Ukrainian Prime Minister Mykola Azarov was quoted this week by Korrespondent magazine as giving a stark warning to Russian Prime Minister Vladimir Putin about negotiations on natural gas prices: “You are pushing us into a corner, from which there’s only one way out – severance of the contract.”
The answer came from Putin’s spokesman: “We don’t have any information as to whether such a final decision has been taken and what could be the basis for such a decision.”
After the summer break, Ukraine-Russia gas negotiations are under way once more and even intensifying.
Ukraine’s government hopes to renegotiate the contract, which it says has left it paying an unbearably high price for gas from Russia.
Even though a spokesman gave the Russian reaction rather than Putin himself, the very fact that it was so rapid and sharp indicates how concerned the Russians are by this issuee.
You are pushing us into a corner, from which there’s only one way out – severance of the contract.
– Ukrainian Prime Minister Mykola Azarov
Such an uncharacteristic reaction by Russia to the rather commonplace statement from the Ukrainian prime minister should encourage the Ukrainian authorities.
In fact, Azarov had been waiting for a response for some time – even that kind of response – from his Russian counterpart. Because that means that there’s some kind of progress in the gas negotiations.
Even if Naftogaz, Ukraine’s state energy company, files a lawsuit against Russian state gas giant Gazprom in the Stockholm Arbitration Court, this would not necessarily cancel Ukraine’s obligations to fulfill the conditions of the contract.
Nevertheless, Russia could regret pushing negotiations with Ukraine to the critical moment, just as happened with the German gas company E.ON, which at the beginning of August announced it had started arbitration proceedings against Gazprom, although negotiations also continue.
In order to find a reason to appeal to the Stockholm court, Naftogaz will need to clearly argue and denote the reasons for changing the conditions of the contract.
The head of Naftogaz, Yevhen Bakulin, waited as long as possible for positive results from the recent meeting between Energy Minister Yuriy Boiko and Gazprom chief Alexei Miller.
But the latest proposals from the Russian leadership that Ukraine go down the Belarusian path – meaning sell a share in its pipelines to Russia – demonstrated that Boiko was unable to reach an agreement and that he messed up negotiations with Russia that he’s been conducting for a year.
At the moment, Ukraine is in a position to pay its monthly bill to Gazprom. This is achieved with the help sales of state bonds, which do not improve Naftogaz’s financial situation.
However, it does allow Ukraine to fulfill the conditions of the gas contract.
In order to find a reason to appeal to the Stockholm court, Naftogaz will need to clearly argue and denote the reasons for changing the conditions of the contract.
Against this background, the decision by the International Monetary Fund to postpone its mission to Ukraine from the end of August to the end of October gains added importance.
For Ukraine, $3 billion of financing hangs on the work of this mission.
This financial injection would allow Kyiv to continue to stand up to Moscow, at least until presidential elections in Russia in 2012, which could lead to a change in policy in the Kremlin. In this case, the IMF loan will take the role of ammunition in support of Ukraine.
This means that it’s too early to talk about another gas war, but it is time to start digging in.
Yuriy Korolchuk is an analyst at the Energy Studies Institute in Kyiv.
