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Latest Russian gas agreement unraveling
Journal Staff Report

KIEV, Aug. 18 – Ukraine will increase tariffs it charges Russia for shipping natural gas for exports to Europe if Russia presses ahead with a gas price hike, a Naftogaz Ukrayiny official warned on Friday.

The development suggests that the increased likelihood that Ukraine and Russia renegotiate the natural gas supply agreement that ended a gas price dispute and supply disruptions in January.

“If the prices of natural gas that we buy are increased… the existing tariffs for transit will have to be increased,” Volodymyr Sheludchenko, the head of Naftogaz, told Interfax.

Prime Minister Viktor Yanukovych, who held talks with Russian President Vladimir Putin last week, said that Ukraine may end up paying between $150 and $230 per 1,000 cu m of gas next year.

This would be a sharp increase from the $95 per 1,000 cu m that Ukraine currently pays. Ukraine currently charges Russia $1.6 for shipping 1,000 cu m of for a distance of 100 km, according to the agreement signed on Jan. 4.

Attempts to renegotiate the agreement would probably face opposition from Russia, which has been insisting on leaving the tariffs unchanged for five years, and may trigger new tensions.

This may further aggravate Ukraine’s balance-of trade position, particularly while the country facing gas supplies shortages of up to 8 billion cubic meters this year, or more than 10% of its annual demand.

Naftogaz is already facing up to $2 billion in losses this year due to a 95% increase in prices of natural gas it buys form Russia since January.

But any further increase in gas prices may devastate Naftogaz by making unprofitable its most successful line of business, such as shipping gas from Russia to Europe.

Naftogaz needs to buy at least 7 billion cu m of gas annually for technological needs in order to be able to successfully move 110 billion cu m of Russia gas to Europe.

Gazprom, Russia’s gas giant, is expected to pay Naftogaz $2.13 billion for gas shipments, with Naftogaz’s after-tax profits estimated at $508 million. If Naftogaz is forced to pay more for gas, this line of business would generate losses that may cripple the company, analysts said.

In a separate development, Naftogaz paid $49.6 million to RosUkrEnergo, Ukraine’s only gas supplier, reducing its $372 million debt incurred earlier this year, a source at RosUkrEnergo said.

"The schedule for paying the remaining debt will be agreed in the near future," a RosUkrEnergo source said.

RosUkrEnergo demanded that Naftogaz pay the debt by Aug. 15 otherwise it would reserve the right to file suit with the Arbitration Institute of the Stockholm Chamber of Commerce. (nr/ez)




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