The Wall Street Journal-20080213-Politics - Economics- Russia Sets Gas Deal With Ukraine- Pact Eliminates Middleman And May Lead to End Of Long-Running Dispute
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Politics & Economics: Russia Sets Gas Deal With Ukraine; Pact Eliminates Middleman And May Lead to End Of Long-Running Dispute
Full Text (522 words)In a deal that could mean greater security for Russian gas supplies to the European Union, Russia agreed to eliminate a murky middleman company from its gas trade with Ukraine in exchange for a 50% share of Ukraine's domestic gas market.
The deal could end the long-running dispute between the two countries, as well as concerns in the U.S. and EU that a middleman with opaque ownership and connections was influencing transit pipelines that deliver more than a third of the EU's total gas imports.
Ukraine is a critical neighbor for Russia, delivering 80% of the gas exports to the EU that are a mainstay of state-controlled gas monopoly OAO Gazprom and also of resurgent Russian wealth and influence.
Whether the deal between Gazprom and Ukraine's state energy company, Naftogaz Ukrainy, will stick wasn't clear, as it has to be accepted by Ukraine's prime minister, Yulia Tymoshenko.
"We just cannot say whether this deal is acceptable until we have seen the details," said Deputy Prime Minister Hrihoriy Nemyria, an adviser to Ms. Tymoshenko. A decision is likely today.
An agreement wouldn't end other disputes between the two countries, including Ukraine's interest in joining the North Atlantic Treaty Organization. Yesterday, Russian President Vladimir Putin said his nation could aim nuclear missiles at Ukraine if it joins NATO and accepts the deployment of antimissile defenses.
Gazprom spokesman Sergei Kupriyanov said Gazprom and Naftogaz would set up two 50-50 joint ventures to import gas to Ukraine and sell it there. These would replace RosUkrEnergo, a joint venture between Gazprom and private Ukrainian businessmen, and UkrGazEnergo, a joint venture between Naftogaz and RosUkrEnergo. Ukraine agreed to pay off more than $1 billion in debt, while Gazprom backed off from threats to raise the price Ukraine pays for gas, which has tripled since 2005 but remains below levels in Western Europe.
Spokesmen for RosUkrEnergo and UkrGazEnergo couldn't be reached for comment.
RosUkrEnergo has been a source of tension ever since Ukrainian President Viktor Yushchenko agreed in 2006 to give it a monopoly to import gas from Central Asia and Russia. Ms. Tymoshenko and others have accused RosUkrEnergo's Ukrainian partners of connections with Semyon Mogilevich, an alleged organized-crime boss wanted by U.S. authorities and recently arrested in Moscow. The allegations have raised concerns in Ukraine and the West over the company's control and use of profits. RosUkrEnergo's owners have denied wrongdoing.
Yesterday's agreement averted the immediate Russian threat to cut off part of Ukraine's gas supply. That threat and the rapidly deteriorating relations between Kiev and Moscow had triggered nervousness in the EU that there could be a reprise of the January 2006 dispute that resulted in Moscow turning off the gas to Ukraine entirely, resulting in reduced supplies in Western Europe and a rethink of Europe's energy security.
The agreement to give Gazprom a 50% share of Ukraine's domestic gas business is a significant win for the Russian gas giant and a potential sticking point. Gazprom has only a 25% share in the existing domestic gas distribution company, UkrGazEnergo. Returning the domestic gas business to Ukraine's state energy company has been a central demand of Ms. Tymoshenko.
