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RosUkrEnergo announces natgas supply deal
Journal Staff Report

KIEV, Oct. 24 - RosUkrEnergo, a Swiss-registered natural gas trader controlled by the Russian state gas giant Gazprom, has pledged to supply up to 55 billion cubic meters of natural gas to Ukraine in 2007, the company said Tuesday.

The gas will be sold at $130 per 1,000 cu m, up from $95/1,000 cu m in 2006, according to a deal signed between RosUkrEnergo and UkrGaz-Energo, a Ukraine-registered trader in which RosUkrEnergo controls 50%.

The pledged supply volume will be just enough to meet Ukraine’s demand for gas, but will not allow Naftogaz Ukrayiny, the national oil and gas company, to export any gas to Europe as it had hoped.

The deal reached in Moscow between the two gas traders is a departure from previous such agreements which had usually been signed by governments of Ukraine and Russia.

The deal between the two traders shows the extent to which the Russian government has been distancing itself from the gas talks amid allegations that it is using energy to extract major political concessions from Ukraine.

RosUkrEnergo and UkrGaz-Energo reached the deal Tuesday when Russian Prime Minister Mikhail Fradkov visited Kiev for trade and economic cooperation talks with his Ukrainian counterpart, Viktor Yanukovych.

“We will create conditions, or as they say a normal atmosphere, for both companies so that they can keep working,” Yanukovych said at a press conference.

RosUkrEnergo, which is 50% owned by Gazprom and 50% owned by well-connected individuals, has refused for years to disclose its ownership structure, fueling suspicions the company may be linked to organized crime.

RosUkrEnergo was investigated by tax authorities in the United States and the European Union earlier this year, but no results of the investigation have been disclosed.

Ukraine and Russia have been holding gas talks since the beginning of the year, with Russia seeking a major increase in gas prices.

The Ukrainian government would like to keep gas prices between $130 and $135 per 1,000 cu m in 2007, while Russia has been suggesting the prices could increase to more than $200/1,000 cu m.
Any price hike to more than $135/1,000 cu m would strain Ukraine’s chemical sector by making unprofitable most of the mineral fertilizer producers that are using natural gas as a raw material.

The progress on the gas deal is being closely watched by analysts as an indication of whether Ukraine and Russia manage to resolve a gas dispute to prevent a repeat of the gas supply disruptions in Europe that happened in January.

Ukraine ships up to 80% of Russian gas exports to Europe, but also imports up to 75% of its gas from Russia to meet domestic demand.

Meanwhile, Russia has been apparently demanding major foreign political concessions from Ukraine for a chance to buy gas at $130/1,000 cu m, according to a person familiar with the talks.

For example, Russia has been demanding that Ukraine should completely scrap its plans to join NATO and to coordinate with Moscow its accession to the World Trade Organization, the person told Kommersant daily.

Other demands apparently include allowing the Russian navy’s Black Sea Fleet, to continue to station its battleships in Sevastopol beyond 2017 when the current agreement expires, the person said.

Ukrainian Deputy Prime Minister for the Energy Complex Andriy Kliuyev denied the reports, but said the government is ready for “constructive work” with Russia to reach the gas deal.

Fradkov, during the talks with Yanukovych on Tuesday, said Ukraine and Russia should consider each others reservations as far as NATO accession is concerned.

Fradkov said Ukraine and Russia should also coordinate their accession to the WTO, apparently seeking to prevent a scenario when Ukraine joins the trade body ahead of Russia.

“Strategic cooperation anticipates special relations of trust, mutually shared priorities in foreign and domestic policies,” Fradkov said at a press conference. (tl/ez)




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