Presidents Leonid Kuchma and Vladimir Putin signed last Sunday in St. Petersburg a declaration of Ukrainian-Russian strategic cooperation in the natural gas sector. Both cabinets are instructed to quickly prepare and submit for signing a Ukrainian-Russian agreement to the same effect. Among other things, it will provide for a consortium to control and develop Ukraine’s gas transport system on the parity principle. The contracting parties are also to define the terms and conditions on which foreign companies will be able to participate, and encourage such participation, reads the declaration.
After signing the document, Russian Vice Premier Viktor Khristenko told journalists that, in his opinion, a new agreement could be signed by the start of August and a ten year gas transit contract toward the end of June. When asked whether Russia intends to built a bypass oil pipeline to Western Europe, Mr. Khristenko replied, “We have completely discarded the notion of any bypass, and I would appreciate it if you gentlemen of the media followed suit. By and large, the current agreement will be a key factor in dealing with any other projects.”
Ukrainian First Vice Premier Oleh Dubyna is also sure that “the oil bypass topic no longer exists.” He said that there are tentative arrangements concerning foreign participation in the consortium — particularly with Italian, German, and French companies. “It includes Ruhrgas, Italy, France, and others elsewhere,” he added, stressing that the preliminary conditions agreed upon with Russia “are acceptable to both Ukraine and Russia... The money will be invested in the Ukrainian gas transport system and it will evolve.” Mr. Dubyna pointed out that such partnership with Russia will be a “guarantee for Europe that gas will be actually delivered in the existing amount,” reports Interfax Ukraine. Oleh Dubyna noted further that the agreement to be prepared by the two cabinets is to be ratified by the Ukrainian and Russian parliaments.
Meanwhile, a source in Ukrainian government quarters expressed no special optimism over the prospects of the pertinent documents passing muster in Verkhovna Rada. In his words, Ukrainian law forbids privatizing the gas transport system; attempts are known to have been made to lift the taboo, but to no avail. Therefore, difficulties are well to be expected this time also. One of the stumbling blocks can be the possibility of higher costs of gas supplied to the population, municipal, consumer, and state budget sustained organizations after Russia starts paying for gas transit across Ukraine with money — and this is sure to be required by the foreign participants in the consortium. The said source quoted Naftohaz Ukrayiny CEO Yury Boiko as saying that the company is earning a mere UAH 2.2 billion (pretax) from gas transit, while Gazprom in Russia pays $1.7 billion (about UAH 7.4 billion). Where does the rest of the money (roughly a billion dollars) go? The source referred to the gas transit system’s technological needs and Naftohaz’s debts. The logical question is: Will the consortium agree to pay these debts after taking hold of that system, or will they be referred to the state budget of Ukraine?
The talk in St. Petersburg is of Ukraine’s integration into a natural gas triangle including Russia and Europe. As always, the devil lurks in the details. Could Kyiv actually attract European investors under the conditions needed for the state budget? Where will the live money for the transit come from, Russia or like now at the western border? And will Ukraine stop being a canonical transit territory for Gazprom? How will all this impact on the price of gas for Ukraine? Kyiv’s answer as usual depends on the unity of opinions inside the country and ability to see the national interest behind the patriotic rhetoric. And this seems to consist of what Europe will find economically worthwhile and needs.
