Ukraine appears to have few good cards to play to secure a significant reduction in the price of its Russian gas imports as it readies for a resumption of crucial talks with Russia, experts said on Monday.
The ex-Soviet republic, which depends hugely on Russian gas supplies to power its heavy industries and heat homes, has sought for more than a year to renegotiate a 2009 deal with Moscow, which it says sets an exorbitant price for the fuel.
Talks have failed to produce any results. Ukrainian officials are now more optimistic that a new round of negotiations, which open in Moscow on Tuesday, will be more successful.
But, with Russia under little pressure to review a lucrative 10-year contract, the big question is: what will the Kiev government concede in exchange for a reduction in price from the present $416 per thousand cubic metres to a hoped-for $250?
The current price the Kiev government pays for Russian gas is one of the biggest single drags on the economy. It badly needs a price reduction to hold down its budget deficit and avoid unpopular reforms at home that could hurt it in a parliamentary election next October.
Past disputes briefly disrupted shipments of Russian gas to Europe via Ukraine in "gas wars" in 2006 and 2009.
Ukrainian Prime Minister Mykola Azarov last Friday gave assurances that arguments over price and volumes of gas imports would not erupt into a fresh conflict or threaten transit shipments to the West. He and other officials say Ukraine will abide by the present 2009 agreement until a review of its terms is agreed.
Ukraine’s big bargaining chip has always been its gas pipeline network, which still handles the bulk of Russian gas bound for Western markets even after the launch of the Nord Stream pipeline across the Baltic last November.
PIPELINE NETWORK
Moscow has long said a discount is possible only if Russian gas giant Gazprom gets a stake in the network.
But, with issues of national sovereignty at stake which the opposition could easily exploit, the Ukrainian leadership is saying the network is not for sale.
"The issue of (a pipeline network) sale has never been on the agenda. We dismissed it immediately," Ukrainian Energy Minister Yuri Boiko told reporters on Jan. 13.
"If we find a model that satisfies both sides, we will make a deal. Otherwise we will work under the existing contract."
The Kiev government is also under pressure from the European Union with which it concluded talks late last year on an association agreement.
EU diplomats say EU Energy Commissioner Guenther Oettinger reminded Boiko last Friday by telephone that any final agreement with Russia had to be compatible with Ukraine’s membership of the Energy Community Treaty and its other commitments on energy security. These rule out sale of the network to Russia.
Kiev-based experts expect the Ukrainians to revive their offer of Russian participation in a consortium, also involving some European firms, to modernise the pipeline network.
But the Russian reaction has so far been lukewarm to the idea and EU diplomats say they are not aware of any European firm being approached by the Ukrainians to take part.
Some experts say that Russia’s development of other export routes such as the Nord Stream pipeline to Germany means the Ukrainian transit system is rapidly losing its value as negotiating currency – an added pressure on Ukraine.
Gazprom chief executive Alexei Miller, a key player in the new round of talks, sought to drive this point home on Monday, remarking laconically to reporters: "If, as we hear from Ukraine, the gas pipeline system is a historical treasure, then its place should be in a museum."
"The two sides seem doomed to reach an agreement at some stage. But the main question now is what concessions are the Ukrainians prepared to make. It is not clear what they have to play," said one EU diplomat.
Others doubt there will be any serious attempt by Moscow to solve the gas issue until after the Russian presidential election in March.
"There will be a consortium but not now – after March, after the Russian elections," Valentin Zemlyansky, an independent Ukrainian expert, said.
Experts expect much of the early discussion to turn on a demand by Ukraine to cut the volume of natural gas it is contracted to import this year.
Ukrainian authorities say they will insist on cutting imports to 27 billion cubic metres (bcm) this year from an estimated 40 bcm last year. But Gazprom insists this level is too low according to the present contract.
