Smells like Gas...

Smells like Gas...

By Oleg Gorbunov

Ukrainian authorities still count on the revision of gas treaties, concluded during the period when Julia Timoshenko was the Prime Minister. This is regularly indicated by the President Viktor Yanukovych, the Prime Minister Nikolay Azarov and Fuel and Energy Minister Yury Bojko. The subject shall become more urgent when gas discount ends to be valid, which was gained in the result of Kharkov agreements on Black Sea Fleet. And what’s then?

How logically will Ukraine achieve the revision of gas treaties? What does it ready to do for that? And in which case Russia will agree on the revision? Ukrainian experts answer the questions for “”.
Vladimir Fesenko, Director of the Gorshenin Institute of Management Issues (Kiev):

The subject is already topical. Gas price grows in relation with the increase of petroleum products prices. Yanukovych and Azarov constantly ask to revise the price formula on Russian gas, but the line of Russian authorities is firm. However, Vladimir Putin as well as Mr. Miller, the Head of Gazprom, indicate directly that the steps forward are possible in two cases – either merger of Gazprom with NJSC Neftogaz of Ukraine or the inclusion of Ukraine into the Customs Union and Common Economic Space with Russia, Belarus and Kazakhstan. Yet Ukrainian Government is not ready for the kind of concessions..

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But if gas price will keep on growing further that intensively, then who knows, maybe Ukrainian authorities will be on the edge of searching a new compromise with Russia.
Elena Markosyan, Director of Informational-Analytical Site “Soroka” (Kiev):

Economic relations with Russia has never been limited only with economy. Policy has always played a significant role. Considering the impetus of changes in the world and unpredictability of crisis waves, we can be sure only in one thing – the only strategic resource of ours remains to be the ability to bargain and develop relations with Russia (and not only with Russia) the way, in order for the options for mutually beneficial agreements would not reduce, but grow.

Gas subject will be relevant in years to come, but talking about the state of our economy and public facilities sphere, than I wouldn’t make the issue of agreements a corner-stone. Today it’s more important not to lose time and work within the direction of gas consumption reduction. We should develop electric power industry, introduce new concepts within house building, promote local heating systems all over the place where it is possible and not to be afraid of the great scales of such projects. I’m convinced that Ukraine will logically strive for the revision of gas treaties, as it lies within the interests of big business and industrial potential of the whole country. But also there is no doubt that Russia will persistently protect its interests. Today Russia has no set of demands for Ukraine to revise the treaties, except for those that have been already discussed – gas consortium. But Russia is not deeply involved either into this subject. It will feel more comfortable with “it’s own new property” than “the old partner one”. But no one gives guarantees that a set of other demands for Ukraine will not result from some consequences. In addition one should take into account that Russia holds election campaign into the State Duma at the moment. We will reelect the Parliament also in a year. And elections is not the period which can be called favorable to adopt long-term, mature and deliberate decisions. And that is why I think that this year only casual consequences can lead to the revision of treaties.

The kind of consequences, to my mind, include global fluctuations of dollar and the state of stock market. Sometime ago I already wrote that a frozen crisis is preserved better, and the situation we observe today is like a frozen crisis that influences the destruction of statehood institutions. The process gains global character that is why it is extremely complicated to predict the local situation around discounts.
Roman Travin, Director of East-Ukrainian Center of Strategic Initiatives (Kharkov):

I think that we should hardly relate the activity  of Ukraine in this issue with the end of the validity term of 100 USD discount on Russia gas. As official Kiev launched the talks on further price reduction right after the conclusion of Kharkov treaties, and the discount itself as far as I understand is tight to that pretty complicated for Ukraine contract signed in the beginning of 2009. It will be valid for 10 years. Which means that the contract as well as the discount is able to maintain till 2019.

By this, it’s clear that by 2019 the situation will change greatly. To that extent, that today it is hardly possible to make any reasonable forecast of the line of the parties after the end of the term of discount validity.

At the same time indeed current Ukrainian authorities intensively strive to revise of the terms of “Timoshenko’s contract” of 2009. At least many top state officials, including Nikolay Azarov repeatedly stated about the need to alleviate the terms in favor of Kiev. Ukrainian Prime Minister declared that just recently – this March. So that gas subject also today remains to be not just urgent, but is the key one within the framework of probably all Ukrainian – Russian negotiations.

That is why Ukraine will naturally proceed more than logically striving for the gas price reduction by Russia. But being only logical is not enough for the results achievement.

Something in exchange should be suggested, and this “something” should be pretty significant. Talking about the assets than it is evident that first of all it is the “pipeline” (gas transporting system) and NAK “Naftogaz of Ukraine”. Russia has repeatedly indicated that in case of gaining control over Ukrainian gas transporting system or merger of “Gazprom” and “Naftogas” according to Moscow’s conditions it is ready to suggest more beneficial gas supplies contract. Up till now Kiev hasn’t been ready to do the kind of concessions, considering not only economic reasons, but also political ones. The “pipeline” and “Naftogaz” is something like a “sacred cow” for Ukrainian politicians. It’s considered that those who touch it shall have significant electoral loses.

But still I think that Kiev will have to make concessions. Gas prices will hardly reduce in the short run. At the same time, dependence of Russia from Ukrainian gas-transporting system after the “North Stream” commissioning (which is almost finalized by the way) will reduce to some extent. Even greater the dependence will drop down after the construction of the “South Stream”. By this, the gas transporting system itself will become much less profitable, if not loss-making in general, and there are no funds for its reconstruction even now, when the business is relatively stable. So they still will have to say good bye to the control over the “pipeline”.

The same is about “Naftogaz”, which has the biggest and by this permanent financial troubles which forced V. Yanukovych to declare recently the readiness of the state to sell the part of this company’s shares. The fact that the bargain over the “pipeline” and “Naftogaz” has lasted for long is an open secret and let me repeat myself: Ukraine will have to agree on the majority of Russia’s conditions. Otherwise GTS will transform into the junk heap and “Naftogaz” sooner or later will go to the wall, but by this there will be another “plus” – they will remain fully Ukrainian.

And one more thing: Ukraine could gain sufficiently lower gas price provided it would join the Customs Union of Belarus, Kazakhstan and the Russian Federation.
But I don’t think that our power will manage to adopt the kind of decision without sanctions of Brussels and Washington, even if it is 100% sure of the benefit for the country. But there will be no such a sanction: who will voluntarily give away the market of 40 millions people, which Ukraine is…
Aleksey Martynov, historian, expert of the Center for Political Analysis and Technologies (Donetsk):

The policy of the Government of Nikolay Azarov of recent months is aimed at deep revision of gas treaties between Russia and Ukraine. The Cabinet of Azarov and together with him the Administration of Viktor Yanukovych want another gas price concession from Russian Government, which is quite natural and corresponds with the interests of the current Ukrainian power and connected with its business clans.

Meanwhile, as economic facts demonstrate, almost for a year of the rule of Yanukovych and prime-ministering of Azarov the social-economic situation of the most Ukrainians hasn’t only not improved, but on the contrary worsened in the result of price and taxes increase. Tax policy of Azarov’s Government more irritates the population of Ukraine, including in South-East of the country. Small and medium enterprises suffer from taxes, which are being pushed by big funds of those connected with Ukrainian authorities. By this there are problems with lobbying of Russian business in Ukraine, which is being pushed out of the Crimea by the rule of Yanukovych and Azarov. It’s enough to remember even the long-term story around locomotive-building factory in Lugansk.

Thus, the gas price discount for Ukraine under Kharkov Treaties of 2010 hasn’t given social-economic relaxation for the people, but on the contrary, afterwards the Government of Azarov has only promoted the tax pressure. That is why the references to the hard line of Moscow within gas issue are more a manipulative technology of Azarov’s Cabinet than a real factor of easing the life of Ukrainian citizens. The fact is that Ukrainian oligarchs independently of their political preferences strive to benefit a lot from Ukrainian gas. Within this issue they have personal and clan involvement, instead of caring of the settling social tension in Ukrainian society.

The Kremlin could reduce gas prices for Azarov and Yanukovych in case of definite foreign and domestic political concessions, launching of normal integration of Ukraine into the Customs Union, CES, etc. However, the policy of Yanukovych and Azarov proves that pre-electoral promises are not being accomplished either towards Russian-cultural population of Ukraine, which was promised a set of humanitarian preferences, or towards the Russian Federation, which was promised integration. At the moment the policy of Yanukovych – is a symbiosis of the “multi-vectorness” of Kuchma and the nationalism of Yushchenko, when the pro-western course proceeds and Ukrainian nationalism pursues within humanitarian system. Naturally rhetoric is a bit milder, however distancing of Ukraine from Russia, together with comprehensive trade cooperation with NATO and flirting with the EU goes on. The statement of Yanukovych on humanitarian issues incites irritation among his former electorate in South-East and faces misunderstanding in Moscow (which is proved by the “panel discussion” on the issue of Russian move of Ukraine which took place in the State Duma on March 24th). No one of serious politicians doubts that Yanukovych follows the way of Kuchma, having chosen pro-western course and compromise with Ukrainian nationalists instead of promises accomplishment for Russian-cultural South-East, however he will definitely won’t manage to become the second Kuchma (meaning 10 years in power). “Orange” project-2  has been already launched, Timoshenko and West are ready, that is why Yanukovych will hardly manage to balance between Moscow, Brussels and Washington and to become “smarter” than Kuchma. This is the brief description of the “geopolitics” of gas problems between Russia and Ukraine at the moment.
Translated by EuroDialogueXXI from

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