Wednesday, January 21, 2009; A13

Wall Street Journal

By Jacob Gronholt-Pedersen

Russian gas reached the European Union on Tuesday for the first time in almost two weeks, marking the end to a dispute that left most of Eastern Europe without supplies during a bitterly cold spell.

Russia's state-controlled gas firm OAO Gazprom said Tuesday morning it had fully resumed exports to European consumers via Ukraine's pipeline system. Five hours later, gas reached Slovakia.

"Today we can finally welcome the resumption of gas supplies to Europe," European Commission President José Manuel Barroso said. "Our monitors on the ground report that gas is flowing normally," he said.

New Year's Chill

Russia stopped gas supplies to Ukraine on New Year's Day in a dispute over price and payments for natural gas. A week later, Moscow halted supplies to Europe accusing Ukraine of stealing the transit gas destined for Europe.

Ukraine, Russia and the EU had on Jan. 12 signed an agreement to deploy international monitors to oversee gas flows and resume gas transit. But that deal fell apart, leaving the EU wary that Monday's agreement might similarly unwind.

"That was the first time ever in my life when I saw agreements that were systematically not implemented, it's really incredible," Mr. Barroso said. The commission had been preparing legal action in case this deal fell through as well, he said.

Reassuring Europe

Gazprom's deputy chairman, Alexander Medvedev, reassured Europe there is no risk of Russian gas supplies being frozen to Europe in the future. Russian Prime Minister Vladimir Putin and his Ukrainian counterpart, Yulia Tymoshenko, oversaw the signing Monday of a 10-year supply and transit contract between Gazprom and Naftogaz Ukrainy in Moscow.

"A similar shutoff of Russian gas to Europe will never happen again, if Ukraine will be in compliance with the contract signed," Mr. Medvedev said. The EU depends on Russia for almost a quarter of its gas needs. Around 80% of that gas flows via Ukraine's pipeline system.

Under Monday's deal between Gazprom and Naftogaz, all intermediaries including RosUkrEnergo -- a trading company owned by Gazprom and two Ukrainian businessmen -- will be eliminated. Gazprom will supply Ukraine with 40 billion cubic meters of gas this year at a 20% discount to European prices, which, according to Gazprom's Medvedev, will average $280 per 1,000 cubic meters. Starting in 2010, Ukraine will pay full price. Gazprom will pay $1.70 for the transportation of 1,000 cubic meters per 100 kilometers -- the same as last year's level. The transportation fee will also go to market price starting next year.

 

MOSCOW, Jan 18 (Reuters) - The prime ministers of Ukraine and Russia said on Sunday they had reached an outline deal to restore disrupted gas supplies, while the European Union said it was waiting to see gas actually flowing on to Europe.

The row between the two ex-Soviet neighbours enraged the EU by leaving large parts of Europe without gas in the middle of the winter, and eroded Russia's and Ukraine's credibility as gas supplier and transit route respectively.

The dispute, the worst in an annual tug-of-war over prices between Ukraine and Russia, has pushed European consumers and policymakers to think hard about building new gas routes to cut their heavy reliance on Russian supplies.

"Gas transit, the Ukrainian side assured us, will be restored very soon," Russian state channel Vesti-24 showed Russian Prime Minister Vladimir Putin saying in a brief statement after the marathon talks, which lasted into the small hours of Sunday morning.

But Czech Industry Minister Martin Riman, speaking for the EU, said: "We remain realistic. Over the past few days we have seen several similarly hopeful moments. The only thing that counts for the EU is the resumption of gas supplies. For the time being it is not clear when this resumption takes place."

ONE-YEAR DISCOUNT

Putin, standing next to his Ukrainian counterpart Yulia Tymoshenko, said Moscow had agreed to give Ukraine a 20 percent discount from the price European consumers pay, "on condition Kiev keeps preferential tariffs for Russian gas transit to Europe across Ukraine in 2009 at last year's level".

"We also agreed that, starting Jan. 1, 2010, we will fully move to gas prices and transit tariffs in line with European levels, without any reductions and discounts," Putin said.

Tymoshenko said contracts would be prepared by Monday.

"Once all the documents on gas transit and gas purchases have been signed, gas transit to Europe will be fully restored."

Neither premier spelled out the agreed gas price.

In Kiev, a spokeswoman for Tymoshenko said she would fly back to Moscow on Monday for a signing if the respective gas companies, Gazprom of Russia and Naftogaz of Ukraine, managed to finalise all details of the deal by then.

Russia's Interfax news agency quoted a Russian government source as saying: "It is expected that the documents will be ready for signing on Monday and will be signed in the presence of the prime ministers of Russia and Ukraine."

A Russian government source said the two sides had agreed not to use intermediaries. Previous deals have been complicated by the use of the Swiss-based intermediary Rosukrenergo, a 50/50 joint venture between Gazprom and two Ukrainian businessmen.

Putin and Tymoshenko were under intense pressure from the European Union to resolve the dispute, which has cut gas supplies to much of eastern Europe since Jan. 7.

While Putin had full authority to seal an agreement, it remained unclear whether Tymoshenko's domestic political rival, President Viktor Yushchenko, would respect the deal.

A source in Yushchenko's office said: "It is our understanding that this is an agreement between the two prime ministers and that the two sides in Moscow are now drawing up an agreement."

OCTOBER DEAL

Last October, Tymoshenko and Putin clinched a deal calling for a three-year transition period after which Ukraine would pay market prices.

Yushchenko had no objections to that deal and said repeatedly Ukraine must be prepared to pay market prices, while saying a formula had to be found to determine the price.

Yushchenko and Tymoshenko had disagreed on some tactics in the run-up to the deal, notably on whether gas for Ukraine and gas transiting to Europe should be handled separately.

The all-night talks followed a meeting in Moscow of gas-consuming nations at the Kremlin on Saturday afternoon which failed to resolve the dispute.

Russia cut off supplies to Ukraine on Jan. 1 because it would not pay higher prices for its gas. Six days later, export flows to eastern Europe through Ukraine ceased amid Russian accusations that Kiev was "stealing" gas intended for export.

Kiev, whose economy is forecast to contract by up to 5 percent this year, says it cannot afford to pay market prices and wants Russia to pay higher transit fees for gas it exports through Ukraine.

A hurdle appeared to have been overcome when a consortium of European companies agreed to supply enough gas to fill the empty pipeline and restore pressure so that exports could resume.

But the key sticking point remained the price Ukraine must pay for its own supplies. Yushchenko insisted exports could not resume to Europe until Ukraine had agreed this with Moscow.

Gazprom wanted Ukraine to pay European-level prices of $450 per 1,000 cubic metres (tcm) of gas for 2009, up from $179.5 per tcm in 2008. But Ukraine, heading into its worst recession for a decade, had said it could afford only $201.

Wednesday, January 14, 2009; A10

New York Times

By Andrew E. Kramer

MOSCOW — The feud between Russia and Ukraine over natural gas prices and transit fees has left large swaths of Europe without heat. Yet, what is baffling is that the dispute has always seemed overly technical and easily resolved, if there was the slightest desire on either side. After all, both countries stand to profit from selling fuel to Europe.

The latest agreement collapsed Tuesday, in a familiar cacophony of complaints and countercomplaints, and again over a seemingly trivial issue. With European Union monitors along the pipeline to make sure that Ukraine did not divert any gas for its own use, Russia agreed to resume shipments to Europe.

But rather than repressuring the Ukrainian pipeline system for exports, Russia's gas monopoly, Gazprom, ordered a single test shipment to see if it would pass through Ukraine to Europe, through a pipeline that was being used to supply the Ukrainian city of Odessa. Ukrainian authorities refused, saying they did not want to cut supplies to their own people, and Russia again halted shipments — not, some experts believed, reluctantly.

Political experts say that neither side is motivated to settle the dispute, because it has never been about the stated issues. Instead, it has been a proxy for far more fundamental and insoluble matters, particularly Ukraine's 2004 turn to the West in the "Orange Revolution," which deeply shook Russia's nationalists.

"The Russian side is appealing to a lot of technical details to explain why it still wants the conflict to go on," Vladimir S. Milov, president of the Institute of Energy Policy in Moscow and a former deputy energy minister of Russia, said in a telephone interview.

"It's very clear to see the desire to pressure the Ukrainian politicians, and pressure them that if they continue to pursue a pro-Western course and not adhere to the rules imposed by Moscow on the post-Soviet space, they will face difficulties," he said.

Nationalists in Moscow could swallow the loss of the Baltic states and Russia's former colonies in Central Asia, but they will never accept the notion of Ukrainians, nearly half of whom are ethnic Russians, as members of an independent, Western-oriented state, and potentially in NATO, no less.

Some other analysts point to the aftermath of last summer's Georgian conflict as another sticking point, noting that after the war Russia's president, Dmitri A. Medvedev, had claimed a "privileged sphere of influence" over former Soviet states.

"This is a continuation of the Russian-Georgian war, only by other means," Grigory N. Perepelitsa, director of the Foreign Policy Research Institute, an arm of the Ukrainian Foreign Ministry, said in a telephone interview. "There it was tanks, here it is gas."

This time, though, Europe is suffering as well, with hundreds of thousands of people in southeastern Europe living without heat for six days and factories shutting down in several countries. European officials again implored the two countries to resolve the disagreement.

Pia Ahrenkilde Hansen, a spokeswoman for the European Commission, said: "Little or no gas is currently flowing. We are not at this stage jumping to conclusions. But this situation is obviously very serious and needs to improve rapidly. We do need to get to the bottom of this."

But getting to the bottom of Russia's goals, said Mr. Perepelitsa of the Ukrainian Foreign Ministry, goes well beyond the industrial details of gas transit.

Authorities in Moscow are seeking to discredit the Ukrainian leadership and portray Ukraine as a failed state, he said, while demonstrating to Central European nations that have supported Ukraine's membership in NATO that they can freeze if they continue to do so.

Also in play is a deep personal animosity between Russia's prime minister, Vladimir V. Putin, and Ukraine's president, Viktor A. Yushchenko.

Mr. Yushchenko's face was disfigured in a 2004 poisoning that has never been solved, but for which many in Ukraine reflexively blame Russia. As it did in the disputed enclaves of South Ossetia and Abkhazia before the Georgian war, Moscow has striven to divide Ukraine politically, broadcasting Russian-language television into the country, handing out citizenship to ethnic Russians in Crimea and, critics say, backing pro-Russian figures in Urkraine's political establishment.

Russian officials, meanwhile, say Mr. Yushchenko has stirred up conflict with Russia to detract attention from his dismal performance on the economy during the financial crisis, and because he has little hope of winning a second term in elections scheduled for December or early next year. They also see the hand of the United States in Ukraine's intransigence.

On Tuesday, Aleksandr I. Medvedev, Gazprom's deputy chief executive, raised a new allegation, saying that Ukraine had been taking orders from Washington after the United States and Ukraine signed a partnership agreement in December that included a clause on energy cooperation.

Mr. Medvedev did not explain why the United States would seek to disrupt relations, not to speak of the gas supply. In a statement, the United States Embassy in Moscow said that the allegation was "baseless."

But the ties between Russia and Ukraine, the two most populous successor states of the Soviet Union, are a tangle of alliances and vendettas, mercurial and often inscrutable. Mr. Putin, for example, openly backed Viktor F. Yanukovich, whom Mr. Yushchenko defeated in the 2004 elections after the Orange Revolution protests.

Yet, one of the leaders of those protests, Yulia V. Tymoshenko, has recently seemed to be leaning toward Moscow, refraining for a time from criticizing Russia's war in Georgia.

Indeed, so frustrated were some European Union officials by the latest bad turn in the gas dispute, some began to speculate privately that the two nations might be colluding to seed chaos on energy markets and drive up the price of the fuel that is their mutual business venture.

Bloomberg News reported Tuesday that the cutoff had caused spot prices in Europe to rise to a three-year high of $8.60 per million B.T.U.'s, compared with $5.52 in the United States. With prices expected to fall steeply this year, that could produce at least some welcome pocket change for Gazprom.

 

Thursday, January 8, 2009

 

By Dario Thuburn, AFP

 

MOSCOW – Russian President Dmitry Medvedev on Wednesday laid down terms for a resumption of Russian gas shipments via Ukraine to Europe as tens of thousands of Europeans suffered heating cuts amid freezing weather.

 

Russian energy giant Gazprom earlier announced a halt to all gas transit to Europe through Ukraine, around one-fifth of the European Union's gas demand, saying it had been forced to do so because Ukraine was blocking transit.

 

Medvedev told Ukrainian President Viktor Yushchenko that Ukraine must pay market rates for Russian gas, pay its gas debts and allow a new "control mechanism" involving EU observers to verify gas flows through its territory.

 

Speaking to Yushchenko in a phone conversation ahead of EU-brokered talks between Russian and Ukrainian energy officials set to take place in Brussels on Thursday, Medvedev also said that Moscow was ready to negotiate "any time."

 

"The price for the gas needs to be the market rate, corresponding to the European price level ... There must not be any discounts or special rates at all," Medvedev was quoted as saying in a Kremlin press service statement.

 

"For the resumption of gas supplies, there needs to be a control mechanism in place" with the participation of Russian and Ukrainian energy officials, EU observers and international legal firms, Medvedev continued.

 

Yushchenko, for his part, proposed the creation of a commission made up of representatives of Russia, Ukraine and European consumers to resolve the dispute, according to a statement by the president's press service.

 

Medvedev's comments appeared to summarise terms already laid out by various Russian officials, including Prime Minister Vladimir Putin.

 

Russia stopped gas deliveries to Ukraine on January 1 in a dispute that has seen supplies fully cut to at least 11 European states as temperatures in parts of Europe plunged as low as minus 25 degrees Celsius (minus 13 Fahrenheit).

 

There has been sharp condemnation from the United States, where national security advisor Stephen Hadley said Russia would lose global influence if it continued to "threaten its neighbours and manipulate their access to energy."

 

Dmitry Peskov, a spokesman for Putin, said efforts to portray Russia as the guilty party in the dispute were politically-motivated and did "not reflect reality." He accused Ukraine of trying to "blackmail European customers."

 

In France, where gas network operator GRTGaz said Russian gas supplies had nearly stopped later Wednesday, Prime Minister Francois Fillon condemned the situation as "totally unacceptable."

 

"The prime minister believes the current situation represents a challenge to the whole of Europe.... This failure to respect contracts is totally unacceptable," said a statement issued by the premier's office.

 

Efforts to resolve the crisis have gathered pace, with Russian, Ukrainian and European officials set to meet in Brussels on Thursday to discuss the idea of using international monitors to check gas flows from Russia via Ukraine.

 

The heads of Gazprom and Ukraine gas company Naftogaz were set to take part.

 

"Russia will resume its deliveries when the observer groups are in place," Czech Prime Minister Mirek Topolanek, whose country currently holds the EU's rotating presidency, told journalists at an EU meeting in Prague.

 

Topolanek promised a "stronger intervention" from the EU if supplies were not restored by Thursday.

 

He also said EU energy ministers would hold an extraordinary meeting on Monday if Russian gas imports through Ukraine are not restored.

 

Despite harsh rhetoric between Moscow and Kiev, both Putin and Ukrainian Prime Minister Yulia Tymoshenko said in separate comments on Wednesday that they supported the idea of sending EU technical observers to Ukraine.

 

Meanwhile, Romania declared a state of emergency and 70,000 households in the Bosnian capital Sarajevo were without heating. Bulgaria turned off heating on public transport in Sofia and temperatures in homes fell sharply.

 

Austria, Bosnia, Bulgaria, Croatia, the Czech Republic, Greece, Hungary, Macedonia, Romania, Slovakia and Slovenia have said that all their supplies of Russian gas had been cut off.

 

France, Germany, Italy and Serbia have also reported drastic falls in Russian gas supplies. Poland and Turkey said supplies from Ukraine had been completely cut but were getting increased amounts through different pipelines.

 

Experts have said however that the impact of the crisis would be mitigated by the fact that European countries consciously stocked up reserves after a similar Russia-Ukraine dispute caused shortfalls in 2006.

 

Russian state television broadcast a meeting between Putin and former German chancellor Gerhard Schroeder, head of a Baltic gas pipeline project to Germany that Russia is pushing as an alternative to supplies through Ukraine.

 

Merry Christmas and Happy New Year!

I posted some pictures of Christmas/New Year's activities over the last couple of weeks.

The season began with a joint Swedish/Belarusian Christmas party hosted by two friends I met in Kazakhstan who now live here (Bjorn is Swedish, his wife Vera is from Belarus). They prepared some traditional dishes and drinks, and we sang some traditional songs from both countries and watched the kids dance and sing. We also sang some "American" carols, such as Silent Night and Rudolph the Red Nosed Reindeer. They hired an accordion player to play along.

Shortly before Christmas, my friend Misha from Kazakhstan came to visit me, and we toured around town and met with some of his friends who live in Kyiv. On Christmas Eve, we cooked a large dinner, and on Christmas Day we went to an Anglican church service in a beautiful old church in the old part of town. Christmas lunch was a cheeseburger with a stale bun (unfortunately) at TGI Friday's, not the best introduction for Misha to American food, though he seemed to like it (we did not have much choice; it's the only American restaurant here besides McDonald's).

On New Year’s Eve, we cooked again and watch the traditional Russian New Year’s Eve special on television (the same kind of cheesy musical productions you might see on Dick Clark’s New Year’s Eve are something like that). Shortly before midnight we walked down to Independence Square to watch the big public celebration (Ukraine’s equivalent to Times Square in New York City). We arrived a few seconds before midnight to see a huge crowd with lots of champagne and drinking and a pretty impressive fireworks show right after midnight.

January 1 was also the expiration of Ukraine’s contract for natural gas from Russia, and the parties failed to agree on a new contract for 2009. Thus, Russia has cut off the gas. I’m not sure what is going to happen or when this will affect the average person; so far, my apartment is warm. I’m experiencing my own localized chill, though, in the form of a broken hot water heater. I came back from the airport on January 1 to find water leaking on my floor; my boiler is dead, and they cannot replace it until Monday at the earliest. I suddenly stepped up my longtime desire to join a health club here; hot showers are a big motivation.