Turkmen Gas Price Hike: Implications For Ukraine

KIEV, Ukraine -- Turkmenistan's proposal to raise the price of gas it sells to Gazprom, from $65 per 1,000 cubic meters at present to $100 in the second half of 2006, holds potentially momentous implications for Ukraine.


It can help emancipate Ukraine from the RosUkrEnergo gas deal that poses serious risks to Ukraine's sovereignty, future prosperity, and political system.

At present, Russia uses most of its intake of Turkmen gas to supply Ukraine through the Kremlin-brokered RosUkrEnergo scheme. This took effect in January-February 2006 and is supposed to last for five years.

Mixing large volumes of Turkmen gas priced at $65 with smaller volumes of Russian gas priced at $230, RosUkrEnergo sells the mix to Ukraine at $95 per 1,000 cubic meters. This is a deeply discounted price by any European standard, a heavy subsidy designed -- along with distribution arrangements in Ukraine -- to facilitate deep Russian inroads into Ukraine's industry and political system.

In effect, Moscow maneuvered Turkmenistan into subsidizing Ukraine's economy, albeit in ways that advance Russia's own interest to pull Ukraine into a relationship of dependence.

The RosUkrEnergo scheme is only made possible by exploiting Turkmenistan. The deal buys economic and political leverage for Russia in Ukraine and enriches an obscure Gazprom-connected group in the process, all at Turkmenistan's expense.

When Moscow got Kyiv to sign onto that scheme in January and February 2006, it brought at least 20 billion cubic meters of Turkmen gas to the negotiating table just for the first half of this year, at the rock-bottom price of $65, as a decisive Russian "near abroad" asset, even as Russia sells its own gas in the "far abroad" at $230. Again, Russia's near-monopoly on the export of Turkmen gas made this possible.

From January through April 2006 (data for May are not available), RosUkrEnergo sold to Ukraine 15.6 billion cubic meters of "Central Asian" gas (presumably all of it Turkmen), mixed with 4.7 billion cubic meters of Russian gas (Concorde Capital [Kyiv], June 6).

Few governments or analysts asked in January-February whether Turkmenistan had freely consented to the RosUkrEnergo deal, let alone to colonial exploitation of its resources by Gazprom in perpetuity. Ashgabat's June 19-21 move suggests that it would not freely consent.

The Turkmen price hike could scuttle the Ukraine-RosUkrEnergo deal and, with it, a key instrument of Russia's policy in Ukraine. To be sure, Moscow has all along cautioned that it might raise the price of the gas mix it sells to Ukraine.

It could either hike the price of Russian gas in that mix "in accordance with market conditions," or raise the price of the whole mix in the event that Turkmenistan hiked the price of its gas. But these cautionary notes are calculated to keep Ukraine's government and key economic interest groups uneasy.

Moscow wants to reserve for itself the decisions on prices, volumes, and schedules of delivery, in line with its economic and political strategy in Ukraine. Instead of this, Turkmenistan's price hike would force Moscow to raise substantially the price on RosUkrEnergo's gas sold to Ukraine. Meanwhile, in Kyiv's view, Moscow has no right to do so as the January 2006 agreements with Gazprom and RosUkrEnergo set the $95 price for five years.

Kyiv officials insist that any early increase above that level could mean collapse of the national economy.

Thus, Ashgabat's decision could nullify the value of a painstakingly assembled Russian mechanism of influence over Ukraine. Meanwhile, Ukraine faces a quantitative deficit of 10 to 12 billion cubic meters in its gas balance for the second half of 2006.

Kyiv seeks to activate the December 22, 2005, agreement of intent whereby Turkmengaz was to sell 40 billion cubic meters of gas to Naftohaz Ukrainy in 2006, at prices of $50 per 1,000 cubic meters in the first half of the year and $60 in the year's second half.

Turkmenistan never implemented that agreement for a number of reasons, including: Moscow's slightly better price offer at $65 from January 1, 2006; Gazprom's unwillingness to provide transit for Turkmen gas to Ukraine (a service that Gazprom had provided until December 2005); Ukraine's persistent inability to settle arrears for past deliveries of Turkmen gas, raising questions about solvency; and general mishandling of the negotiations with Ashgabat by Fuel and Energy Minister Ivan Plachkov and Naftohaz chairman Oleksiy Ivchenko, who also negotiated the RosUkrEnergo deal.

On June 20 (the day after Gazprom chairman Alexei Miller's failed talks with Turkmen President Saparmurat Niyazov), Ukrainian President Viktor Yushchenko telephoned Niyazov requesting that he receive Plachkov urgently for discussions on gas purchases and settling the arrears.

However, Plachkov's concept would appoint the same RosUkrEnergo to act as transport operator of the new Turkmen gas supplies to Ukraine; and would only pay $60 for Turkmen gas (that is, less than Russia's offer already deemed unacceptable by Turkmenistan), on the pretense that the December 22 agreement was a "contract."

Regarding the arrears, Plachkov indicated while still in Kyiv that settlement of the remaining $64 million is being postponed from June to October.

The June 22 nomination of Yulia Tymoshenko as prime minister, awaiting a new Orange coalition government, holds the promise of canceling the RosUkrEnergo agreements. Tymoshenko's first statement in her new capacity reaffirms that commitment, in line with her electoral campaign message.

Turkmenistan's gas price hike to Gazprom should help dismantle the RosUkrEnergo deal.

Source: Eurasia Daily Monitor

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