Gassy Deal

KIEV, Ukraine -- Ukrainian Minister of Justice Roman Zvarich said yesterday that Ukraine intends to pay Gazprom its debt of $1.43 billion for gas supplies from 1997 to 2000 with money. This is in violation of the agreement with Naftogaz Ukrainy signed in August 2004, under which Ukraine is undersupplied up to 5 billion cu. m. of Russian gas annually at $50 per 1000 cu. m. The sale of that gas in export (if it is received) will enable Ukraine to earn an additional $2 billion in profit. Gazprom holds that the deal was completed a year ago, and Naftogaz paid its debt through Vneshekonombank at that time.

Ukrainian Minister of Justice Roman Zvarich

On August 10, 2004, Gazprom, Vneshekonombank and Naftogaz signed a package of documents to the effect that Naftogaz's debt of $1.62 billion (the principle was $1.43 billion and interest $1.9 million) to Gazprom for natural gas delivered from 1997 to 2000 was paid. Vnesheknombank extended Gazprom a $1.25-billion credit, and received the right to collect Gazprom's debt. It gave that sum to Naftogaz in exchange for decreasing the amount of its annual gas supply received as payment for transport services in Ukraine for 2005 to 2009 from 26 billion cu. m. to 21 billion cu. m. On the same day, Naftogaz paid its debt to Vneshekonombank. At the very end of his presidency, Leonid Kuchma awarded Naftogaz head Yury Boiko the title of Hero of Ukraine for the payment of that debt.

Ukrainian Justice Minister Zvarich told Kommersant yesterday after an administration meeting that “The Cabinet was supposed to examine my report on the agreements to pay Ukraine's $1.43 billion debt for gas today, but Naftogaz chairman of the board Alexey Ivchenko was absent. We looked at the question later and came to the conclusion that paying that debt contravenes an intergovernmental agreement reached in 2000. So we can have them invalidated in court. However, we like the price of gas set there - $50 per 1000 cu. m.”

Zvarich said that Ukraine will discuss the price of gas with Russia and propose removing the point in the intergovernmental agreement that calculates the payment of the debt with gas and substitute the payment of the debt with money, at $50 per 1000 cu. m. “We are prepared to return $1.4 billion to Russia. We will take out a credit from Deutsche Bank at 8 percent per annum,” Zvarich told Kommersant.

Naftogaz refused to comment on the matter. A source in the company said that Naftogaz did not initiate the statements. A Kommersant source in the Ukrainian Ministry of Industry and Energy added that “reexamination of the contracts is only possible with the permission of the president, who is not here yet. That's why Alexey Ivchenko [who had said he was sick the day before] did not take part in the Cabinet meetings.”

Deputy chairman of the board of Gazprom Alexander Ryazanov told Kommersant yesterday that deal on the 1997-2000 gas debt “is absolutely legal. All the documents were passed by the Ukrainian Ministry of Justice.” Ryazanov expressed surprise at Zvarich's statement yesterday. “Several days ago,” he said, “we made an agreement with Naftogaz on the gas in underground storage facilities [7.8 billion cu. m. of Russian gas that was “lost” by Naftogaz in its storage units] and no questions about the debt came up.”

A Kommersant source in the Ukrainian Cabinet said that Prime Minister Yulia Timoshenko had approved the Justice Ministry's initiative, which will result in Ukraine receiving an additional 20 billion cu. m. of gas from Russia at $50 per 1000 cu. m. by selling that gas in Western Europe, Ukraine will make no less than $2 billion. It was not possible to obtain a comment from the Cabinet itself yesterday. It is advantageous for Ukraine to pay Russia $50 when we can sell the gas in Western Europe for $198. Of course, it will be a fitting answer to Russia for the accusation of stealing 7.8 billion cu. m. of gas,” Alexander Gudyma, a member of the Heating and Energy Committee of the Supreme Rada told Kommersant.

Timoshenko headed United Energy Systems of Ukraine, the country's largest gas trader, from 1994-1997. She knows how to trade gas.

Source: Kommersant