Tymoshenko’s trip to Moscow still leaves gas questions

Update (2/23/08): For an idea of the tone of the relationship between Tymoshenko and Yushchenko on gas issues, check out the video Ukrainiana posted of him scolding her on the eve of her Moscow trip (I am pretty certain that is when it’s from). That doesn’t stop her from wishing him a happy birthday, though.

Tymoshenko talked with Putin for 3 hours on Russia-Ukraine cooperation - From kremlin.ruUkrainian Prime Minister Yulia Tymoshenko spent Wednesday and Thursday in Moscow visiting with President Putin, PM Viktor Zubkov, Gazprom representatives and other Russian officials. Despite significant run-up before the trip from Vice PM Alexnder Turchinov, gas was not the main topic of conversation on the first day. Instead, the talks with Putin and Zubkov centered on shared economic concerns and future cooperation between the two countries.

On Thursday, however, Tymoshenko discussed the gas issue for about 5 hours, at first with Gazprom’s president Alexei Miller, then with deputy representatives from the company, and even officials from RosUkrEnergo and Ukrgazenergo. Following the talks, she went straight to the airport and declined to give a press conference on their results. Gazprom said only that no final agreement had been reached and that talks would be continuing.

Tymoshenko did give an update on the negotiations upon landing in Kyiv, however (my emphasis and translation):

“Regarding the first quarter (of 2008), we are settling within the next few weeks the agreements and will be removing one of the intermediaries — Ukrgazenergo. [RUE will remain in place, however, until the new scheme is finalized.] …

We extended further the negotiating process in order to create a long-term contract on the purchase of Central Asian gas from Gazprom Export, the 100%-owned subsidiary of Gazprom. And we will construct the relations so that we won’t have to conclude contracts every month, like last year, and instead we will try to reach a long-term contract [25-30 years] for the first quarter of 2008 and in such a manner come into stable security for Ukraine of gas without any intermediaries and for a price that is formed on the basis of the cost of Central Asian gas.

Tymoshenko meeting with Gazprom-head Alexei Miller - from unian.netShe also commented on the debts to Gazprom facing Ukraine and their manner of repayment, saying that the matter of debts from Nov-Dec of 2007 will be resolved within the next few days.

“The first thing we did, was to settle the last months of the preceding year, tomorrow we will take corresponding resolution (постановление), and already in a few days we will settle up the natural gas debts [accrued by] the previous government.”

However, she added that “the problems created by RosUkrEnergo and Ukrgazenergo are significantly deeper than was suggested by the government,” and also involve a debt situation allegedly created by the intermediaries surrounding the return of 4 billion cubic meters (bcm) of gas:

“The debt, unfortunately, is not only measured in US dollars, already exceeding $1.5 billion, but also in certain volumes of gas from the previous period that were consumed by Ukrgazenergo and RosUkrEnergo, and were withdrawn from the balance of Ukraine, and Ukraine, besides real money [the $1.5 billion], still owes billions of cubic meters of gas which must be returned in kind.” [She later clarified the volume as about 4 bcm.]

“The scale of looting by RosUkrEnergo and Ukrgazenergo will continue to be revealed through meetings like the one we held today.”

In talks today with her Cabinet of Ministers she reiterated the fault of the intermediaries in the case of this missing gas, which is now considered Naftogaz’s debt:

“It turns out that they [the intermediaries] had managed in previous years to use gas coming this year from Central Asia. They bought gas in advance and what did they do with it? Exported it or sent it to some other unknown place,” she told ministers.

“Today, they have handed us an imbalance of 4 billion cubic metres, now considered debt for Naftogaz,” she said, referring to the financially troubled national oil and gas company. “They ran up huge debts and not just in terms of money.”

Tymoshenko apparently also blames the former leadership of Naftogaz for the situation, as she announced that her government will be soon send letters to Ukraine’s Prosecutor General’s Office urging a criminal investigation into officials “who chaired Naftogaz Ukrainy last year.” She alleges that individuals abused both gas and monetary resources and participated in “abuses in the system of Naftogaz, Ukrgazprom and Ukrgazenergo–all of this was absolutely illegal.” More repercussions are likely as she continues to hold meetings today.

This was Tymoshenko’s first visit to Moscow since returning to the PM position following last fall’s parliamentary elections. She had been expecting to visit about a month ago, but that trip was postponed due to an illness and, likely, pressure from Yushchenko to delay until after his own visit to the Kremlin. Before she left, Yushchenko, worried over rhetoric suggesting she will be starting the gas negotiations “from anew,” essentially warned her not to screw with the terms agreed he and Putin agreed on earlier and admonished her government for slow work on following through with the deal.

On the plane to Moscow, Tymoshenko brushed off Yushchenko’s words, instead suggesting that “the most important thing is that I am going [to Moscow] without any directives.” The presidential secretariat responded with worry (despite Yushchenko being out of the country by that point), and this tension may have led to the limited role the gas issue played in the first day of her visit.

Talks on the second day appear to follow Yushchenko’s wishes, as she acknowledged the necessity of paying off Ukraine’s gas debt (though she emphasized again that it was the fault of the last Yanukovich-led government) while apparently staying away from raising the possibility of increasing transit tariffs. She again emphasized the her long-standing desire to be free of intermediaries, but it remains unclear whether she would consider a 50/50 joint Gazprom-Naftogaz company coordinating Central Asian gas deliveries to be just as negative to the scheme as RUE.

Acceptance of the debt (and its repayment) and a toning down of rhetoric are important for securing cooperation in reaching a long-term deal that will bring stability to the scheme and aid in the Ukraine-Russia relationship. While Tymoshenko isn’t known for scaling back her fiery words, the results of this trip may yet lead positive, long-term results that will help her build the political capital to push at future issues. I am not yet ready to label her Moscow visit a failure (or “a fiasco“) solely because no break-through agreement was reached and instead negotiations are continuing. Indeed, the situation calls for protracted negotiations that are not governed by the crisis mentality of impending deadlines. This may or may not come about, but Tymoshenko appeared to make her own contributions to such a result.

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