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Russia ready to remove natgas middlemen
Journal Staff Report

KIEV, Oct. 16 - Yulia Tymoshenko, Ukraine’s likely new prime minister, on Tuesday welcomed comments from a senior Russian government official that Russia is ready to remove middlemen from gas trading between the two countries.

Tymoshenko reacted to comments from Russian First Deputy Prime Minister Dmitri Medvedev, who is also the chairman of the Gazprom board, suggesting Gazprom may shift to direct gas supply contracts with Ukraine.

“This is very good that the Russian Federation has backed our concept of building mutual relations,” Tymoshenko said at a press conference.

The idea calls for removing RosUkrEnergo, a controversial Swiss-based gas trader in which Gazprom owns 50% stake, while the remaining 50% stake is owned by two well-connected Ukrainian businessmen.

Tymoshenko, as the leader of Ukrainian opposition, has pursued the idea for years. But it may materialize only now after Tymoshenko’s party, jointly with President Viktor Yushchenko’s Our Ukraine-People’s Self-defense have won the Sept. 30 snap election and are likely to form the government.

The Tymoshenko group and Our Ukraine-People’s Self-defense, both pro-Western groups, will control a slim majority of 228 seats in the 450-seat Parliament, according to the Central Election Commission report on Monday.

Their pro-Russian rivals, including the Regions Party and the Communist Party, will jointly control 202 seats, the commission reported citing final vote counting tallies.

Meanwhile, the idea of ridding the Russia-Ukraine gas trading of RosUkrEnergo has suddenly become popular even with the outgoing pro-Russian government of Prime Minister Viktor Yanukovych.

The Yanukovych government has been long advocating for RosUkrEnergo as the reliable supplier of gas at competitive price. But reacting to Medvedev’s statement, Ukraine’s First Deputy Prime Minister and Finance Minister Mykola Azarov suggested removing RosUkrEnergo may be a good thing.

“We will study the statement carefully,” Azarov told reporters. “We have always called for having direct ties with our gas suppliers.”

However, Azarov warned that any change should not lead to a skyrocketing increase in gas prices for Ukraine. “We come out of the fact that the gas price must be affordable for Ukraine that would allow us to implement energy saving technology.”

Medvedev, speaking in Berlin late Monday, said that the gas middlemen, such as RosUkrEnergo, emerged back some time ago and their existence now is “quite unexplainable” for the Russian party.

RosUkrEnergo, created in the middle of 2004, is at the center of $7.2 billion/year gas trading operation between Ukraine and Russia.

In early 2006, shortly after the major natural gas price dispute between Russia and Ukraine that had triggered brief gas supply disruptions throughout Europe, Gazprom insisted to appoint RosUkrEnergo as the only imported gas supplier to Ukraine for five years.

Ukraine needs about 75 billion cubic meters of gas annually to run its economy, but can domestically produce only 20 billion cu m, which leaves it with the need to import 55 billion cu m/year.

Gazprom buys 55 billion cu m from Turkmenistan for $100/1,000 cu m and then re-sells it to RosUkrEnergo for $100.5/1,000 cu m, while the Swiss trader moves it across Russia to Ukraine to sell to UkrGaz-Energo for $130/1,000 cu m.

UkrGaz-Energo is a Ukrainian gas trader 50-50 owned by RosUkrEnergo and Naftogaz Ukrayiny, the national oil and gas company. UkrGaz-Energo’s top manager, Ihor Voronin, is thought to be loyal to RosUkrEnergo and was among those Ukrainian officials who had helped to create the Swiss trader in 2004.

Azarov on Tuesday called for smooth transition to a new gas supply operation, warning that Ukraine was not in a position to buy gas “at any price.” He warned that unless the transition is smooth, there might be another gas supply calamity similar to the gas price dispute in early 2006.

“If we raise the question of canceling the existing operation and buying gas at any price, we will have a serious situation that we have had in 2006,” Azarov said. “What is important for our government is stability of supplies and prices. That’s what we come out in talks with Russia.”

The Yanukovych government, while drafting the 2008 budget, forecast that the gas price will not exceed $145/1,000 cu m next year, up from $130/1,000 cu m in 2007. Any greater gas price hike would be a burden for the budget and may lead to widening budget deficit.

Meanwhile, Tymoshenko said Tuesday that her government will be able to negotiate and secure “well-balanced” and “moderate prices” at talks with Russia.

“I am convinced that the gas price will be absolutely well-balanced, moderate,” Tymoshenko said. “We will find mutual understanding with the Russian Federation over gas supplies next year.” (sb/ez)




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