Ukraine will become Europe in three years

Alexey Miller and Yuri Boyko looked into 2011

Chairman of the Board of Gazprom Alexey Miller and Minister of Fuel and Energy of Ukraine Yuriy Boyko were unable to agree on a price for 2008 , but at the same time made significant progress in discussing the terms of gas supplies in the near future. “The agreement on the principles for setting gas prices for the medium term has been completed,” Gazprom’s press service reported yesterday. “Business entities have begun preparing relevant commercial contracts.” The Ukrainian Ministry of Fuel and Energy confirmed this information, refusing to disclose details.

As a source close to the negotiations explained to Vremya Novostei, the florid wording conceals an agreement that from 2011 Ukraine will receive gas at the average European price minus transit costs through its territory. Related commercial details - supply volumes and conditions for concluding a new contract for the transit of Russian gas through the Ukrainian gas transportation system to Europe - have yet to be developed and agreed upon.

As you know, on January 4, 2006, after a short gas war, a package of documents on gas cooperation between Russia and Ukraine was signed. Gazprom signed a 5-year gas transit contract with the state concern Naftogaz of Ukraine at a rate of $1.6 per thousand cubic meters per 100 km. And the Ukrainian side received a set of contracts that determine the procedure for the supply of imported (mainly Central Asian gas) to Ukrainian consumers until 2010 inclusive. According to the documents, Gazprom buys gas from Turkmenistan, Kazakhstan and Uzbekistan and sells it at a symbolic markup to the Swiss trader RosUkrEnergo (a joint venture between Gazprom and Ukrainian entrepreneur Dmitry Firtash). RosUkrEnergo transports fuel to the Russian-Ukrainian border and delivers it to another intermediary - UkrGazEnergo (a joint venture between RUE and Naftogaz of Ukraine). Moreover, the price at the delivery point is formed according to the “cost+” principle (costs plus a small profit margin). As a result, in 2006, Gazprom spent most of the year buying gas at $65 per thousand cubic meters, and Ukraine received $95; now Central Asian gas costs the Russian monopolist $100, and RUE sells it for $130 ( since transit tariffs remained at the same level).

In theory, if the price of Central Asian gas remains unchanged, there will be no reason to revise the terms of supplies for Ukraine in 2008. Although, of course, it will be difficult for Gazprom to explain to other partners (for example, Belarus) why Ukraine does not have a smooth schedule for increasing gas prices to European levels. But no one really believes in such a scenario. Despite the fact that Gazprom has a contract with Turkmengaz with a fixed price ($100) until 2009 inclusive, everyone is expecting a catch from the Turkmen side. The new Turkmen president already mentioned during his visit to the United States that price negotiations with Russia are very difficult. Although at that moment these same negotiations did not take place and are not still underway, since Ashgabat has not yet officially announced its intention to revise the current contract.

As for the principles of price formation in the next 10 years, no other development of events could be expected. Gazprom has achieved the introduction of equal prices with Europe for Russian industrial consumers starting in 2011. What can we say about Ukraine?

Alexey GRIVACHS