy Chairman Alexander Medvedev said Ukraine's position was "absolutely unacceptable."

"We're not negotiating. There's nobody from Naftogaz to negotiate" with, he said, referring to Ukraine's state gas company.

Despite the gas cutoff to Ukraine, Gazprom says it has continued pumping the gas meant for Europe. Medvedev said Gazprom has been using alternative routes that don't cross Ukraine — pipelines in Belarus and Turkey — but those don't have the capacity to make up the shortfall. As a result, some European countries were seeing a reduction in supplies.

"We try to do our utmost to compensate for what Ukraine is doing ... but the capacity to compensate has its limits," Medvedev said.

Gazprom Alexei Miller later suggested at a televised company meeting in Moscow that European consumers should sue Ukraine for allegedly stealing their gas.

Ukraine, meanwhile, disputes the fines and contends that Gazprom is unfairly refusing to accept a rise in transit fees while asking for higher gas prices for 2009.

Gazprom CEO Alexei Miller said in a statement late Saturday that the company would file a lawsuit with the Court of Arbitration in Stockholm, Sweden, against Naftogaz over the transit issue.

The two nations also are at odds over the price Ukraine will pay for natural gas in 2009. Gazprom has proposed a price jump from $179.50 to $418 per thousand cubic meters.

Valentyn Zemlyansky, a Naftogaz spokesman, said Saturday the company is ready to negotiate in Moscow but called Gazprom's behavior "energy blackmail." He rejected the claim that Ukraine was siphoning gas, saying the country had been sacrificing its own reserves to maintain minimum pressure levels in the pipes.

Zemlyansky said by noon Friday, Naftogaz had received a request from Gazprom to pump 305 million cubic meters, but it had to pump 319.3 million cubic meters just to keep the gas flowing.

"Ukraine is fulfilling all the obligations of the energy charter, in comparison to our Russian partners," Zemlyansky told The Associated Press.

Ukraine itself has enough reserves to last until early April, Naftogaz says.

Outside observers said the ramifications of gas shortages across Europe were so great that they should not be allowed to occur. Chris Weafer, chief strategist at Uralsib bank, said the dispute was mainly political and would likely be resolved to avoid serious disruptions to both Russia's and Ukraine's reputations.

The European Union has urged the two former Soviet republics to find an "urgent solution" to the dispute and announced it will host a Jan. 9 meeting with Russian and Ukrainian experts to discuss natural gas shipments to the 27-nation bloc.

Still, the EU warned it would not play mediator.

"We reject being part of the dispute," Czech Deputy Prime Minister Alexandr Vondra said Saturday. The Czech Republic holds the bloc's rotating presidency.

Source: AP

EU Suffers Gas Shortfall As Russia, Ukraine Trade Accusations

MOSCOW, Russia -- EU fears of a drop in vital gas supplies became a reality after Russia accused Ukraine of "stealing" from European customers and Brussels issued an urgent demand for contracts to be honoured.


Meanwhile, Russian energy giant Gazprom can no longer depend on Ukraine as a transit route to get gas to Europe and is looking at alternatives, the firm's deputy chief executive told the BBC.

The EU's brand new Czech presidency was forced to issue a late-night call Friday for the "immediate resumption" of full gas supplies following falls in deliveries to Poland and Hungary, with the European Commission saying the latter was down 25 percent.

The Russian accusation -- which followed the New Year's Day cutting of supplies for the Ukrainian market in a row over unpaid fines and levies imposed by Moscow -- had prompted a sharp denial by Kiev, which said it was dipping into its own reserves to honour obligations to the EU.

"The European Union calls for an urgent solution to the commercial dispute on gas supplies from the Russian Federation to Ukraine, and for an immediate resumption of full deliveries of gas to the EU member states," the EU presidency said in a statement.

Gas shortages occurred in Europe after a similar 2006 dispute.

"Energy relations between the EU and its neighbours should be based on reliability and predictability. Existing commitments to supply and transit have to be honoured under all circumstances," it added.

The commission said that it had received reports from Hungary and Poland of "irregularities in gas received through the Ukrainian gas pipelines."

Hungary has seen a drop of around 10 million cubic meters, almost a quarter of the contracted supply, although Poland's national gas distributor Gaz-System said a six percent fall there was being compensated by increased deliveries of Russian gas via Belarus.

Brussels did not apportion blame for the supply drop.

European Union states depend on Russian gas, much of which flows through Ukraine via a Soviet-built pipeline network.

Prague earlier proposed setting up independent monitoring stations on the Ukrainian-Russian and Ukrainian-Polish borders.

Both sides in what Czech Prime Minister Mirek Topolanek termed a "commercial dispute" have sent delegations to Prague and other European capitals to put their case before EU politicians.

Deputy ambassadors from across the EU are also to discuss the crisis in Brussels on Monday.

Gazprom deputy chief executive Alexander Medvedev told the BBC: "We believe it's necessary to develop, as soon as possible, alternative transit routes and we hope that Europe will make any necessary steps to support the realisation of this project."

Medvedev, who was speaking in London, has embarked on a tour of European capitals to win support in the Ukraine gas crisis.

Medvedev denied that Gazprom was deliberately picking a fight with Ukraine, saying it was ready to talk but there was nobody to negotiate with in Kiev.

Gazprom currently has two new gas pipelines under construction -- the Nord Stream pipeline, which will run from Russia's Baltic port of Vyborg to Greifswald in northern Germany, and the South Stream, which will cross the Black Sea into Bulgaria and then split, going to Austria and also Greece.

In televised comments, a spokesman for Gazprom, Sergei Kupriyanov, asserted: "The Ukrainian side openly admits it is stealing gas and has no shame about it."

He put the amount of gas he said had been illegally "siphoned" from pipelines crossing Ukrainian territory at 21 million cubic metres since Thursday.

He added that Ukraine was refusing to permit Russia to send the full amount of gas required for clients in Europe across Ukrainian territory on Saturday.

Russian Deputy Foreign Minister Alexander Grushko said Moscow wanted to put its case before an emergency session of the European parliament "to give the Russian side a chance to express its views."

But Ukrainian state energy company Naftogaz denied Gazprom's accusations and said Russia had reduced the amount it was sending through Ukraine.

"We haven't received 17 million cubic metres of gas that was due," Naftogaz spokesman Valentin Zemlyansky told AFP, explaining that Ukraine had added 10 million cubic metres of its own gas to deliveries to Europe.

"We are not stealing gas," he said.

While both sides have voiced willingness to negotiate, Gazprom's chief executive Alexei Miller has scotched hopes of a quick deal , saying Ukraine would have to pay a "European price" of 418 dollars per 1,000 cubic metres of gas in 2009, more than double what it paid last year.

Gazprom is demanding payment by Ukraine of over two billion dollars, for gas supplied in November and December as well as fines for late payment.

Experts say both Ukraine -- which wants EU integration -- and the European Union are cushioned by large gas reserves they have built up in storage facilities.

Around a quarter of the gas used in the EU -- more than 40 percent of the bloc's imports -- comes from Russia, most of it pumped in pipelines through Ukraine.

Source: AFP

Fears As Russia Cuts Gas To Ukraine In Mid-Winter

MOSCOW, Russia -- Moscow's refusal to open gas pipelines to Ukraine has sparked international fears for the "humanitarian implications in winter" and heightened concerns over Europe's dependence on Russian-controlled energy.

White House spokesman Gordon Johndroe.
After Russia cut supplies and sharply raised rates in a contract dispute, the two uneasy neighbours were at great pains yesterday to make sure that their row would not leave Europe short of gas just as winter set in.

Russia's gas monopoly, Gazprom, shut off supplies on Thursday night after talks broke down over Ukraine's payments for past shipments and a new price contract for this year.

The US ambassador to the EU, Kristen Silverberg, warned the dispute could have "humanitarian implications this winter".

The EU's Czech presidency and the European Commission said in a joint statement they were "concerned" by the cut-off.

White House spokesman Gordon Johndroe urged both sides to keep in mind the human toll of any interruption of gas supply in the winter.

"The predictable flow of energy to Ukraine and the rest of Europe under market-based, transparent conditions is essential for stability and reliability in regional and global energy markets," Mr Johndroe said.

When Kiev turned down far lower proposed terms, Gazprom warned it would have to pay nearly double the amount Ukraine was angling for this year -- shortly after Ukraine's President said the two sides were close to a compromise.

"In connection with the rejection by Ukraine of the reduced conditions for the delivery of gas at $US250 (per 1000 cubic metres), Gazprom will release the delivery of gas to Ukraine from January at the European market rate of $US418 per 1000 cubic metres," Gazprom chief executive Alexei Miller said, according to state news channel Vesti 24.

Gazprom confirmed that supplies to Ukraine were shut off at 10am, Thursday, local time.

"We have reduced the supply of gas to Ukraine by 100 per cent," said Gazprom spokesman Sergei Kupriyanov.

Ukraine's gas company, Naftogaz, confirmed that the volume of gas it was receiving from Russia had dropped, but promised that transit of supplies meant for customers downstream in Europe would be guaranteed.

Overshadowing their confrontation were memories of 2006, when a similar dispute interrupted gas shipments to many European countries for three days. But Russia and Ukraine now have strong interests in proving to Europe they can be reliable energy partners, and they assured other European nations they would not be affected.

In a change from the tough rhetoric that has marked the sides' latest verbal exchanges, Ukrainian President Viktor Yushchenko said Russia and Ukraine were "close to a compromise" and negotiations should be concluded by Wednesday.

Ukraine's Foreign Ministry would send a delegation to European capitals to discuss the problem, said ministry spokesman Vassili Kirilich, Interfax-Ukraine reported.

About a quarter of the gas used in the European Union -- more than 40 per cent of the gas imported by the bloc -- comes from Russia, 80 per cent of it moving in pipelines that pass through Ukraine.

"Investors, and gas consumers in Europe, will be hoping that cooler heads prevail before the lights go out across Europe," said Chris Weafer, chief strategist at UralSib.

Source: The Australian

Gazprom Investigating Whether Ukraine Is Siphoning Gas Meant For Europe

MOSCOW, Russia -- By mid-day today, Gazprom will find out whether Ukraine has started unauthorized gas withdrawal, Gazprom spokesman Sergei Kupriyanov said commenting on Naftogaz Ukrainy CEO Oleh Dubyna's statement that Russian gas transit supplies to Europe were reduced by 21 million cubic meters a day.

Gazprom spokesman Sergei Kupriyanov.
"We saw this announcement but believe that we should wait for the moment when 24 hours expire and we can draw corresponding conclusions. That will happen tomorrow in the middle of the day," Kupriaynov said on Vesti-24 channel Thursday evening.

Asked how Gazprom is planning to amend the situation, if the information proves true Kupriyanov said: "Let's wait until tomorrow and then we will tell you everything."

He spoke of the obstructions to the work of independent auditors posed by Naftogaz Ukrainy. "As is customary in such situations we invited independent auditors to monitor the volumes of gas entering Ukraine's [transportation] system and leaving it. Access was easily given to corresponding gas measuring facilities in European countries, observers are working there already. And naturally in Russian territory. As for stationing observers on Ukrainian gas measuring stations on the western border, we received a reply from Naftogaz Ukrainy today that they will not allow observers," he said.

Kupriyanov stressed that Gazprom is ready for the continuation of talks with the Ukrainian side.

"The Gazprom senior management is now at the office and today we spent almost the whole day here at the company headquarters in Namyotkina Street. But our Ukrainian colleagues did not come for the talks. Once again we see that we need it more than they do," Kupriyanov added.

Source: Kyiv Post

Gazprom Shuts Off Gas Links To Ukraine

MOSCOW, Russia -- For the second time in three years, Russia's natural gas monopoly, Gazprom, on Thursday halted the entire flow of fuel intended for Ukraine's domestic consumption in a shutoff that could eventually reverberate through the Continent's integrated pipeline system and affect consumers in Western Europe.

A gas storage and transit point in Boyarka, just outside Kiev.
Talks over price and transit fees unraveled late Wednesday with Gazprom demanding about $50 more each 1,000 cubic meters of gas than Ukraine's president, Viktor Yushchenko, said the country was willing to pay.

The shutoff at the peak of the heating season, though it has happened before, marked the most confrontational move by Moscow toward a neighboring country since its war with Georgia in August. Gazprom maintains that it is merely cutting service to a nonpaying customer.

"The message is very simple," Ilya Kochevrin, executive director of Gazprom's export arm, Gazexport, said in a telephone interview. "If you receive a product, you have to pay for it. If you don't pay, you don't receive it."

The shutoff caught the country of 46 million people at the peak of the winter heating season, as it did three years ago. Then, the Russian cut drew a din of criticism from the West and pushed up global oil prices.

With energy prices falling, the cutoff seemed intended to boost diminishing revenue at Gazprom, and to remind consumers that natural gas is a volatile commodity. Yet it has caused less panic now, as Russian leverage from oil and gas exports dwindles along with falling energy prices.

This time, European nations and Ukraine are far better prepared to weather a Russian embargo, not because they have significantly diversified supplies but because demand for gas is diminished in the global recession and national gas reserves in most European countries are nearly full.

The authorities in Poland and Italy issued soothing statements - noting high reserves and the distant likelihood of an immediate effect on gas supplies.

Ukraine's national energy company confirmed that the pressure was dropping in its pipeline system, which is used both for domestic supply and exports, but it said the country had reserves sufficient to fully meet demand for three months even if Russia does not restore supplies.

This time, Yushchenko released a statement with a Ukrainian price demand: The country would not pay more than $201 for 1,000 cubic meters he said, even after Russian technicians had stopped the compressor stations that pump gas into Ukraine.

"We have sufficient gas in underground storage," Bohdan Ivanovich, the Ukrainian president's envoy on energy security, said in a telephone interview. "We can survive the winter heating season."

Russia, meanwhile, is reeling from the fall from more than $100 in the price of crude oil since a peak last summer. Gazprom is deeply in debt even as the market is moving against Russia in a serious way.

While still high today, natural gas prices will inevitably fall and further wallop the Russian economy that is reeling from the sharp drop in the country's other pivotal export, crude oil.

Natural gas is pegged to the price of oil, but with a six month delay. Gazprom is still receiving payments linked to last summer's historic spike in oil prices, but they will decline sharply after the second half of 2009.

Elsewhere, the Russian economy is little reformed from the era of weak property rights and uncertainty of the state's role that characterized the early post-Soviet period. The country has used commodity exports as a crutch.

The authorities have yet to release a detailed plan of how they would fill the hole in the budget presented by the tumbling oil prices.

Taxes on oil and gas comprise about 60 percent of the Russian budget. Finance Minister Aleksei Kudrin has said Russia will run a deficit next year if the price of crude oil remains below $70 a barrel. It is now about $40 a barrel.

Russia's foreign reserves are increasingly committed to defending the ruble and are running out. The central bank has spent $162 billion since midsummer and still devalued the ruble three times last week. Russia's gold and foreign currency reserves are now $438 billion.

The country's gas exports themselves are vulnerable. About 80 percent of its gas exports to Europe go through Ukraine, which is now asking for a higher fee for this service. That would further undermine Gazprom's poor financial position.

The transit of Russian natural gas across former Soviet states to customers in Western Europe is a pivotal economic and security interest of the Russian government: Taxes on exports of oil and natural gas account for about 60 percent of its budget.

The conflict could sharply escalate tensions between Ukraine and Russia, the two largest successor states of the former Soviet Union.

In comments broadcast Wednesday evening on Russian state television, Prime Minister Vladimir Putin said that any interference with Russian gas exports to Europe would carry "serious consequences for the transit country itself." He did not elaborate.

Underlying the gas dispute are long-running tensions between the two countries. In 2004, after the street protests known as the Orange Revolution installed a pro-Western government in Ukraine, talks over gas supply and its transit became strained.

Gazprom has characterized the pricing disputes, which arise when contracts expire at year's end, as purely commercial. Yet critics who contend Russia uses oil and natural gas exports as political leverage over former Soviet and East bloc states see clear ties to the region's turbulent politics.

"Russia will use the economic factors to transform the internal politics of Ukraine," Hrigoriy Perepelitsa, director of the Foreign Policy Research Institute, the academy of the Ukrainian Foreign Ministry, said in a telephone interview.

He said Russia was seeking to undermine Yushchenko by stalling on a gas deal, while seeking instead to negotiate with the Ukrainian prime minister, Yulia Tymoshenko, who has leaned closer to Russia politically as alliances shift in Ukraine's mercurial internal politics.

Tymoshenko, for example, was slow to criticize the Russian military intervention in Georgia in August.

The goal, Perepelitsa said, was to steer Kiev close to a model of government more pliant to Russia's self-appointed role as a country with a privileged sphere of influence in the region. "It will create a politics closer to Belarus, or other former Soviet states, that are controlled from Moscow," he said.

In this dispute, the role of an opaque gas trading company that is the exclusive intermediary for shipments to Ukraine is one lever of influence, Perepelitsa added.

The Swiss-based trader, RosUkrEnergo, is half owned by Gazprom and half by a Ukrainian businessman, Dmitry Firtash, who has ties to the country's president.

RosUkrEnergo buys gas from Gazprom and Central Asian suppliers at rates below those charged in Europe, re-sells most to Ukraine, but exports a portion to higher paying European nations such as Poland for a profit.

Half the profit reverts to Gazprom and the rest flows to Firtash and his partners. Critics say the arrangement at best creates a conflict of interest woven into the business and political elite of Ukraine, and is corruption at worst.

The deal is unpopular in Ukraine and controversy deepened when Yushchenko's press aide conceded that the president had met several times with Firtash after the 2006 agreement that made RosUkrEnergo the exclusive supplier.

Raising prices on RosUkrEnergo thus undermines Yushchenko's ally in business, Perepeliltsa said.

Source: International Herald Tribune

Gazprom Cuts Ukraine Gas Deliveries

MOSCOW, Russia -- Gazprom, the natural gas monopoly, began cutting supplies to Ukraine Thursday after negotiations over prices between Russia and Ukraine unraveled, state radio reported.

A gas worker from Ukraine's state gas firm Naftogaz adjusts valves at the Bobrovnytska station in the village of Mryn.
If the interruption continues, customers in Western Europe would likely experience shortages, since the same pipelines in Ukraine that are used for internal distribution are also used for export.

That is a problem that has bedeviled Europe’s energy supplies from Russia for years. About 80 percent of Russia’s gas exports to Europe go through Ukraine.

The transit of Russian natural gas across former Soviet states to customers in Western Europe is a pivotal economic and security interest of the Russian government: taxes on exports of oil and natural gas account for about 60 percent of its budget.

Customers include major European utilities like E.ON of Germany and Eni of Italy.

How quickly Western Europe would feel any shortage of natural gas was unclear, and it would depend on the scale and duration of any Russian energy embargo on Ukraine. The fuel is used for heating and to generate electricity, and winter is the period of peak demand.

In comments broadcast Wednesday evening on Russian state television, Russia’s prime minister, Vladimir V. Putin, said that any interference with Russia’s gas exports to Europe would carry “serious consequences for the transit country itself.” He did not elaborate.

Underlying the gas dispute are long-running tensions between Russia and Ukraine, a former Soviet republic. In 2004, after the street protests known as the Orange Revolution installed a pro-Western government in Ukraine, talks over gas supply and its transit became strained.

In 2006, Russia halted supplies to Ukraine for three days, in an ostensible dispute over pricing and transit fees. A drop in pressure in the integrated European pipeline system led to shortages as far away as Italy, as Ukraine withdrew gas from its export shipments to meet internal demand.

This year, Ukrainian authorities say they have sufficient reserves of gas to meet internal demand for three months.

Moscow’s renewed pressure on Ukraine comes after Russia’s war in August with Georgia, another former Soviet republic, and the Kremlin’s subsequent claim to a renewed sphere of influence in the region. Like Georgia, Ukraine has angered Russia by seeking NATO membership.

Ukraine said it paid $1.5 billion on Tuesday to RosUkrEnergo, the Swiss-based gas trader Gazprom uses to supply Ukraine. President Viktor A. Yushchenko issued a statement saying that Ukraine had settled for all deliveries in 2008. Gazprom maintains that Ukraine must also pay $600 million in late fees.

By Wednesday evening, the sides had not settled on the price for 2009 deliveries or the tariff that Ukraine would charge for shipping Russian natural gas to customers in Western Europe.

However, Ukraine made a late appeal for a return to negotiations, The Associated Press reported. Bohdan I. Sokolovsky, Mr. Yushchenko’s energy adviser, said a note was delivered to a Russian diplomat in Kiev asking Russia not to turn off the gas and expressing hope that an agreement could be reached in the coming days, The A.P. said.

Mr. Putin said that Gazprom is asking Ukraine to pay $250 per 1,000 cubic meters in 2009, up from $179 for the same volume in 2008. He characterized the 2009 fee as a subsidized rate.

Mr. Sokolovsky said Ukraine would not accept that price unless Russia offset the increase by paying Ukraine more to export gas to Europe.

Source: The New York Times

Russia Says It Will Halt Delivery Of Natural Gas To Ukraine

MOSCOW, Russia -- Russia said Wednesday night that it planned to suspend delivery of natural gas to Ukraine on Thursday morning after negotiations to resolve a politically tinged dispute over prices collapsed without an agreement.

Alexei Miller, chief executive of Gazprom.
A cutoff of fuel shipments to Ukraine could have a ripple effect across Europe, because Russia supplies a quarter of the gas that the continent uses, and most of it is delivered through Ukrainian pipelines.

Russia briefly followed through on a similar threat in 2006. Fuel shortages resulted as far away as Italy, and concerns grew about Europe's dependence on energy controlled by the Kremlin.

The current dispute centers on Russia's desire to charge higher prices for gas next year and collect more than $2 billion in debts run up by Ukraine for gas this winter. But as in previous years, the commercial issues have been complicated by Moscow's tense relations with Ukraine's fractured, pro-Western government.

Alexei Miller, chief executive of Gazprom, Russia's state-controlled gas monopoly, announced the collapse of talks and said the company planned to halt supplies for Ukraine at 10:00AM (2:00AM New York time).

"All responsibility for the situation rests on the Ukrainian side," he said.

Gazprom warned two weeks ago that it would suspend gas supplies if Ukraine failed to pay off its debts and sign a contract for next year's deliveries by midnight Wednesday. As the deadline approached, Miller said Ukraine had met neither requirement.

Russia stopped sending gas to Ukraine for three days in January 2006, but the current standoff could be more severe because the global financial crisis has left both countries more desperate for funds. Ukraine is struggling to avoid an economic meltdown, and Russia has been hit hard by falling energy prices.

In a news conference before the talks unraveled, Gazprom officials accused Ukraine of trying to "blackmail" Russia and the European Union, saying its state energy firm had threatened to confiscate gas intended for European customers if a contract with Russia could not be drawn.

Russian Prime Minister Vladimir Putin warned on state television of "quite serious consequences" for Ukraine's relations with Russia if Ukraine acted on that threat. He said that Ukraine signed a deal last year to deliver Russian gas to Europe and that the agreement remained in force until December 2010.

"We can recommend only one thing to our Ukrainian partners," said Russian President Dmitry Medvedev. "To make a reasonable decision quickly instead of dooming their own citizens to very great trouble."

The Ukrainian government, which says it has enough reserves to meet domestic demand for three months and has repeatedly promised safe transit for gas to Europe, denied it was trying to blackmail Russia. President Viktor Yushchenko "is calling for every effort to be made for the earliest possible signature of an agreement with Russia," said Bohdan Sokolovsky, the president's energy security representative.

Yushchenko issued a statement Tuesday saying that Ukraine had paid $1.5 billion to an intermediary firm and that the payment covered the cost of all gas deliveries in 2008. But Gazprom said it had not received the money and added that Ukraine owed $600 million more in late fees.

The two sides also appeared far from agreeing on a 2009 price for gas. Gazprom had demanded that Ukraine pay as much as $418 per 1,000 cubic meters of gas, more than double the $180 Gazprom charged this year. On Wednesday, it offered a contract with a price set at $250, which Putin described as a subsidized rate and a "humanitarian" gesture to a neighbor.

But Ukraine said the price was still too high, given declining energy prices around the world. Sokolovsky said Ukraine could accept the 40 percent price increase only if Russia also agreed to increase what it pays to use Ukraine's pipelines.

Some Ukrainian politicians have accused the Kremlin of trying to use the gas dispute to exploit Ukraine's economic crisis and weaken its Western-leaning government, which is seeking NATO membership and backed Georgia in its August war with Russia.

The gas standoff has contributed to a widening rift between Yushchenko and Prime Minister Yulia Tymoshenko, his former ally in the 2004 street protests known as the Orange Revolution. The two are expected to compete for the presidency next year, and each has accused the other of mishandling the dispute.

Tymoshenko has sought to position herself as the candidate better able to negotiate with Russia, and she struck a gas deal with Putin in October that she said would remove the influence of "corrupt" middlemen with ties to the president. Analysts say Moscow may be taking a harder line in negotiations in an attempt to undermine Yushchenko further.

Source: Washington Post