Gas - a peculiar business..

Last week Gazprom publicly warned Ukraine that it would cut gas supplies to the country if Ukraine failed to pay its $1.3 billion debt in October 2007 and also notified its European partners of the problem.

Ukraine’s Deputy Fuel and Energy Minister Vadim Chuprun noted that the debt in question was a debt owed to Gazprom by corporations, and not by the Ukrainian government at all. This was followed by a National Security and Defense Council of Ukraine spokesman claiming they did not understand what debt Gazprom was talking about. “There should be no debts based on the current scheme of agreements and contractual relations,” said Yuri Prodan, Deputy Secretary of the NSDC.

And yet, as FT reported today, following Yanukovych's visit to Moscow, agreement has been reached and Ukraine will repay Gazprom in cash and gas after all. According to the FT, Russian prime minister Viktor Zubkov claimed the debt had risen by early October to $2bn, although RosEkrEnergo, monopoly supplier of gas to Ukraine, reckons its overdue debt to Gazprom is only $929m.

Yanukovych was quoted as saying cryptically : “It [the debt] doesn’t exist as such but we have created a mechanism that will allow us to settle the issue,” in response to Zubkov.

EDM has made an excellent attempt to explain of what is going on, but these huge discrepancies and the almost instant agreement are baffling, to say the least.

Now today Fuel and Energy Minister Yuriy Boyko declared that the Ukrainian debt of $1.3bn was all "provoked by the Ukrainian opposition", and explained that according to the latest agreement 4bn cubic metres of gas in underground storage facilities will be sold to UkrGazEnergo at a previous price, as part of the settlement. This gas was earmarked for re-export to Europe and should not be used on the internal market of Ukraine. The surplus arose as a result of an abnormally warm winter when demand to Europe was low, he added.

LEvko thinks if this 4bn cubic metres was unused stock from last winter, then it either belongs to the supplier or the end user, but not to the transit country - Ukraine. Because Ukraine's imported gas comes from just one supplier, the intermediary company RosUkrEnergo at a a price of about half of what other European customers pay, it is contractually not permitted to re-export gas.

This standoff and its apparent resolution reveal a continuing absence of transparency in the gas trade between Russia, Ukraine and the central Asian countries. Everyone knows intermediaries are often used in business to enable suppliers and consumers to collude in skimming and 'getting the numbers all muddled up'. Tymoshenko has warned many times that she intends to eliminate them if she were to become PM again...