Gas crisis artificially created, says Ivchenko

Gazprom and NAK Naftogaz Ukrainy have issued a joint statement that their latest gas spat has been resolved, and normal gas supplies to Ukraine have resumed.

A few hours before, former head of Naftohaz Ukrainy, Oleksiy Ivchenko had been interviewed by the BBC Ukrainian service He provided interesting insight into Russian-Ukrainian relations in the gas sphere.

• Contrary to other reports, he claimed Ukraine has only several days-worth of gas stored in its reservoirs.
• The absence of an agreed position by the Ukrainian side is an obstacle to solving the problems with Gazprom.
• The 'debt problem' was created on purpose.

Ivchenko was head of Naftohaz at the time of the last gas crisis, but, he claims at that time there was a comfortable 26Bcm of gas belonging to Ukraine in the country's underground storage facilities. This time he claims there is none. All the gas currently stored there belongs to the middlemen or to Gazprom.

"The main aim of the Russian side, I consider..is to gain the gas transport system of Ukraine," says Ivchenko.

When asked if he considers it to be a provocation that Ukraine has [gas] debts, he replies:

"Yes, I consider this a provocation, because in reality there are no debts as such for 2007. The debts have been created artificially between the Ukrainian and Russian side, sadly, with the agreement of both Ukrainian and Russian officials, in order to reveal or to conceal the debts, as appropriate, depending on the results of the [early parliamentary] election."

BBC: "Are you hinting it was those in the Yanukovych government?

Ivchenko: "Yes..because I do not understand the situation, if this wasn't the case, why UkrTransGaz , for example, received 7Bcm of technological gas in 2007 required to pump Russian gas to Europe via Ukraine's gas transport system. For the first time in 2007 the Ministry of Fuel and Energy forced UkrTransGaz to purchase this technological gas not from [its parent company] Naftohaz Ukrainy, but from [middleman] UkrGazEnergo for $140. This, when at a transit rate of $1.6 the price of this technological gas should be $95. In other words, UTG was assuming covering for costs of $95 from the Russian side, but was paying $140 for technological gas. Where was it supposed to find the difference between $140 and $95? From nowhere. In this way, Naftohaz's debts to UGE and RUE were accumulating, as were debts of RUE to Gazprom.

Qu: If the results of the elections had been different and Yanukovych continued to be PM, would have this problem have arisen?

Ivchenko: I think the Russian side would have kept quiet for some time, but the situation would have led to ever-increasing debts. Then an international company, e.g. RUE files a claim against Naftohaz for non payment of debts; Naftohaz is declared bankrupt and Russia receives the gas transport system of Ukraine and its assets abroad on a plate.

Ivchenko suggests that in order to finally sort out the problems in gas relations with Russia, the business has to be conducted within an absolutely transparent market relationship, i.e. proper market price, and proper market transit fees: he suggests $250 per Tcm and $3 per 1000cm/1000 km transit fee.

He also suggests 'portions of the politikum', both Ukrainian and Russian, benefit from the current structure which employs middlemen, hence the difficulty is their elimination.

p.s. 'Kyiv Weekly' provides some historical background [in English] to the Russian/Ukrainian gas difficulties, and explains how the Ukrainian side significantly weakened its own position after the New Year 2006 gas crisis.

It concludes: "Ukraine did not have to introduce any changes in relations between the two sides. Nevertheless, the Ukrainian government ventured on altering the format of mutual relations. On January 3rd [2006] in Moscow separate agreements were signed on the transit of gas through the territory of Ukraine and supplies of gas to Ukraine. It is in this way that the contractual obligations in the conditions of gas supplies to Ukraine and its transit to Europe were violated and the Ukrainian government failed to maintain its edge fixed legally on the international level."

Gas is flowing again to Ukraine, but somehow LEvko does not think this will be the end of the matter.

Time on Tymoshenko' side?

Yulka T. has every chance to win the current "gas war", according to an article in 'Gazeta po Kiyevski':

"Blows from the Kremlin's "gas bludgeon" on Ukraine are intensifying. First, on 3rd March, deliveries of gas decreased by almost 30%. On Tuesday evening Gazprom screwed down the gas valves 25% more, so in two days Ukraine is receiving less than half of normal supplies.

It's clear Moscow is using all means possible to pressurize Tymoshenko in order to retain the infamous gas mediators in the gas supply chain. There has been a co-ordinated information attack in the mass media supported by opposition Party of Regions, who are demanding the resignation of the premier, and also constant criticism by President Viktor Yushchenko, who is urging Tymoshenko's government to return to negotiations and speedily resolve the crisis, even though the President concedes Gazprom are not paying their fees for transit of gas through Ukraine.

However, in the psychological war with Gazprom, time may be on the side of Yulia T. hence the rapid, rather desperate ramping up of pressure by the Russian monopolist.

In Moscow they understand that either they succeed in crushing the Ukrainian premier after several decisive days, or it will be necessary to capitulate and lift the "gas blockade". The last thing they want is to negotiate with Tymoshenko in the imperious corridors the Kremlin.

Russian political scientist Stanislav Belkovskiy reckons Gazprom cannot artificially decrease the deliveries of gas to Ukraine for any great period of time. Gas production is a continuous process, and thus far, gas earmarked for delivery to Ukraine is being pumped into Russian underground depositories - but their capacity is limited. The other alternative is the costly and wasteful flaring off of gas into the atmosphere.

Belkovskiy is convinced the aim of this high-stakes game is to force the resignation of premier Tymoshenko, and to ensure a more compliant person is appointed PM.

Gazprom is hoping that Ukraine will be forced into unsanctioned siphoning off of gas intended for the European consumers, so creating an international scandal for "stealing" Russian gas. As a result, they will kill two birds with one stone. First, they will spoil Ukraine's image as reliable transit country, and secondly, Europe will apply huge pressurize on the intractable prime minister, via diplomatic channels, to settle with Gazprom.

At the moment there are sufficient reserves of gas in Ukraine, possibly even for a month. A source from MinPalEnerho [ministry of fuel and energy], has told 'Gazeta po Kiyevski' that there are sufficient resources to cover for undelivered imported gas. These comprise home-produced gas, and also fuel stored in Ukraine's own underground depositories belonging to structures not connected with the mediators "UkrGazEnergo" and "RosUkrEnergo".

The main thing is that "Naftohaz Ukrainy" are not yet considering yielding to the provocation by siphoning off Russian gas. And they intend to prove to Europe that Gazprom itself has not been paying for the transit of gas for two months now.

But things are not so rosy in Ukraine either. Naftohaz are already finding it necessary to reduce gas supplies to certain cities.

However, the Russian monopolist is daily losing more than $10 million from the decrease of the deliveries of gas to Ukraine. How far will the Kremlin goes in order to tame the obstinate Tymoshenko and get advantageous contracts - time will show."

LEvko considers much depends on how long Naftohaz has been preparing for this showdown, which they must have known was coming as soon as Tymoshenko became premier for a second time. Gazprom's hand would be a bit stronger if they were up-to-date with their payments for transit - after all rates were agreed long ago.

p.s. Tomorrow Tymoshenko will be in Brussels for a couple of days attending a women's conference. She will be meeting Condi Rice, the German minister of foreign affairs, the Finnish president, and the speaker of the Georgian parliament.

High noon approaching..

Gazprom CEO Aleksei Miller has requested Viktor Yushchenko assists in regulating the current Russian/Ukrainian gas crisis, the complex details of which are brilliantly explained at Kremlin Inc.

According to a posting on the president of Ukraine's website, Miller has sent Yush a telegram today declaring that even though he realizes contacting the President of Ukraine by this means is outside normal diplomatic protocol, he is appealing to the Ukrainian Head of The State to take account the "critical state" of the current crisis, and requests he assists in its resolution.

In particular, he accuses Naftogaz Ukrainy of unsanctioned tapping off of gas from main gas transit pipelines, and of delaying payments for consumed gas.

According to the telegram, if the problem is not resolved by 12 noon on 11th February the supply of Russian gas for Ukrainian consumers will be terminated, and, much more significantly, supply of gas from central Asia will be "limited".

According to the presidential website, Yushchenko has transmitted the contents of the telegram immediately to prime minister Yulia Tymoshenko.

In an accompanying letter to her, Yushchenko has demanded that all necessary documents between Naftogaz and the Russian side on deliveries of gas be signed by the end of Sunday 10th February. The President has determined, "that the prime minister must personally take all of the necessary measures and report back when this has been accomplished."

"Today's Presidential order to the government is the last impulse for concrete actions. We can delay no longer," says head of pres's secretariat Viktor Baloga.

Ukraine consumes about 70 billion cu.m. [bcm] of natural gas p.a., 3/4 of which it imports at $179.5 per tcm., so the the total value of Ukraine's annual consumption is approximately $12.5Bn. Gazprom claim 'the Ukrainian side' has debts of $500m accumulated since the beginning of the year, and $1Bn in longer term debts. In rough terms, this is probably less that a winter month's consumption, so Gazprom's attitude is heavy-handed to say the least, particularly as their figures may be dubious and are being contested. They have ulterior, more sinister motives for their gangster-like behaviour, particularly as Ukraine, until a few years ago, used to buy gas direct from central Asia. [See my previous posting.]

"Russia Today's" take, with some nasty patronizing comments, here. A portion :- "Sergey Mikheev from the Moscow-based Centre of Political Technologies says, “Nobody wants to completely cut off gas supplies to Ukraine and watch it dying of hunger”. [A Freudian slip, no?]

I hope that the Europeans who are busy setting up their own individual deals with Gazprom for supply of gas are taking note. Diversification and alternative supplies of fuel are vital if they are not to find themselves, sooner or later, in the same predicament as Ukraine.

p.s. Bonus 'Brownie points' to 'Stratfor' for predicting the current problems.

They foresaw that Ukraine would have to pay more for her gas imports when Turmenistan, perhaps by flirting with potential Chinese and European customers, managed to negotiate big increases in the price of its gas from Gazprom.

"..recent elections have returned the Orange coalition to power, Gazprom now has to pay more [to Turkmenistan] for its natural gas, and Ukraine’s current contract with Gazprom expires at the end of the year. It is almost inevitable that a fresh natural gas fight between Moscow and Kiev will erupt," said Stratfor last November.

Gas showdown imminent?

'Obozrevatel' runs this article following Friday's collapse of talks aimed at resolving the latest gas crisis between Russia's 'Gazprom' and Ukraine's 'Naftohaz Ukrainy'. Gazprom has stated, that deliveries of Russian gas to Ukraine will stop on Tuesday at 10.00 am Moscow time, if the Ukrainian side "does not regulate the situation around its debts".

Here are some portions:

Putin to decide fate of Tymoshenko's government?

Igor Didenko - the first Deputy Chairman of Naftohaz conducted negotiations on behalf of the government of Ukraine and his company.

Gazprom put forward five conditions, but details of these are not known. This means, in essence, Russia has presented Ukraine with an ultimatum: either the government of Ukraine satisfies these conditions, or the Ukrainian Kabmin will be is forced to acquire gas at worldwide prices - most likely, not from Gazprom.

Russian politicians and businessmen connected with the gas business say bluntly that President Vladimir Putin, and the management of Gazprom which he completely controls, will this time "go to the [bitter] end" with this.

It will be necessary for President of Ukraine Viktor Yushchenko to solve the gas problem in his negotiations with Putin. A high-ranking Russian government official stated without any reservations: "It is not possible to entrust the country to Yulia Tymoshenko. Running the government of Ukraine is not playing games with UESU [the energy company which Tymoshenko headed in the mid '90's]"

So, it is obvious, that the leadership of the Russian Federation has decided to use a gas map to finally decide the fate of the Tymoshenko government and the entire ruling coalition.

It is worthwhile noting that Yulia Volodymyrivna has herself 'set herself up' for this, since no one else asked to change the mediator for the acquisition of Russian gas. Specifically, it was from this that the gas crisis began.

When new Naftohaz chief Oleh Dubina opened the thick dossier on the transgressions of the management of Naftohaz, it never occurred to him that this would be the beginning of the disintegration of government, appointed by Tymoshenko.

'Russia Today's' 'take' on this story here

LEvko considers Putin will not gain any friends in Europe with these kind of deadlines...He should read the European newspapers from the 2005/2006 Russian/Ukrainian gas crisis. But hey, he doesn't care about that does he?