Translated material
Gas nuclear fusion
Vladimir Putin and Yulia Tymoshenko reached a deal on economic issues
The meeting of the prime ministers of Russia and Ukraine in Yalta, contrary to expectations, brought a breakthrough on gas issues. Vladimir Putin agreed to formalize in writing the reduction in the volume of purchases of Russian fuel by Naftogaz of Ukraine in 2010 and Gazprom’s obligation not to impose sanctions for shortfalls at the end of the current year. “Gazprom has a direct instruction, and today I once again confirmed it: no fines will be imposed on Ukrainian partners,” said the Russian prime minister. “But within the framework of the contract, they must sort things out among themselves.”If we regard this as a real command to the Russian monopolist, and not just a statement to the election treasury of Yulia Tymoshenko (with whom, according to Mr. Putin, he “is comfortable working”), then it turns out that Moscow is ready to give up this leverage on Kyiv. A lever that was supposed to ensure the interests of Gazprom in the Ukrainian market after the elections of the new president of the republic, scheduled for January 17.
Vladimir Putin explained his motivation by the current state of the economy and the “special nature of relations between Russia and Ukraine.” From which we can conclude that Moscow, firstly, will receive in return some other instrument of influence, and secondly, it is counting on material compensation in other areas, for example in the field of nuclear cooperation. According to the head of the Russian government, “a lot of experience in mutually beneficial and effective partnership has been accumulated here.” “The task is not to lose it for the sake of momentary market preferences, because I think the risks will be too great,” he emphasized.
The contract between the TVEL concern and the Ukrainian Energoatom for the supply of Russian fuel for Ukrainian nuclear power plants expires at the end of 2010. Kyiv, primarily through the mouth of President Viktor Yushchenko and his entourage, announced its intention to diversify its sources through contracts with American suppliers. Following the Yalta negotiations, Ms. Tymoshenko stated that the document on extending the agreement with Russia for another ten years had been worked out at the intergovernmental level and was ready for signing. But at the same time it was not signed in Yalta. The price of the issue in terms of money is not so great - about half a billion dollars a year, but from the point of view of global competition for nuclear fuel markets, Ukraine (about 5% of world purchases) is of strategic interest.
Tomorrow a delegation from Naftogaz of Ukraine will arrive in Moscow to hold negotiations with Gazprom on confirming political agreements on gas at the corporate level. And their outcome, obviously, will depend on Yulia Tymoshenko fulfilling her part of her obligations in the field of nuclear fuel.
Gazprom does not comment on the Yalta agreements. Until now, the head of the company, Alexey Miller, has always emphasized that the contract must be fulfilled in full, and did not agree to negotiations on changing the contractual volumes for 2010. Let us recall that Naftogaz was supposed to officially notify Gazprom of its intention to reduce purchases next year no later than June 30 (but this was not done). The Ukrainian concern was keen on solving current problems, finding ways to pay for gas and trying to officially revise the volume of selection this year.
According to the contract signed on January 19, Naftogaz was going to buy 40 billion cubic meters in 2009 (the level at which the “take or pay” rule applies is fixed at 80%, or 32 billion cubic meters). Starting next year, the volume increased to the standard for Ukraine 52 billion cubic meters (the minimum withdrawal level is 41.6 billion cubic meters). Meanwhile, this year Naftogaz will take, at best, 24-25 billion cubic meters, and next year it predicts 27-28 billion cubic meters.
Now Ukraine has the opportunity to declare the volumes it needs for 2010 in order to, as Vladimir Putin put it, “very simply” solve the problem of fines for shortfalls. According to the chairman of the board of Naftogaz, Oleg Dubina (his words are quoted by the Ukrainian “Zerkalo Nedeli”), the application will be as follows: “27 billion plus the right to purchase an additional 20% in case the economy shows significant growth.” That is, we are talking about reducing the volume under the contract from 52 billion cubic meters by a third, to approximately 34 billion cubic meters, and the “take or pay” level in this case is 27 billion cubic meters.
It is unknown whether Ukraine will be able to cope with such a volume of imports, especially taking into account the expected increase in gas prices compared to 2009 due to the abolition of the 20 percent discount. As you know, next year Naftogaz will import fuel at fully European prices. Gazprom predicts that the price will be about $300 per thousand cubic meters. Based on the results of 2009, the average price of imported gas for Ukraine will be at the level of 230-235 dollars per thousand cubic meters.
However, it would be naive to believe that Vladimir Putin has completely abandoned the tools of influencing his neighbors in the gas sector. Given the political unpredictability of the Kyiv elite and its individual representatives, this would be too risky. According to unofficial data, the management of Naftogaz is going to Moscow not only for negotiations with Gazprom, but will also meet with representatives of credit institutions - VEB, Alfa Bank and Gazprombank in order to attract bridge financing for payments for Russian gas supplies to November and December. We are talking about an amount of up to $1 billion, which would allow the government to neutralize the risks of opposition to payments on the part of Viktor Yushchenko (controls the National Bank of Ukraine and can block its lending to Naftogaz) and would make the Ukrainian state concern a major debtor of Russian banks.
As a last resort, there remain claims against Naftogaz by the Russian-Swiss trader RosUkrEnergo (a Gazprom joint venture with Ukrainian entrepreneurs Dmitry Firtash and Ivan Fursin) for a total amount of over $8 billion, which are being considered in international arbitration. Gazprom does not yet take an active position in this process, but everything could change if a new demarche matures in Kyiv.