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13 May, 2011

New Gas Performance

After the Kharkiv treaties were signed, the issue of gas and the price of the fuel, which traditionally dominated Ukrainian-Russian relations, receded into the background. The current government has lamented the bad inheritance it received from the previous Prime Minister, Yulia Tymoshenko, but was at the same time content to receive its “discount” from the Kremlin

However, one problem pointed out by experts from day one soon came to the fore. Kyiv made a bad bargain when it agreed to the long-term stay of Russia’s Black Sea Fleet in Sevastopol in exchange for a token concession, while the gas price formula remained the same. The government is now trying to throw punches when the fight is over in a bid to make up for losses.

An entire drama is playing out both inside the country (involving another special commission headed by Inna Bohoslovska and new “sensational” disclosures of Tymoshenko's dealings) and in relations with Russia.

On the international stage, curious things began to occur after Vladimir Putin left Kyiv for Moscow. The purported purpose of his visit was to encourage Ukraine to join the Customs Union, even though both sides later pretended that this offer had not even been on the table.

Initially, the Russian prime minister said in Moscow that there was no plan for both countries to review either the principles underlying the formula for calculating the price of gas or contracts starting from January 2009. In his words, the previous agreement is in force and should be honored.

In the second act of the play, Ukrainian Prime Minister Mykola Azarov said in Kyiv that the gas price formula should be based on the same principles for Ukraine as for the Czech Republic, Slovakia, Germany, Poland or any other European country and that in light of the Kharkiv Treaties, the price of gas for Ukraine should be around USD200 per 1,000 cubic meters. He added that the gas price should be linked to the price of coal, rather than gas oil. Azarov added that a review of the price of gas was already under way. This was, according to him, the outcome of negotiations with Russian Deputy Prime Minister Igor Sechin.

So it turns out that Putin is not the master of his own household and his statements should not be taken seriously?

The third act was staged, again, in Moscow. Gazprom CEO Aleksey Miller said without a hint of hesitation that the gas price for European countries will rise to USD500 by the end of the year. Somehow this sounded familiar, and it had indeed happened before: in 2008, Miller said that gas prices for Europe already exceeded USD500 and could jump to as much as USD1,000 by the end of the year. It is worth reminding oneself that several weeks after the statement was made, the real estate market bubble burst in the United States, and Europe, including Ukraine, entered a prolonged economic crisis which cut the oil prices nearly by half, fostering a similar impact on gas prices.

Incidentally, Ukrainian Energy Minister Yuriy Boyko said in March that the gas price for Ukraine would be USD346 by late 2011. Subsequently, calculations made by government experts were published which pinned the price at USD510, and the publication was suspiciously timed to coincide with Miller’s statement. What could change so radically within a month is anyone's guess.

For the next play, the performance moved to Kyiv. The actors included Russian President Dmitry Medvedev (indirectly) and, again, Minister Boyko. According to official sources, Medvedev “accepted” information about the unfair gas price calculation for Ukraine at his meeting with Ukrainian President Viktor Yanukovych. Consequently, Miller and Boyko launched negotiations.

The Ukrainian negotiator highlighted two points speaking on the Inter TV channel. First, the gas negotiations will be successfully completed by the end of the summer, which sounded just like the optimistic reports on similar talks under President Leonid Kuchma. The second and most important thing is that Ukraine will buy fuel on its border from a supplier that will offer the lowest price. In other words, the entire performance with the “bad policeman” (Putin), “good policeman” (Medvedev), and the pragmatist (Boyko) was staged precisely to prepare our society and Europeans for the news that a middleman will again be brought into deals between Ukraine and Gazprom and will be appointed jointly by the “bad policeman” and the “good policeman” to save the situation.

A different scenario is also quite possible: with the help of the “good policeman” and pragmatists in Kyiv, Gazprom wants to acquire Naftohaz or at least that part of it which secures transit. In this case, we will also be hearing assurances that people behind the deal have “saved the country’s economy from collapse.”

I would very much desire to be wrong regarding both scenarios. The actors need to be reminded that the Poles, Romanians, Slovaks, Germans and many other nations have somehow managed to buy gas directly, without any mediators and “saviors.” Why not follow their example?

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