Putin Visit Raises Speculation About Gas Deal To Merge Gazprom, Naftogaz

KIEV, Ukraine -- Experts said Russian Prime Minister Vladimir Putin isn’t coming to Ukraine for nothing. Russian Prime Minister Vladimir Putin is coming to Kyiv, and once again he’s got gas on his mind.

Russia's Vladimir Putin

Russia’s most powerful man will meet his Ukrainian counterpart, Mykola Azarov, during the seventh session of the Ukrainian-Russian intergovernmental committee on economic cooperation on Oct. 27.

And although the official visit has received hardly any hype, the last time the two men met, during the sixth session of the same committee in Sochi, Russia, last April, Putin shocked financial markets and foreign governments alike by proposing a merger of the countries’ state oil and natural gas companies.

This time, one of the subjects of talks will also be gas – in particular, changes to bilateral gas agreements, Russian Ambassador to Ukraine Mikhail Zurabov told journalists.

Shortly after Azarov’s boss, the Moscow-friendly Ukrainian President Viktor Yanukovych, came to power in February, Kyiv extended the Russian navy’s presence in Ukraine’s autonomous region of Crimea for another 25 years in exchange for a cheaper gas price, which nevertheless continues to climb.

Then Putin began proposing all kinds of far-reaching integration projects such as the unification of the two countries’ nuclear industries, aviation sectors and, most importantly, their state gas companies – Gazprom and Naftogaz Ukraine.

More recently, Azarov has publicly complained that Ukraine needs an even lower gas price from Gazprom, leading to speculation as to what Kyiv would offer Moscow in return next.

Ukraine depends on the Russian state-controlled gas giant Gazprom for the majority of the gas used by its export-oriented industry, some of which directly competes with Russian companies.

Since Putin came to power in Russia, first as president in 2000 and now as premier, the Kremlin has done little to conceal its use of gas and oil exports to control former satellite countries and influence individual governments of the European Union.

Despite fears that Gazprom, which accounted for 17 percent of world gas production in 2008, would swallow up its much smaller Ukrainian counterpart Naftogaz, officials in Kyiv have denied any intention of allowing this to happen.

Instead, most of the statements coming out of Kyiv since Putin’s April proposal have suggested the creation of an “international” consortium to manage and invest in Ukraine’s international pipeline, which delivers about 80 percent of Russian gas exports to Europe.

When asked for more details about Putin’s Oct. 26 visit to Kyiv, Naftogaz spokesperson Olena Yurieva said she could neither confirm nor deny whether any agreements were to be signed.

A top official at Ukraine’s Energy Ministry, speaking on condition of anonymity, said no new gas deal would be announced.

However, more than one Kyiv-based gas analyst told the Kyiv Post that Putin was not coming to Ukraine for nothing.

Volodymyr Omelchenko, a gas analyst at the Kyiv-based think tank Razumkov Center, said there is a 50 percent chance that Putin and Azarov will announce some kind of a deal.

“The most realistic scenario is some kind of a joint venture to control Ukraine’s pipelines,” he said. Some kind of European entity would likely be involved to deflect criticism of a Russian takeover, he added.

But the current authorities in Kyiv are divided in their attitudes toward greater Russian involvement in Ukraine’s gas sector.

“If Azarov had his way, a merger deal would have already been signed,” Omelchenko said. But there are also the industrialists like [billionaire Rinat] Akhmetov and others who don’t want the Kremlin monopolizing pricing, and the gas-sector wing like [businessman Dmytro] Firtash and [Energy Ministry Yuriy] Boyko, who want to maintain control over sales and distribution,” Omelchenko said.

Mykhailo Gonchar, a Ukrainian gas analyst, said more likely is a protocol of some kind being signed: “It wouldn’t have any legal force but it would be one step further than the unilateral declaration made following the last session in April.”

As evidence that something is brewing, Gonchar noted that Gazprom has been on the prowl for a public relations company in Kyiv to promote the impending deal.

“The Ukrainian public still feels negative about the idea of Gazprom controlling its gas pipelines, so the idea is to soften this position through PR,” he said.

Serhiy Pashinsky, an opposition lawmaker who sits on parliament’s fuel and energy committee, said he doesn’t expect anything on Oct. 27 except more hype: “I think what we’re going to see is another witch-doctor dance by Putin intended to dispel all the evil spirits from Ukrainian-Russian relations.”

Source: Kyiv Post