Thursday, January 29, 2009
In October 2008 Putin accommodated Tymoshenko's demands when they both signed a joint gas memorandum in Moscow. She returned to Kyiv full of success.
A source in the [Russian] Ministry of Foreign Affairs explained to 'Russian Newsweek' that by the end of December last year gas contracts for delivery of Russian gas to Ukraine were all drawn up and ready to go. These were practically the same contracts that were signed on January 19th 2009 to end this winter's gas crisis...
But at the end of December Tymoshenko told Putin during telephone conversation that Yushchenko should have the last word on the new gas deal. Putin had called her on December 30th proposing the same terms agreed in October, i.e. transition to a formula for calculating the price of gas, the mean annual price for 2009 to be $250 per tcm ($235 if gas were to be taken away gas from"Rosukrenergo"), and a preferential transit rate for Russian gas over Ukrainian territory.
Both Tymoshenko and Gazprom now declare that the negotiations were disrupted by RosUkrEnergo, who offered Gazprom a higher price of $285 per tcm, but Gazprom apparently turned this down. This prompted Yushchenko to recall the 'Naftohaz Ukrainy' delegation from Moscow, and Putin, without naming Yushchenko by name, accused the Ukrainian authorities of corruption.
But some 'Russian Newsweek' sources do not support this version of events. They claim that on December 31st it was Tymoshenko herself who broken off the negotiations.
According to their source in the Kremlin, she called Putin and told him that she could not come to Moscow because "Yushchenko would not let her return home, or would arrest her".
Other source familiar with events adds that an infuriated Putin began to break off the negotiations himself. He called head of Gazprom Alexey Miller to tell him that the head 'Naftohaz', Oleh Dubyna, was not mandated by Yushchenko, and until Yushchenko confirmed his mandate no negotiations could take place. On 31st December at 9.30 p.m. Dubyna flew back to Kyiv. "They launched a war against Yushchenko", concluded the Kremlin official.
Ukrainian political adviser Dmytro Vydrin indirectly confirms this. Yushchenko, he says, could not prevent Tymoshenko's visit to Moscow.
Gazprom stopped delivery of gas for Ukraine. Ukraine, in order to provide transit of gas to Europe, began siphoning off 'technical gas' and European consumers immediately started to experience shortages. The Europeans understood that they had to get involved.
At this moment, but before a full termination of gas shipments, Putin ostensibly let prime minister of the Czech Republic, Mirek Topolanek, who is currently president of the European Union, know that he would be able to achieve agreement with Tymoshenko if the European Union applied sufficient pressure on Yushchenko.
Topolanek refused, and the situation became deadlocked. Gas transit was stopped completely, and the chairman of European Commission, Manuel Barroso, started to put the squeeze on Yushchenko. According to some sources, on January 16th, Putin secretly met with Tymoshenko in Dresden, and there they came to an agreement. Within three days all the official contracts had been signed. Tymoshenko again returned to Kyiv a winner, and Yushchenko's political prospects became even dimmer.
Tuesday, January 27, 2009
Several years ago, during a parliamentary debate on the financial deficit in the country's education budget, one deputy suggested that everyone present should merely drop their watch into a waste-paper bin by the door when they leave the parliamentary chamber. The money collected from their sale should easily plug the budgetary hole..
They should take a lead from US President Obama, who wears a $300 watch. More here. Looks smart...The guy has class..
p.s. Russian 'Newsweek' have an interesting article entitled: "The queen of the gas pipeline", in their current edition.
They claim that that "the trigger in the gas war at the end of December was pulled by Yulia Tymoshenko", when she failed to fly to Moscow on the 31st of that month to sign fresh contracts. 'Newsweek' claim she 'phoned Putin to tell him, "Yushchenko will not let her return home, or will arrest her." As result it has practically guaranteed her victory in the next presidential election.
Details of gas contracts with Gazprom's European clients, of which there are several tens, are always keep secret. The contracts are all different: some have a discount according to volume, some have other terms, depending on individual agreements. Therefore nobody understood what Putin meant in his speech on January 19th when he said Ukraine would pay a Central European price in 2009, but with a 20% discount.
In Russia and Ukraine observers speculated for a week about what Putin and Tymoshenko agreed, but political pressure in Ukraine is such that contracts, both on delivery and on transit, could not be kept in the dark for long - they were published by many Ukrainian websites [within days]. In these contracts only the dates were written by hand. They were very detailed documents... It is impossible to write such documents even in five hours - the duration of the 19th January Putin-Tymoshenko negotiations...
Putin will be 'leading' Tymoshenko into the Ukrainian presidential chair, "Newsweek" claims. Amongst Yushchenko, Yanukovych and Tymoshenko, Moscow considers her the lesser evil in the trio.
The article provides a 'behind-the-scenes' account of how the gas crisis developed, and claims that on January 16th, Putin secretly met Tymoshenko in Dresden to fix the final deal.
Friday, January 23, 2009
"Tymoshenko will set up impeachment [proceedings] against Yushchenko"
"Security Services of Ukraine and the Prosecutor General of Ukraine will go after Tymoshenko. Four questions have been put to the premier."
"Do not to believe the sweet promises of those who betrayed Ukraine, Yushchenko appeals"
"Boyko: Tymoshenko will be held responsible for betrayal" [Yuriy Boyko probably knows more about the darker corners of the Ukraine-Russia-central Asia gas business than any other man because he was closely involved with the creation of the opaque intermediary company RosUkrEnergo]These four items provide an outline for the nasty political battle to be fought in the months ahead.
You can see PM Tymoshenko's confident defence on Channel 5 TV against some powder-puff questioning, of her gas settlement with Russia, and other matters, here.
The Germans are pressing for a quick go-ahead to the Nord Stream gas pipeline project. "The most reliable transit country is the Baltic Sea," said a Wintershall spokesman.
But with both Russia and Ukraine in deep financial doo-doo, European companies may be looking into buying up bits of Ukraine's gas transit system.
Sunday, January 18, 2009
Smells 'fishy' to me.
When negotiating with an untrustworthy party every tiny detail has to be settled and agreed before any declarations are made - no "wriggle-room" left. It is not credible such a complex deal could be made in just a few hours, adding to suspicion that the broad outline revealed at the press conference could well differ from the closed deal actually struck.
Have any of the principles of negotiations declared by Yulia Tymoshenko in her Friday statement:
- "no middlemen;
- direct relations between Naftogaz and Gazprom;
- mutually beneficial prices for gas and transit;
- no talks about possible privatization or any other forms of transfer of the Ukrainian gas transportation system",
If, as it appears, Ukraine 'lost out' on the deal, Yulia Tymoshenko will blame president Yushchenko for 'poking his nose in' during the last days of last year. The ground for this was prepared in Friday's statement by the PM.
But at least Tymoshenko has gone for a floating price - better when prices are falling, rather that a fixed price deal - better when prices look like going up.
And what's to be done about Gazprom's claim that the Ukrainian side still owes $614 million dollars in late payment charges? Hardly worth mentioning, is it?
Saturday, January 17, 2009
President Yushchenko's official website states [in English] that today: "President Victor Yushchenko had a phone conversation with European Commissioner for Energy Andris Piebalgs.
Victor Yushchenko informed Andris Piebalgs about the situation with Russian gas transit to Europe.
He stressed that issues of supplies of Russian gas to Ukraine and transit of gas to European customers are connected with each other and should be considered simultaneously.
Andris Piebalgs from his part suggested a temporary mechanism of pumping technological gas into gas transit system of Ukraine by European gas companies." [The last sentence sounds a bit "cockeyed" to me - presidential secretariat's translators - you are rubbish.]
The Ukrainian version of the same posting reads rather differently, and includes the following:
"EU Commissioner Andris Piebalgs proposed a temporary mechanism for providing supplies of gas with the inclusion of European gas companies, who would in their turn, settle the question of supply of technological gas.
The Ukrainian head of state confirmed his readiness to consider in detail the proposals being prepared by European gas companies."
So it looks as if big European utility companies will pay for the transit of their Russian gas over Ukrainian territory - which, by eliminating the 'technological gas' question, weakens Naftohaz Ukrainy's chokehold on the transit system ...
PM Yulia Tymoshenko is off to see Vladimir Putin tomorrow. Her statement, posted on the Ukrainian government portal, in good English, is here. It is worth reading carefully..
Thursday, January 15, 2009
But why couldn't an equivalent amount of gas have been exported from Ukraine's huge storage facilities in the western part of the country as a goodwill gesture?
And by pumping only insignificant test quantities of gas today, Gazprom has showed a callous disregard to the plight of millions of Eastern Europeans who are suffering gas shortages in the middle of winter.
The BBC, in an article entitled "Strategy behind Europe's gas game" describes the gas stand-off between Russia and Ukraine as "a poker game, where the two players bluff and bet against each other," with Europe caught in the middle.
The stakes for Ukraine's politicians could not be higher. If Ukrainian consumers, particularly domestic consumers in the Eastern part of the country, begin to experience the serious gas shortages that will inevitably occur after a period of time, these will seriously affect Yulia Tymoshenko's popularity and her chance of becoming president later this year. She and her eponymous party also need financial support from her industrialist backers, which could be lost in a protracted stand-off with Russia.
For president Yushchenko a tough stance in this gas crisis is a desperate [and hopeless] last chance to gain respect amongst some of the electorate.
But Russia has much to lose too if it drags on much longer. Its credibility as a reliable supplier of gas is being eroded day by day to a position from which it may never recover - arguments for diversification of energy supplies are growing ever stronger in the EU.
President Putin has already complained of significant loss of revenue caused by the crisis, and of difficulties caused by reduced output. [See his interview with the German ARD TV, dubbed into English, here]
So, who will be last man standing?
As matter stand now, it is European customers who are suffering the most hardship. It is up to EU leaders to suggest proposals to minimize their plight e.g. by paying Ukraine's transit fees themselves until agreement is met on what Ukraine is to pay Russia for gas. Naftohaz Ukrainy has just proposed that Gazprom provides all the 'technological' gas that is required. A portion of west-bound Russian gas could be retained by Ukraine to cover these fees, removing the 'technological' gas problem.
However the crisis pans out, the gas business will emerge much changed.
Update: Details, on the official Ukrainian government website, of Tymoshenko's latest "constructive" late-night chat with Putin, [in English] here
p.s. It seems that it was head of presidential secretariat Viktor Baloha was staying at the burned out Swiss chalet I mentioned in my previous blog. Hope it didn't spoil his holiday break.. or singe his beard..
Tuesday, January 13, 2009
Your blogger suspects leaky gas pipes may have been the cause.
p.s. No gas yet transitting to Europe. Ukrainian side says [technological] gas required to drive compressor stations would have to be taken from domestic Ukrainian consumers, causing hardship - so no deal..
'Naftohaz Ukrainy's explanation in English [?] here
An alternative explanation here
Monday, January 12, 2009
They claim a new Russia-Ukraine gas deal fell through over a measly $350 million, but it looks as if gas will start crossing the Russian Ukrainian border again tomorrow morning.
PM Tymoshenko is adamant 'Naftohaz Ukrainy' will not use its own scarce reserves for 'technological' gas required to pump gas westward to gas-starved Europe, particularly as no price has yet been determined for any future deliveries of gas to Ukraine from Russia.
Your blogger considers that as a result, Ukraine will use Europe-bound gas to power the gas transit turbines along its pipelines. Within a few days, shortfalls in deliveries will be experienced in European countries and the entire problem will flare up again.
Ukraine needs about 6.5 Bcu.m. annually of this 'technological gas' to deliver Russian gas to European customers. In previous years this has been paid for on a "pay-as-you-go" basis.
I guess if the Europeans really want their gas then they will have to pay for its transportation through Ukraine while the dispute continues.
More Air Miles for the folks at Gazprom and Naftohaz in the weeks to come then..
p.s EDM has some analysis on Putin's handling of the crisis too.
Sunday, January 11, 2009
The RT clip describes some goalpost-moving [see previous blogs] taking place already - President Medvedev has called recently-signed agreements invalid because bits have been added by the Ukrainian side.
When will this childish silliness end?
Putin says that Gazprom has lost $800 million so far because of the dispute.
'Sam ne ham, i tobi ne dam', as my granny used to say.
Friday, January 09, 2009
It seems to be a "score-draw" result.
Your blogger is not quite so optimistic just yet - Ukrainians have a habit of 'moving the goalposts' at the last minute. There are two distinct matters here - a Russsian/Ukrainian agreement, and supply of gas to other European countries. While the first matter is not resolved the second will be uncertain, monitors or no monitors, meters or no meters.
Several years ago an elderly lady from Lviv told me this story:
She was fed up with high gas bills and went to the gas utility company to complain. They asked her whether she had a gas meter. When she said she hadn't, the man told her, "Get yourself a meter, and the bills should fall dramatically."
She took his advice and had a good meter installed. But the next bill came - and to her horror it was even higher than before. She stormed down to see the man at the gas utility company again.
"You told me to get a meter to reduce my bills. I did exactly as you suggested, but the gas bill is even higher. What's going on here?" she railed.
The man calmed her down, and asked her, "Yes, but what kind of meter did you have fitted?"
"Why, a good one, the best - a German one," she replied."
"Ah, this is no go good," the man said, and paused, adding, "You should have got a Ukrainian meter." [Sounds better in Ukrainian]
p.s. If independent monitors are placed at all the inbound pipes into Ukraine, and also at all the outbound pipes from Ukraine, why have monitors inside Ukraine? Just a thought.
Thursday, January 08, 2009
Some loosely translated bits:
"I want to emphasize, no matter how drastic this sounds, today's political authority in Ukraine is demonstrating it is incapable of solving economic problems - and today's situation provides evidence of the high degree of criminalization of its structures of authority," fumed Putin.
"Today the situation is such, that the current government of Ukraine is not capable of organizing normal transparent functioning of the economy of Ukraine on market principles, and moreover, by their actions, they are causing great harm to the Ukrainian people and to the prestige of the Ukrainian state".
"This again emphasizes that political collapse inside Ukraine itself is being observed, and speaks of the high degree of corruption in the structures of authority."
"Today in these conditions they are fighting not only about the price of gas, but for the possibility of preserving various intermediaries in order to use the dividends received for personal purposes, personal enrichment and for obtaining the necessary financial resources for future political campaigns."
He also said Ukraine should pay market rates [whatever that means], for gas , and Russia would pay European rates for transit as soon as possible ...
But the kind of language he used 'is not helpful' during conflict resolution - it's all getting rather nasty, and could cause a 'blow-back' in the Ukrainian gas pipe.
Putin also forgot to mention the the monopolistic intermediary which supplies gas to Ukraine, RosUkrEnergo, is 50 per cent owned by Gazprom, through its daughter Swiss-registered Rosgas Holding A.G. and 50 per cent by Swiss-registered Centragas Holding A.G., acting on behalf of the Ukrainians Firtash & Fursin.
This article explains why the stakes are so high both for Ukrainian and Russian politicians. [Putin mentions this year's Ukrainian presidential elections in his interview too.]
Jerome a Paris argues that Putin's closing off of all gas deliveries via Ukraine to Europe was incomprehensible and counterproductive, and may indicate he is losing control over the management of events. Check out the interesting comments to his posting too.
Or maybe his game is "first artificially raising gas prices and then attempting to raise prices even higher by cutting off most gas deliveries in the middle of a freezing winter...to create a panic-driven market in which spot prices for Russian gas would go through the roof."
*to attack someone by kicking them again and again, usually when they are lying on the ground. (British, informal)
Wednesday, January 07, 2009
President Yushchenko's official website has revealed that today he spoke over the telephone to his Russian counterpart, Dmitriy Medvedyev. He appealed to the Russian side to renew deliveries of gas for European consumers immediately, and assured Medvedyev that Ukraine would do everything necessary to ensure the gas is delivered in full.
He underlined Ukraine is only consuming its own gas, either domestically extracted, or stored in its own reservoirs, and called upon the Russians to return to constructive dialogue for open and transparent negotiations in the presence of EU representatives.
A Ukrainian delegation headed by state company 'NaftoHaz Ukrainy' chief Oleh Dubyna has departed for Moscow and Brussels for talks. But will they cut out the RUE "shakher-makher"?
Tuesday, January 06, 2009
By all accounts their meeting was cordial. It looked as if just a few details needed to be ironed out, and as long as accounts were paid on time, Ukrainian and European consumers would not have to worry yet again about the reliability of their gas supplies. Significantly, they also agreed on the removal of intermediaries in the Russia-Ukraine gas trade.
Today, even though there is still a dispute over late-payment penalties, it seems that Ukraine has paid its gas bills for 2008. But terms for 2009 are a long way from being agreed.
Under normal circumstances, if such disputes occur between utility suppliers and consumers, status-quo-ante terms could be briefly maintained until such time that fresh agreements were achieved. Then any balance, one way or another, could be repaid. Any inconvenience to suppliers, consumers, and other third parties would be minimised.
So why do Russia and Ukraine find themselves yet again, in a dispute over gas?
After the resolution of the 2006 dispute many experts tried to pick apart and explain the details of the hastily-made agreement which included 'cocktails' of Russian and Turkmen gas, make-weight deliveries and so on. None of their explantions were convincing. Today, in one sentence, the FT, in their write-up on the current dispute, let the cat out of the bag: "Legal experts could not verify the rival claims because Russian-Ukrainian gas contracts are secret." In other words, officially publicised contracts are merely 'ochkovtiratyelstvo'.
It is this opaqueness that provides cover for continuing wide-scale fraud benefiting the two country's elites. These disputes have never been about gas prices and storage and transit rates, but about 'whose hands are in the middle-man's trouser pockets'. [See link to Jerome de Paris article my previous blog.]
Almost exactly a year ago I posted a blog on how the Tymoshenko government had put the squeeze on one intermediary, 'UkrGazEnerho', to the benefit of consumers, but also to the benefit of other independent traders, and some of her sponsors.
Tymoshenko's mid-90's involvement in the huge gas importer and distributor United Energy Systems of Ukraine is well known. UESU's dominance at that time forced major 'businessmen' in Donbas to stop blowing one another up and shooting one another, and to work together and form powerful alliances to counter the UESU threat in this field.
Just a few months after the 2004 Orange Revolution president Yushchenko sacked the-then PM Tymoshenko because her boys at the security service had spectacularly accused the president of hindering their attempts to tackle corruption in the Russia-Ukraine gas business, to the incredulity and dismay of millions of OR supporters.
In January 2006, Yuriy Yekhanurov, who had replaced Tymoshenko as PM, received a vote of no-confidence in the Ukrainian parliament after the secret details of a fresh deal he'd clinched with Russia to solve that winter's gas crisis in which new intermediaries entered the frame, had been exposed.
And in recent months parliamentary speaker Arseniy Yatsenyuk was dismissed from his post, according to some, for his staunch opposition to the existence of energy intermediaries. Also, a major group inside PoR led by RosUkrEnergo head Dmytro Firtash, former 'NaftoHaz Ukrainy' CEO Yuriy Boyko, and head of former PM Yanukovych's office and RUE lobbyist, Serhiy Lyovochkin, worked hard to prevent the formation of a PoR-BYuT coalition. Such a parliamentary coalition, at one time unthinkable, could, in principle, have provided the stability the country desperately needs.
So the Russian-Ukrainian gas business, and in particular its intermediaries, certainly are a continuous major bone of contention between Ukraine's rival politicians.
Your blogger would suggest that it is not unreasonable to consider the current dispute is about elites both in Ukraine and Russia, fighting amongst themselves to maintain their piece of the action via these intermediaries, rather than the price of gas for Ukrainian consumers and its westward transit through the country which, as the Putin-Tymoshenko meeting illustrated, perhaps could be resolved without too many problems.
"All the rich people in Ukraine made their money on Russian Gas" - Ihor Bakai, 1998
p.s. There is detailed analysis of these matters in this 16-page paper from the latest 'The Washington Quarterly' entitled "Where East meets West: European Gas and Ukrainian Reality"
p.p.s. There are reports that Russia could face problems of storage of surplus gas if a contract with 'NaftoHaz Ukrainy' is not signed, something I hinted at in a previous blog.
Sunday, January 04, 2009
Thursday, January 01, 2009
"Gazprom Confirms No New Contract with Ukraine After Talks Fail
After weeks of negotiations OAO Gazprom and NAK Naftogaz Ukrainy have reached a critical impasse in efforts to finalize a new contract for gas deliveries to Ukraine in 2009.
Gazprom has been doing everything in its power to make a success of the negotiations, but as there is no contractual basis for further gas supplies to Ukraine, Gazprom has no option but to reduce supplies to Ukraine by the amount committed to Naftogaz Ukrainy – without in any way reducing the quantities contractually committed to our onward customers in Europe – from 10:00 am Moscow time on Thursday, 1 January 2009.
The previous contract expired on Wednesday, 31 December 2008.
At issue are the following: the status of the repayment of $2 billion in debt owed to Gazprom for gas deliveries to Ukraine in November and December 2008, as well as fines and penalties; attempts by Naftogaz Ukrainy to amend a separate and pre-existing gas transit contract that is valid through 2010; and Ukraine’s apparent unwillingness to move towards fair market prices for gas supplies, despite signed agreements to do so.
On the issue of debt repayment, RosUkrEnergo has received a payment from Naftogaz Ukrainy in the amount of $1.5billion out of a total due of $2 billion. Naftogaz Ukrainy has recognized the $2 billion debt it owes Gazprom and had the money to pay that debt.
Naftogaz Ukrainy has also taken the radical step of tying the fate of the new gas delivery contract to changes to a pre-existing and wholly separate gas transit contract. The existing transit contract, valid through 2010, obliges Ukraine to transit at least 110 bcm of gas per year to Europe. Gazprom currently pays Ukraine a fee of $1.60 per 100 km, which is comparable to transit fees paid to other European countries.
Naftogaz Ukrainy is currently attempting to nullify this contract and double the agreed-upon transit fee. This desperate act puts at risk the stability of Gazprom’s natural gas supplies to Europe, something which Gazprom deeply deplores and for which it cannot be held in any way responsible.
On the issue of gas prices, the prime ministers of Russia and Ukraine, on 2 October, 2008, signed a memorandum of understanding on direct, long-term contracts and gradual price increases. The agreement set up a step-by-step, three-year period for Ukraine’s transition to purchases of Russian natural gas to market prices. Ukrainian Prime Minister Yulia Tymoshenko said at the time, “The parties confirmed their willingness to establish a gradual transition to market prices within three years.” Despite these assurances, Ukraine refused Gazprom’s offer of $250 per 1,000 cubic meters, nearly half of what Gazprom charges its western European customers.
Gazprom has taken every possible step to find a mutually acceptable solution, and to bring and keep both sides at the negotiating table. This is in spite of threats by Ukrainian government officials to call off talks in the final hours and reversals by Naftogaz Ukrainy on steps to transitioning Ukraine to market prices for gas.
Gazprom will continue to work hard with Naftogaz Ukrainy and our European partners to find a resolution that is both fair and commercially viable. Gazprom will also do everything it can to ensure that all volumes destined to our European customers are delivered in full."
And a Happy New Year to everybody..
Update: President Yushchenko's official website carries a statement signed by him and, significantly, by PM Tymoshenko [only recently called 'vorovka Yulyechka', or little thief Julie, by Yushchenko] declaring Ukraine has paid for all gas delivered up to 30th December 2008, and claiming the country has no debts before the Russian Federation. It claims Ukraine has sufficient gas in its vast underground storage facilities to last the country for a protracted period.
[No English version posted on the pres's site yet - the 1000+ presidential secretariat employees should get their fingers out of their *****
I seem to recall from three years ago, diverting the huges quantities of gas intended for delivery to Ukraine elsewhere, or reducing output from gas fields at source is technologically quite problematic for Gazprom, so the dispute may be resolved after a few days or weeks.]