POLITICS ASSERTS ITSELF IN DISPUTE OVER RUSSIAN GAS

Bob Tippee
Editor

In the matter of Russian gas sales to Ukraine and Europe, separating economics from politics is difficult.

At the level of economics, heavy-handedness by Russia's Gazprom can appear merely to be hard dealing in a contract dispute. Gazprom wanted to move the price to what it considers the market level. The buyer, Naftohaz Ukraiyiny, countered the prospective quadrupling of price by demanding higher fees on Russian gas crossing its territory en route to Europe.

But much more is in play here.

Ukraine has a pro-Western but fragile government that Moscow dislikes and that faces elections in March. Because of Russia's historic use of subsidized oil and gas to manipulate regimes in its political orbit, Gazprom's Jan. 1 curtailment of gas to Ukraine easily can be seen as a ploy to cause trouble for incumbents in Kiev.

On Jan. 4, Gazprom reached an agreement to sell gas to the trading company RosUkrEnergo at the price it was demanding from Naftohaz, which will buy gas from RosUkrEnergo at a formula-based price reported to be twice, rather than four times, what it paid before. The trading company apparently will absorb the difference with cheaper gas from Kazakhstan, Turkmenistan, and Uzbekistan.

But former Ukrainian Prime Minister Yuliya Tymoshenko, sacked last September, promises to challenge the complex deal in court. She says the Ukrainian company still will end up paying the full price Gazprom demanded because of the ill-defined role of RosUkrEnergo.

Whatever the role of politics in Gasprom's decision to cut off Ukraine's gas supplies, economics has reasserted itself with a vengeance. Apparently because Ukraine continued taking gas after Gazprom cut pipeline throughput, curtailments shifted downstream to Europe, where Russian gas customers not involved in the pricing dispute are newly concerned about security of supply.

Now Bulgaria, another important transit country for Russian gas, has balked at a Gazprom effort to restructure prices and fees. Its energy ministry's Jan. 6 declaration that Gazprom's offer is unacceptable has raised worries among other downstream buyers of Russian gas: Turkey, Greece, and Macedonia.

It is, lest anyone forget, heating season in that part of the world.

(Online Jan. 6, 2005; author's e-mail: bobt@ogjonline.com)


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