July 20 will witness the first round of Ukrainian-Russian negotiations on the establishment of an international consortium to manage the Ukrainian gas transport system. Interfax-Ukraine quotes Prime Minister Anatoly Kinakh of Ukraine as saying that this initiative of Presidents Leonid Kuchma of Ukraine and Vladimir Putin of Russia, as well as Chancellor Gerhard Schroeder of Germany, was “a serious economic and political step” to tell the world that Ukraine is “an integral part of European security.” According to Mr. Kinakh, in the negotiations Ukraine will insist that none of the sides receives a chance to monopolize the consortium. It is this kind of a “valuable instruction” that Yury Boiko, president of the Naftohaz Ukrayiny national joint- stock company, carried in his briefcase to Moscow the Monday before last for preliminary consultations.
It is still obvious that the role of the main trustbuster is being assigned to Germany, which Russian Premier Mikhail Kasyanov says could also draw France (where a fourth of the gas consumed comes from Russia) into the consortium. But is Ukraine absolutely convinced that foreign partners from the so-called far abroad will best defend their national interests in this international organization? The more so that the gas transport system is too precious an enterprise for Ukraine because it is potentially capable of providing a third of state budget revenues. This is why it would be a good idea to focus, on the eve of the consortium talks, on the financial revitalization of Naftohaz Ukrayiny (NU) which has so far been raising its gas hen so badly that the latter always fails to lay any golden eggs in the budgetary basket. This country’s publican in chief Mykola Azarov claims that NU is the largest single tax deadbeat. On the other hand, the company itself says the situation is changing and all arrears will soon be cleared.
The optimism of the old gas experts, who have outlived many of their leaders that would without exception take an ostensibly patriotic stand but at the same time have some secret fair-haired boys on the gas market, proceeds from the fact that from now on (from July 1) Naftohaz Ukrayiny will only sell natural gas under direct contracts. As a result, owing to the final cancellation of barter-type settlements and reinforced vertical integration, the company hopes to improve its gas payments.
Before the new gas order was introduced, the Haz Ukrayiny (Gas of Ukraine) Trading House “cooperated” with 23 large dealers and, as the house claims, an infinite number of regional gas traders. The dealers made 80% of their gas payments to NU in real money and the remaining 20% on a promissory note basis (the exporting companies would transfer their VAT refund liabilities to NU which would in turn use the latter as debt- clearance payment). However, now NU wants to effect payments with money only and directly. As many gas traders often failed to pay for gas transport, this placed many of them on the verge of bankruptcy and pushed urban gas systems into critical technical danger.
This is why, before deciding at the end of June on a new procedure of gas supply, NU offered some explanations to the regional companies, in which the state had practically lost leverage and it seemed absolutely impossible that they could cooperate with Naftohaz Ukrayiny. Yet, Yury Boiko has managed, at least for the time being, to do the job. Now this country’s gas market looks, in the official description, as follows: the Haz Ukrayiny Trading House is to sell on its own the gas produced by Naftohaz Ukrayiny subsidiaries (more than 16 billion cubic meters a year), Turkmenistan gas (about 20 billion cu. m. this year), and the Russian gas it receives as payment for transit (about 26 billion cu. m. a year), mainly to blue-chip companies. The customers will comprise industrial companies that consume over 100,000 cu. m. a year, such as Kryvorizhstal, Zaporizhstal, the Cherkasy-based Azot, and the Odesa shipyard. The remaining resources will go, as already said, to the public utilities sector, individual consumers, and smaller enterprises.
Mr. Boiko, who showed his mettle when he put things in order at the Kremenchuk Oil Refinery, has now shaken his iron fist at the Itera company, the second largest (after NU) supplier of gas to Ukraine. This company, which has struck deep roots in the CIS market and was thus able to work “flexibly” in Ukraine, has also been called to order. Itera has promised to sell gas to industrial enterprises at the fixed price of $60 per 1000 cu. m., as Naftohaz Ukrayiny does.
Now the problem is that Itera should indeed remain the only exception from the national gas order. For example, the Interpipe Company is authorized to execute special Russian orders for steel pipes. It might well be equally difficult to overcome the past and present ambitions of the Donbas Industrial Union capable of scoring a political goal against any team on the field. Some well- known and clandestine parliamentary lobbyists could also fill the ranks of gas trader fans who have lost their legitimate and not-so- legitimate earnings. Their play will consist in bringing around the so- called market romanticists from the parliamentary Four whose capital has also flown from all kinds of gas streams and leaks.
