Category Archives: Gazprom

Gas war reignites in a big way

A couple friends have mentioned my lack of blogging, and its absence is particularly notable now during the latest iteration of the Ukraine-Russia gas spat.

I’ve been working on the conflict at work (which has kept me busy, and away from this blog) and following it quite closely.  However, at this point I don’t feel I can put the time and effort into a post that the current situation would deserve.  Hopefully I’ll be able to do a “postmortem” roundup, though that of course has to wait until it’s actually more-or-less resolved.

I say more-or-less because there’s no way that any agreement reached in the next weeks (and it could stretch that long to get something relatively concrete) will solve the underlying issues, just as none of the past contracts since the breakup of the Soviet Union have.

Here’s the deal though.

Gazprom has announced that they will be buying Central Asian gas at essentially netback European prices, as opposed to the rock-bottom prices that they’ve gotten historically.  (Whether or not they actually are paying what they say they are is another matter though.)  Europe obviously pays European prices.  The only cogs in the system that don’t pay “European” prices then, are Ukraine and Russia (internally) itself.

Russia was apparently willing to continue “subsidizing” Ukraine by passing along a set price for the year of $250 per mcm, so long as Ukraine froze transit fees, ceded more of the internal industrial market to its local marketing arm Gazprom Sales Ukraine (GSU), and opened up some strategic infrastructure within the country to ownership by Gazprom. Late in 2009 would bring more negotiations for the price in 2010, before moving to a formula indexed off of gasoil and heavy fuel oil prices in 2011.

Ukraine balked, and Yushchenko ordered Dubina home from negotiations in Moscow right before the deadline.  The two sides made good on their posturing, and have ground the gas flow westward to a halt.

Putin has grown angry, suggesting Ukraine move to the “market” rate of about $450 / mcm immediately.  Yushchenko came back with his own $201 figure.  Based on the lag time in gathering the average oil product prices incorporated in Gazprom’s sales contracts, gas prices would be pretty much reaching their peak around now (corresponding to the all-time oil price highs in July and August 2008).

So if Ukraine were using a formula to determine their prices, they’d be stuck with a figure roughly corresponding to Putin’s threats.  But that price is adjusted quarterly, and because of the rapid fall in oil prices at the end of 2008, it is guaranteed to go down by about $50 by the time it’s recalculated in April 2009 — that is, if Ukraine moved fully into this “European”-style arrangement, which doesn’t appear to be likely.  If they did however, and if oil product prices stayed at about the same levels they are at now partway into this year, by 3Q2009 the gas price would drop nearly $100 and by 4Q2009 it would even be below the $250 / mcm originally offered.

Gas pricing is a tough job because it lacks the market drivers and signals of other commodity exchanges.  It’s particularly obtuse when two monopolies are the buyer and seller.  Add in the political back-story behind each country and their historical relationship, and you have a rather complicated situation.

P.S.  Check out the coverage by LEvko, Taras, and Adrian for more regular news updates.  The Oil Drum also has been posting about it, as has the local press (once they came back from their New Year’s breaks).

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Gas talks on hold

In the US, John McCain is suspending his campaign to address the country’s distressful economic situation.  In Ukraine, Yulia Tymoshenko has suspended key natural gas price negotiations due to the country’s distressful political situation.

From Monday’s Kommersant:

On Friday Prime Minister Yulia Tymoshenko communicated that negotiations with Russia on the price of gas in 2009 have been halted because of the political crises.  Naftogaz intends to use this pause to wait out for the December lowering of world hydrocarbon prices, which theoretically allows it to get gas at a more advantageous price.  Analysts figure that this expectation is not unfounded — if oil quotes, to which gas prices are connected, will continue to drop, than the cost of gas could end up being lower by 25%.  But if the pricing market isn’t favourable, it threatens to be a significant loss.

The head of the government, Tymoshenko, announced to journalists that because of the political instability in Ukraine, negotiations with Russia on the supply of natural gas have stopped for the time being.  “Without question, when there is an uncertain situation in Parliament, an uncertain situation with the coalition, holding negotiations doesn’t work out [не получается],” noted Tymoshenko.  A highly-placed source in Gazprom confirmed to Kommersant that the Ukrainian side has for the time being halted consultation on the price of gas.  “Next week representatives of Naftogaz were supposed to arrive to reach agreement on the pricing fromula and concrete points in the agreement.  But the visit was put off for an unspecified amount of time without explanation,” said the source.

Oleg Dubina, the head of Naftogaz, explained the delaying of negotiations not as political, but with completely comercial justifications.  According to him, the later that a contract is reached, the less the price of gas for Ukraine could be.  Based on the price-setting formula that Gazprom uses, the price of gas is connected to the price o oil, which gets lower as we approach December, asserted Dubina on Friday.  Correspondingly, gas for Ukraine also would become cheaper.  Therefore, Naftogaz figures that “it’s not worth it to rush into signing [an agreement].”

Should give Naftogaz a bit more time to try to secure another loan to buy the fuel it needs for the upcoming heating season.

There’s more to it than just relying on this “December price drop”…

Gas and Politics

So it seems that I have left Kyiv just as things are getting interesting.

My Fulbright scholarship ended this summer and I have moved to Washington DC to begin working in the energy consulting field. Events in Ukraine’s energy and political fields continue to draw my attention, though, and I hope to keep this blog updated—certainly more frequently than I have for the past month.

Perhaps the key issue in the energy sphere now is how the deepening political crisis will affect the ongoing talks between Naftogaz and Gazprom concerning the price of imported natural gas for Ukraine. Last year’s negotiations happened between the transition of the Party of Regions-led Rada and the tenuous Democratic Coalition (headlined by Tymoshenko at PM). PoR deputy Yuri Boyko negotiated the deal in October 2007, but Tymoshenko immediately voiced objections and began pulling strings to put her own stamp on the agreement. That led to rounds of protracted and contentious negotiations that lasted well into 2008 before a key deal was signed in mid-March. Until then, in an unstable and imperfect arrangement, gas was being supplied to Ukraine without a contract.

Negotiations for next year’s contract began months ago, tied in with Tymoshenko’s goal for a long-term deal with Gazprom. While a multi-year contract is unlikely at this point, progress is continuing on next year’s deal. This big question is the price charged to Ukraine, guaranteed to rise from the current $179.50 per thousand cubic meters (mcm). Predictions run from $250-450, and they tend to be connected to various “concessions” granted to Russia, running from the status of the Russian Black Sea Fleet in Crimea to maneuvers for Ukraine’s 2009/10 presidential elections.

The fracturing political landscape affects the mandates of the various actors involved. As I mentioned, last year’s deal was principally negotiated by Boyko, who was then the Minister of Fuel and Energy. This year’s negotiations have mainly been conducted by Oleg Dubina, the head of Naftogaz, a position beneath the ministerial level. Both positions, though, ultimately report to the Prime Minister, Tymoshenko.

She herself has gotten involved in the negotiations, and one of the issues raised is how she accepts directives passed on to her from the president. Yushchenko has traditionally given the Ukrainian negotiators instructions for their meetings with the Russian side, but as he and Tymoshenko continue their drift apart, it seems more and more unlikely that the two will be able to cooperate. They had already bickered about this issue last winter, with Tymoshenko proudly proclaiming that she had talked with the Russian delegation “without directives,” only to be confronted with the list of instructions passed to her from the President after it was posted on the Presidential Secretariat’s website.

Yushchenko himself is not a good negotiator for natural gas deals. His former nickname within Gazprom upper management was reportedly “The Artist” because of his finicky and aloof manner. During meetings following the Orange Revolution he gave no indication of understanding the complexities of the gas business, and did not appear to be too invested in the outcome.

Since then, Yushchenko has taken the task more seriously for a variety of reasons.

  • He witnessed the effect of unpopular deals after outrage at the 2005 agreement helped contribute to the split of the Orange Coalition.
  • He recognizes the boost in popularity gas deals can bring to the figures involved, and seeks to capitalize it—or at least prevent Tymoshenko from solely benefiting from it.
  • He resists ceding any more authority to the Prime Minister, using his directives to emphasize the political pecking order he is trying to maintain.
  • He respects the economic impact of gas deals and, drawing on his background as a successful economist, positions himself as more in touch with the realities of the financial ramifications. (This economic experience is generally contrasted with Tymoshenko’s aggressive social spending plans.)

The two sides have both asserted that they will be able to present a unified front in the ongoing negotiations, and keeping the talks at company-level (i.e., between Dubina of Naftogaz and Alexei Miller of Gazprom, rather than Tymoshenko and Putin or even Yushchenko and Medvedev) should theoretically help keep the political fallout at arms length.

In reality, there is no way to completely divorce the maneuvering of Ukraine’s politicians with the natural gas negotiations, and every twist and turn will be used as “proof” of Tymoshenko’s alleged deal with Putin or Yushchenko’s rumored affinity to RosUkrEnergo. Politics has been deeply intermingled in Ukraine’s natural gas relations with Russia and Central Asia since the breakup of the Soviet Union, and it is unlikely to cease being so at this point.

As a footnote, I expect the price to be between $300 and $350 per mcm, though this is of course speculation at this point. A lot depends on how the costs are derived, as I explained in an earlier post.

Also worth mentioning is that Ukraine’s main stock market, the PFTS, has declined over 60% since January 1st, 2008, making it the worst performing stock market in the world. The PFTS performed extremely well last year, perhaps leading traders to feel that it was over valued at the start of 2008. Unhealthily high inflation, poor regional financial performance, geopolitical worries exacerbated by the Georgian conflict, and the upswing in domestic political instability have all contributed to the decline.

Gazprom enters Ukraine’s gas market, but overall picture remains unclear

Naftogaz will be competing with Gazprom to supply gas to industrial consumers Late last month, Gazprom Sales Ukraine (Газпром сбыт Украина, or GSU) was granted a license by the National Energy Regulatory Commission (NKRE) to sell up to 7.5 billion cubic meters (bcm) of natural gas per year to Ukraine’s industrial consumers. The five-year license was a key part to the March agreement between Russia and Ukraine on the “development of relations within the gas sphere.”

The entry of Gazprom’s fully-owned subsidiary into Ukraine’s gas market was also meant to compensate for the exit of Ukrgazenergo, which previously dominated sales to the industrial sector with a yearly quota of 32 bcm. The removal of this gas trader–50% owned by the state-owned Naftogaz, 50% by RosUkrEnergo, which is itself 50/50 split between Gazprom and two Ukrainian businessmen–is supported by the Ukrainian government. Prime Minister Yulia Tymoshenko has been especially vocal in her opposition to such “middlemen,” seeking to completely liquidate Ukrgazenergo’s (and eventually RosUkrEnergo’s) presence in the Central Asia-Russia-Ukraine gas scheme.

Earlier this year, the NKRE slashed Ukrgazenergo’s quota to just over 5 bcm per year in an effort to drive the trader from the market and open room for Naftogaz’s on gas sales division, Gaz Ukrainy. An additional point in the bilateral gas sphere agreement saw Ukrgazenergo lose another of its key tasks, buying gas on the Russian-Ukrainian border from RosUkrEnergo. This transaction is also being taken over by Naftogaz.

However, the shift towards a greater Naftogaz presence has been far from graceful.

First there was confusion among consumers over whom to pay stemming from overlapping assertions and a muddled legal situation. A cement factory complained that “we in fact have two actual agreements with both companies [Gaz Ukrainy and Ukrgazenergo]. But the ODU [United (gas) Distribution Administration, controlled by Naftogaz] can shut the valve off at any moment.” Citing this reason, the factory decided to pay Gaz Ukrainy despite a fax from Ukrgazenergo asserting ownership over the gas that the plant was receiving.

Indeed, Naftogaz’s control over the gas distribution pipes allowed them to limit supplies to factories hesitating to sign on with Gaz Ukrainy. Such tactics prompted protests in front of Naftogaz’s office and warnings of catastrophic accidents resulting from the decreased gas pressure.

Protesters staged a rally last month over Naftogaz's attempts to switch gas providersThe majority of the protesting factories are set to sign on for supplies from GSU, and interest in working with Gazprom subsidiary–as versus Naftogaz–is reportedly high. About twenty companies sought contracts with GSU, according to a company source, more than the quota would allow for. The attraction apparently stems from a continuation of Ukrgazenergo’s policy of giving the consumers a 10-day payment window as opposed to Gaz Ukrainy’s 100% prepayment terms. Gaz Ukrainy is also reportedly charging a higher price than what the companies paid Ukrgazenergo.

Despite this reorganization, Ukrgazenergo cannot be counted out yet.

An April 18th ruling from the Kyiv district administrative court struck down the NKRE’s limitation of Ukrgazenergo’s sales quota. This decision re-opens the door for Ukrgazenergo, at least partially. “Essentially,” an industry participant told Kommersant, “three major players have emerged on the internal market instead of two.” While it has lost its direct purchases from RosUkrEnergo (essentially, its ability to import the gas), Ukrgazenergo allegedly has about 7 bcm of gas in underground storage that they can sell on the market.

Ukrgazenergo could also purchase gas from Naftogaz for resale to consumers, like GSU is doing now. The margin for sales by Naftogaz to GSU is set at $0.01 per thousand cubic meters (mcm) by the gas sphere agreement, making the price $179.51. It is unclear what the internal Naftogaz-Gaz Ukrainy margin is or how much Naftogaz will sell gas to other market participants such as Ukrgazenergo and smaller gas trading firms (typically with quotas of 1-2 bcm or less). Ukrgazenergo had apparently been charging about $185 before being removed as a middleman.

While the internal market has yet to be completely sorted out, a major obstacle in negotiations with Gazprom has apparently been passed–Tymoshenko announced in late April that Ukraine had (finally) fully paid off its debt for imported gas. This had been a tripping point for nailing down a longer-term agreement between Naftogaz and Gazprom, and hopefully signals the resolution of some of the company’s financial difficulties.

The announcement coincided with the visit to Kyiv by Russia’s PM Viktor Zubkov, his last such trip before he’s expected to be replaced by outgoing President Vladimir Putin. Energy topics were high on the list for discussion between the two Prime Ministers. Ten bilateral priorities were drawn up from the meeting, with the gas issue the second one mentioned (right below WTO cooperation):

The second priority concerns the fact that after regulating tactical gas problems we should turn to the establishment of strategic cooperation. And this second priority – signing strategic long-term agreements on natural gas supplies to Ukraine and transit of the Russian natural gas through the territory of Ukraine to the European countries. It would be better to sign this agreement for 10 and more years in order to see how much prospective and progressive our move toward each other is.

A bilateral commission is set to examine the Ukrtatnafta conflictOil issues also came up (abridged English version):

Ukraine in its turn agreed to work through the conflict surrounding the Kremenchug oil refinery and by the end of April form a working group with representatives from Ukraine’s Ministry of Fuel and Energy, the State Property Fund, Ministry of Justice and Russia’s Ministry of Industry and Energy and the Federal Property Agency “for the preparation of suggestions for the normalization of work at Ukrtatnafta.”

And by the first of July, Russia’s Ministry of Industry and Energy and Ukraine’s Ministry of Fuel and Energy will hold consultations in order to “better the competitive terms of transporting oil” for both transport to Europe as well as supply to Ukrainian refineries without levying VAT.

The two governments will also work on another long-term nuclear fuel deal, despite Ukraine’s plans to buy fuel for its nuclear plants from Westinghouse beginning in 2010 and the country’s aspirations to eventually develop its own supply.

Activity in Kyiv has picked up some since the Easter and May Day holidays, but Friday’s Victory Day celebration is just around the corner.  The extended vacation time has made getting responses and clarifications particularly different.  As people begin returning to work, I’ll keep trying to find out more, particularly in regards to the relatively productive visit of Zubkov and the next step for Ukrgazenergo.

RosUkrEnergo to remain Ukraine’s gas supplier

RosUkrEnergo's tagline belies its reliance on personal connections - From rosukrenergo.com

On Friday an official from Ukraine’s presidential secretariat announced that RosUkrEnergo (RUE) would be supplying Ukraine with gas for the remainder of the year.

The continuation of this arrangement comes as a blow to Prime Minister Yulia Tymoshenko’s hopes to completely remove the maligned middleman.

While she has praised the expulsion of RUE’s 50%-owned subsidiary UkrGazEnergo from Ukraine’s domestic gas market, its place will partly be filled by a new Gazprom subsidiary authorized to directly market gas to Ukrainian consumers.

In the meantime, Naftogaz (Ukraine’s state-owned oil and gas company) is aggressively seeking to make deals with Ukraine’s major industrial consumers, likely in an effort to stymie Gazprom’s commercial ambitions.

Naftogaz confirmed that it signed a contract with RosUkrEnergo to purchase 49.8 billion cubic meters (bcm) of gas at a price of $179.50 per thousand cubic meters (mcm) through to the end of 2008.

Meanwhile, “Gazprom Sales [Marketing] Ukraine,” (“Газпром сбыт Украина,” or GSU — I haven’t seen that acronym used yet, so remember, you saw it here first) a fully-owned subsidiary of Gazprom, has registered in Ukraine and is in the process of gaining clearance to sell 7.5 bcm per year on the country’s “unregulated” industrial market. GSU will buy the gas from Naftogaz (who itself purchases it from RUE, which purchases it from Gazprom Export, which allegedly purchases it from Central Asia), though according to early drafts of the new gas scheme agreement, Naftogaz is limited to an extremely minimal price increase (pennies per mcm) on the sale to GSU.

The industrial sector of gas sales had been dominated by Ukrgazenergo, but intense regulatory and administrative pressure has essentially forced the gas trader to shut down operations. (Nonetheless, I am still in talks with Ukrgazenergo to arrange an interview, and will update accordingly.)

Naftogaz, via its subsidiary Gaz Ukrainy, is looking to fill as much of the void left by Ukrgazenergo as possible, lining up contracts from 90 of Ukraine’s top industrial gas users. It is unclear whether the holdouts of companies connected to RUE co-owner Dimitry Firtash have been resolved.

Late in March, Ukraine attempted to pressure RosUkrEnergo by halting the transit of gas owned by RUE through Ukraine destined for sale in Eastern and Central Europe. The Polish and Slovak consumers the gas was meant for lodged complaints, citing violations of the Energy Charter. It isn’t known if the new agreement with RUE protects the trader’s ability to transit gas through to Europe, a lucrative aspect of the scheme.

The early draft of the agreement reached between Gazprom and Naftogaz last month left the exact seller of gas at the Russia-Ukraine border–either Gazprom or RUE–ambiguous. While Tymoshenko was apparently able to erase the words “not less than” before the 7.5 bcm quota to be granted to Gazprom, removing RUE–with its rumored connections to the Yushchenko camp, organized crime, Gazprom management, former politicians, etc.–proved to be not so easy.

Note: No word on the potential technical default of Naftogaz, but the debt issue with Gazprom for gas sales during the first four months of this year–a couple billion dollars, apparently– remains a pressing issue. Meanwhile, the government is suggesting that domestic prices for gas raise by 3% and 5% (depending on volume consumed) per month, beginning in May (i.e. 21-35% by the end of the year). This, in combination with an increased presence in the industrial sales sector mentioned above, should help Naftogaz’s financial situation. Of course, 20% inflation rates and woeful bill collecting problems won’t help.

Also, Naftogaz has scheduled (another) attempt at a shareholders’ meeting for Ukrtatnafta, again with the aim of changing leadership and making sweeping administrative changes. The meeting is scheduled for May 29th (coincidentally, the day before my birthday). Meanwhile, the company announced the April 23rd auction of its 4.4 thousand sq. meter office building in Kremenchug, with a starting price of UAH 9.9 million (just under $2 million). Clearing out the shelves before the store gets taken over?

Naftogaz’s financials are creating worry as Ukraine and Russia struggle to finalize their gas deal

Naftogaz's debts continue to rise - from eizvestia.com

Despite signing a key agreement on the development of gas sphere relations over three weeks ago, Ukraine’s Naftogaz and Russia’s Gazprom have yet to draw up and agree upon the technical and commercial contracts needed to make the deal final.

April 1st had been the anticipated deadline for reaching a solid agreement, but negotiations have now spilled over into the second week of April.

Meanwhile, March 31st was also the extended deadline for Naftogaz to fulfill its creditors’ requirements on a portion of its outstanding debt. Representatives of two of Naftogaz’s main creditors visited Kyiv in late December to push for progress in reaching the requirements on a $500 million Eurobond. Negotiations with government officials convinced the lenders to push back the January 1st deadline. However, the regulation–publishing Naftogaz’s 2006 IFRS report–has yet to be completed (though financial information on the company is available and has been analyzed by Ekonomichesky Izvestia), threatening the financial viability of the company.

Naftogaz is looking to get another two-month extension on publishing the financial report, which should be ready in a couple weeks according to information a source gave Reuters. Ernst and Young, Naftogaz’s auditors, have apparently been hesitant to certify the 2006 results without first knowing the company’s future tax burden and other prospective information. This uncertainty was exacerbated when a Cabinet of Ministers meeting last week failed to approve Naftogaz’s financial plan. The issue is set to be reexamined at another meeting on April 9th.

Ukrainian President Viktor Yushchenko warned of Naftogaz’s dire financial situation, saying the company “has never been closer to bankruptcy.” This elicited a quick response from PM Yulia Tymoshenko, who has asserted that her government will not allow a financial tragedy to befall the national energy company. Indeed, this year’s budget contains a $2.4 billion bailout in the form of sovereign guarantees, should it come to that. The Cabinet is also promising to lower Naftogaz’s tax burden.

Naftogaz's profits have also dramatically increased - From eizvestia.com

If the government can escape from this latest debt issue–which is compounded by outstanding debts to Russia for recent gas deliveries–then Naftogaz has a solid chance of turning its economic situation around.

In 2007 Naftogaz reportedly made about $620 million, and the new version of the gas scheme should increase the revenues to the energy company and its subsidiaries. That’s assuming, of course, that a deal that replaces the current structure can ever get signed.

Amidst gas negotiations with Russia last month, Ukraine’s Cabinet of Ministers amended the draft agreement on the future of the gas scheme, capping the amount of gas Gazprom will be allowed to sell on the internal market at 7.5 billion cubic meters (bcm) per year. The original deal stipulated only no less than 7.5 bcm, but gave no maximum. Other amendments, however, remain unknown as the current version of the agreement has not been publicized.

The shifting terms of the deal make predicting Gazprom’s response difficult. Nonetheless, Naftogaz is continuing to work at expelling Ukrgazenergo from Ukraine’s gas market–a key term in the prospective deal.

One of Ukrgazenergo’s main jobs–buying gas at the border of Russia and Ukraine from RosUkrEnerg–is set to be transfered officially to the hands of Naftogaz, according to the draft agreement. (Indeed, this is likely already happening, due to an anxious Ukrainian government backed by the services of customs officials.)

Naftogaz refuted claims it was resorting to gas cutoffs in order to pressure holdout industrial customers

Ukrgazenergo’s other central job is selling some of that gas to industrial consumers within Ukraine. Tymoshenko employed the National Energy Regulation Commission to severely limit the amount of gas Ukrgazenergo is regulated to sell to the industrial sector. While the gas trader is fighting that decision in court, Naftogaz’s subsidiary Gaz Ukrainy has stepped into the void created by the commission’s decision.

Last week, the chemical factory Rivneazot complained that its gas pressure had dropped by about 20%, creating a potentially dangerous situation within the plant. The factory blamed Naftogaz for the drop in pressure, telling the company–which is in the process of replacing Ukrgazenergo in supplying Rivneazot–to “stop experimenting in the country’s gas sphere.”

“Irresponsible actions of Ukraine’s Cabinet of Ministers and Naftogaz in settling the situation in the gas industry are destabilizing the work of Rivneazot which could potentially lead to severe environmental and humanitarian consequences in the Rivne region [of Ukraine].

“Rivneazot also calls on the judicial organs of Ukraine to give a proper assessment of the actions of Naftogaz and its responsible figures, who by virtue of professional incompetence, negligence or design [intention], provoke a technological catastrophe in one of the largest chemical producers in Ukraine.”

These complaints of decreased pressure were echoed by the Krimsky Titan and Krimstky Soda factories. Not coincidentally, all three enterprises are owned by Dimitry Firtash, the major Ukrainian shareholder of the maligned gas intermediary RosUkrEnergo (RUE). Tymoshenko has long tried to remove RUE from the gas scheme, but for now is targeting RUE’s 50% owned subsidiary, Ukrgazenergo.

The three factories are trying to hold out for the fulfillment of their contracts with Ukrgazenergo, and conflicts over signing new agreements with Naftogaz likely led to this latest row.

Naftogaz responded by calling the accusations of decreased gas pressure “provocation and indirect pressure from the owners of RosUkrEnergo against representatives of Naftogaz on the eve of the next round of talks with Gazprom.”

“The company figures the statement by the press service of Rivneazot concerning the reduction of the volume of gas to the company from April 3rd of this year to be unreasonable, merely political in character and a form of sabotage against the process of transition to direct negotiations with Naftogaz.”

Besides facing resistance from such industrial consumers, Naftogaz will likely encounter other problems as it attempts to insert itself further into the gas supply scheme. Not the least of these is actually signing the new agreement with Russia, something that hopefully will be completed within the next week.

But also key will be resolving the debt situation, as becoming a major gas supplier requires significant credit–a characteristic not likely for a company flirting with default.

Note: There were rumors that Naftogaz (50% shareholders of Ukrgazenergo) would press Gazprom (25% ownership) into voting to liquidate Ukrgazenergo completely and legally at the company’s April 1st shareholders’ meeting. However, the meeting was not recognized due to a lack of a quorum. The next meeting apparently isn’t likely until October.

I’m still waiting for word on the results of the latest attempted Ukrtatnafta shareholders’ meeting. (Though here’s an amusing rundown of the attempted meeting in mid-March on the Kremenchug premises, replete with unmarked private security guards, buses full of thugs and a fire drill.)

The latest Dneproenergo and Kievenergo shareholders’ meetings also faced problems, apparently due to the absence of the companies’ registers, which are under the control of Privat-affiliated Ukrneftegaz. I hope to post on these issues–as well as more on the spy allegations at TNK-BP–as more info comes out.

TNK-BP spy arrest allegedly connected to Ukraine’s gas negotiations

Recent espionage intrigue may relate more to Russia-Ukraine relations than already-strained asdf - From lenta.ru

Last month two Russian brothers, Ilya and Alexander Zaslavsky, were arrested and charged with industrial espionage, allegedly passing on strategic energy-sector secrets to a foreign entity.

Ilya worked for TNK-BP, whose Moscow offices were raided in connection to the charges. Alexander was a leading member of the British Councils alumni club in Moscow. Both had attended Oxford and hold dual US-Russian citizenship.

BP’s representation in Russia was simultaneously hit with alleged immigration violations forcing the company to suspend about 150 employees.

These actions come in the midst of TNK-BP and Gazprom finalizing a deal that would cede control over the giant Kovykta gas field to Gazprom, the end result of months of pressure on the project being headed by the joint Russian-British venture.

The combination of these circumstances led many observers to assert that the Kremlin has begun to crack down on TNK-BP, particularly the company’s foreign representation. Rumors of TNK-BP’s eventual take-over by the state-owned firms Rosneft (unlikely) or Gazprom (more likely) have been spinning for at least a year, though they have usually concentrated on the Russian TNK side of the company selling out. The new pressure on the British side of the venture has been taken as evidence of a further degredation of Russia’s oil and gas investment climate for foreigners.

The moves against BP also contribute the current upswing of tensions between England and Russia, in particular stemming from the unresolved poisoning of Aleksandr Litvinenko.

However, a newspaper article published last week suggests that the arrests of the two brothers is unrelated to British-Russian intrigue. Instead, the espionage allegations are being connected to the recent negotiations between Gazprom and Ukraine over the supply of natural gas.

According to the Russian paper Tvoy Den (Your Day), which was quoting information from sources within Russia’s special forces, “the Zaslavsky brothers were arrested for attempting to sell a secret supplement to the Energy Strategy of Russia through 2020, in which the development plan of Gazprom was detailed.”

The information was passed to Ukrainian hands right before gas negotiations during Yushchenko’s visit to Moscow on February 12th.

During the talks, the Russian negotiating side was surprised at some of the confidential information that the Ukrainians were using in their bargaining. As a result, suspicion of a mole arose and led to the investigation that fingered the Zaslavsky brothers.

In the meantime, the insider information has proven beneficial to the Ukrainian negotiating stance:

According to TD’s source, it was the possession of Gazprom’s plans that allowed the Ukrainian PM Yulia Tymoshenko to puff up the gas scandal with Russia and for some time successfully boycott the agreement of the Russian and Ukrainian presidents on the fulfillment of Ukrainian debts and terms of the delivery and transit of Russian gas.

This assertion has led to headlines the like of which proclaim that “Tymoshenko was victorious over Gazprom thanks to spies from TNK-BP.” I have yet to see any English-language coverage, though.

There are more than a few issues raised by Tvoy Den’s article which I will delve into later — I just wanted to get this info out there for now.