Translated material
Parade of the Losers
Gazprom and Naftogaz of Ukraine signed a gas capitulation
Vladimir Putin and Viktor Yushchenko today in Astana are expected to officially testify to the “mutually beneficial” gas peace that Gazprom and Naftogaz concluded on the night of January 4. “Following the signing, the parties stated that the agreements were reached on mutually beneficial terms and serve as a good basis for the development of cooperation between Russia and Ukraine in the gas sector on market principles,” the companies said in a joint statement on January 4. And two days later, Gazprom and Naftogaz issued another short statement, apparently to be sure: “OJSC Gazprom and NJSC Naftogaz of Ukraine have successfully resolved the contradictions that existed in the past and declare that in the future issues of cooperation in the gas sector will be resolved constructively, in a spirit of mutual understanding and respect. The conflict is over."After an unprecedented political scandal culminating in the cut-off of Ukraine from Russian gas, the parties really defended their principled positions - Gazprom achieved a refusal to barter, and Ukraine received gas during the pre-election period at a very reasonable price. However, upon closer examination, these “victories” did not come cheap to the parties. Naftogaz will lose sole control over the gas sales market in Ukraine and the right to re-export 5 billion cubic meters to Europe. Gazprom will lose 13% of supplies to the European market - about 20 billion cubic meters per year. The rightful winner of the gas war was the Swiss gas trader RosUkrEnergo, whose turnover in 2006 will exceed $10 billion, and its share in the European market will quadruple. In addition, this company with unspecified beneficiaries will receive 50% of the end-use market in Ukraine. Gazprom regards this data as its own victory: Gazprombank, through its subsidiary, still owns half of RUE. The rest is nominally held by Raiffeisen Investment, which does not disclose whose private interests it represents. Assumptions that either representatives of the former leadership of Ukraine, or authoritative businessman Semyon Mogilevich, or all of them are behind the investment company, have received neither confirmation nor a worthy refutation.
Gazprom's reporting according to international standards for the first quarter of 2005, published in October, remains the only document that can help assess the scale of RosUkrEnergo's business. Its pre-tax profit for three months alone was about $0.5 billion.
The “peace” agreement stipulates that RosUkrEnergo will supply gas to Ukraine for five years. At the same time, a clear balance was formed only for 2006, and prices were determined only for the first half of the year. According to the document, which was made public by former Prime Minister Yulia Tymoshenko, from January to July the trader pledged to supply 34 billion cubic meters of gas to Ukraine at a price of $95 per thousand cubic meters. How much imported gas will cost Kyiv in the second half of the year (21 billion cubic meters), no one in the Ukrainian government is thinking about right now. It is quite possible that by then it will be a completely different country. However, starting from February, it will no longer be Naftogaz that will supply gas to final Ukrainian consumers, but a joint venture that will be established by the Ukrainian monopolist and RosUkrEnergo on a parity basis by the end of this month. Thus, Ukraine will lose 50% of the profit from domestic gas sales, and most importantly, most of the cash flows. In the first half of the year alone, no less than $3.5 billion will pass through the joint venture.
All imported gas will come to Ukraine from Central Asia. According to the plan of the deal developers, RUE will repurchase, with a symbolic surcharge, gas contracted by Naftogaz and Gazprom in Turkmenistan, Uzbekistan and Kazakhstan. However, only the 8 billion Uzbek gas that belongs to Gazexport does not raise questions. There is no clarity regarding Turkmen and Kazakh volumes. Let us recall that the Ukrainian company has a contract with Turkmengaz for 39 billion cubic meters, and the head of Gazprom Alexey Miller, before the new year, signed documents with Ashgabat for the purchase of 30 billion cubic meters in 2006. Despite the fact that, according to the parties, the Central Asia - Center gas pipeline system can only carry 41 billion cubic meters of Turkmen gas. It is still unclear who and how much gas will take from Ashgabat and then transfer to RUE. Various options are being considered - from the “brotherly” (“50 to 50”) to the one proposed in the “pre-war” period (34 billion cubic meters - Naftogaz and 7 billion cubic meters - Gazprom).
The situation is even more complicated with Kazakh gas (about 7 billion cubic meters), which Gazexport purchases from the joint venture of Gazprom and Kazmunaigas - Kazrosgaz. Agreements on the sale price for RUE gas with the Kazakh authorities, who expect to see their interest in the deal, have not yet been reached. Obviously, this issue will be one of the main ones in the business part of Alexey Miller's visit to Astana for the inauguration of Mr. Nazarbayev. The fact is that Kazrosgaz sold gas to the Gazexport portfolio taking into account prices on the European market, and the price in Ukraine is still far from Western Europe. The purchase price of Central Asian gas for RUE will range from $45 per thousand cubic meters of Uzbek gas to $70-75 per thousand cubic meters of Kazakh gas.
In addition, a transit agreement was signed, under which Gazprom will pay Naftogaz for pumping gas to Europe $1.6 per thousand cubic meters per 100 km (previously the rate was $1.09).
All this would look quite decent if it were not for the initial promises of the Gazprom management to sell gas to Ukraine at European rates minus transportation through the Naftogaz system - $230 at the beginning of January. And also the ridiculous profitability of the gas trader, which follows from the official figures, whose income from gas sales would hardly be enough to pay for gas and transit services in Central Asia and Russia. As a result, Gazprom sold RosUkrEnergo 17 billion cubic meters, which were released from the barter scheme, at $230 per thousand cubic meters. However, it was clear to everyone that this gas would go through Ukraine to more attractive Western markets and would be sold there at $250-270 per thousand cubic meters. Do not forget that Naftogaz must return to RUE 5.3 billion cubic meters of gas that was recognized as missing from underground storage last spring. Let us recall that Gazprom ceded the right to claim this volume to a trader last summer for $800 million. Thus, the Swiss company can sell over 20 billion cubic meters worth more than $5 billion on European markets.
The Gazprom group will have the right to only 50% of the profits from these operations, although it could quite easily independently export this gas to Europe. At the same time, no one has provided a clear explanation of why Gazprom risked its precious reputation and the energy security of Europe for the benefit of an intermediary in which it does not have a controlling stake, and soon may not have even 50%. As you know, the German Dresdner Bank will soon become the owner of 33%. And there is still no clear decision that the bank will transfer its share in RUE to another 100% subsidiary of Gazprom.
Speaking yesterday about the RosUkrEnergo company, while still in the rank of prime minister, Yuriy Yekhanurov told deputies of the Verkhovna Rada that Ukraine “should not be bothered by who sells gas to whom to its borders,” but should only be interested in the price - $95 per thousand cubic meters. “How many times gas will be sold to our border and at what price is not our business,” he believes. However, Ukrainian industrialists, who are accustomed to living on cheap Russian gas, did not find this statement convincing. 24 industrial enterprises, including MMK im. Ilyich, Azovstal, Makeyevsky Iron and Steel Works, Novokramatorsky Machine Plant, Sumy NPO named after. Frunze, Nikopol Ferroalloy Plant, Zaporizhstal, Alchevsk Iron and Steel Works, Northern, Central, Ingulets Mining and Processing Plants signed an appeal to Viktor Yushchenko. “Today we have every reason to believe that from the very beginning the management of NJSC Naftogaz of Ukraine deliberately misled the Ukrainian public by talking about the existence of Russian-Ukrainian agreements on fixed prices until 2009,” Interfax quotes the appeal. Industrialists demanded the adoption of a national energy saving program, which should be legislated and have unchanged status for a period of seven to ten years, the introduction at the state level of mechanisms to support the development of the use of alternative fuels and a special lending regime “at the price of gas 2005” for economic entities , which commit to reducing the energy intensity of their end products by 30-35% over three years. “If this is not done, we will openly demand the disavowal of the gas agreements signed between Ukraine and Russia, as well as the immediate resignation of all officials, without exception, who were involved in the creation of this extremely dangerous situation,” the document says. Yuri Yekhanurov, speaking to deputies even before the resignation vote, called on the heads of metallurgical and other large enterprises in Ukraine that consume gas in their production to “extinguish the blast furnaces and switch to other methods of work.” The Prime Minister noted that they have a maximum of three years to do this.