Ukraine Scrambling To Crisis Over Gas Supplies
By Catherine Belton
Staff Writer
MOSCOW — Ukraine is scurrying to form a government coalition and head off a gas crisis that could hit July 1, when its controversial supply deal with Russia expires.
Leaders of Orange Revolution factions announced Wednesday they had reached a last-minute coalition deal. But with just two days left to collect signatures before parliament must be dissolved, Turkmenistan announced it could cut off gas supplies.
Turkmenistan’s Foreign Ministry said Wednesday it could turn off the taps if Gazprom did not agree to nearly double the price it pays for gas to $100 per 1,000 cubic meters. Gazprom sells on most of the gas it buys from Turkmenistan to Ukraine.
“Ukraine is in a very tough spot,” said Olexander Chaliy, an independent energy expert, who led Ukraine’s gas negotiations with Russia as deputy foreign minister from 1998 to 2004. “An energy crisis could develop within the country and internationally in the next six months to one year.”
The Ukrainian economy is already struggling with the effects of a gas price hike in January that followed a politically charged standoff in which Russia briefly turned off the taps to Ukraine. Cheap Turkmen gas supplies were crucial in bringing down the price from the $230 per 1,000 cubic meters that Gazprom was demanding. Under the January deal, Ukraine ended up with a final price of $95 after mixing in Central Asian supplies also sold to it by Gazprom.
A hike in the price of Turkmen gas could tip the balance when the deal expires at the end of June.
“Ukraine can’t afford to pay more for gas,” said Chris Weafer, chief strategist at Alfa Bank. “A lot of issues are now coming to a head. They are reaching a crisis point.”
A spokeswoman for Yushchenko, Irina Gerashchenko, declined to comment on the proposed price hike, and said Ukraine intended to send negotiators to the Turkmen capital, Ashgabat, next week.
Ukraine’s government has been in political limbo since January, when the gas deal prompted parliament to fire the Cabinet. During parliamentary elections in March, the gas deal was a central campaign issue between blocs headed by Yushchenko and Tymoshenko. The two former allies have been deadlocked over how to form a new government ever since.
At stake is not only Ukraine’s economy but also its bid for greater integration into Europe and independence from Russia — issues that lay at the heart of the Orange Revolution. Ukraine is a transit country for 80 percent of Russian gas supplies into Europe, and the gas standoff has provoked fears over energy security in capitals across the continent.
It was unclear Wednesday whether Yushchenko’s Our Ukraine bloc and Tymoshenko’s faction would be able to build their coalition on time, despite an announcement the two sides had struck a deal late Tuesday after nearly two months of talks.
Relations between the two leaders have been strained. Tymoshenko has insisted on scrapping the gas deal, calling it a national security threat.
A spokesman for Tymoshenko’s bloc said the two sides had two days to collect the 226 signatures — a majority in the parliament — necessary to form the coalition and push ahead with the formation of a Cabinet.
“It’s too early to celebrate yet,” said the spokesman, Taras Pastushenko. Viktor Yanukovych’s Party of the Regions, which won 30 percent of the vote in the March elections, could still spoil the coalition, Pastushenko said.
Delays in forming the government mean that Ukraine may not be prepared for the next round of gas talks when the current deal expires.
“The Ukrainian government should have been very actively developing a strategic position on gas negotiations with Russia and the European Union in the context of the future of our country,” Chaliy said. “But there is no one to do this.”
“It is just weeks before the G8 summit in St. Petersburg, and we haven’t heard anything from Ukraine’s leaders on what they want to say to the G8 about energy security.”
Turkmenistan briefly cut off gas supplies to Russia in January 2005 over a price dispute. Analysts said the call for a price hike started a round of price increases across the CIS, which have underlined the arbitrary and opaque way prices are set in the former Soviet Union, where the costs of extracting gas can be as little as $5 per 1,000 cubic meters.
It is unlikely that Turkmenistan will go ahead with its threat to turn off the gas for long. When the Central Asian republic turned off gas supplies in the late 1990s, it nearly went bankrupt.
Gazprom’s demand that Ukraine pay $230 per 1,000 cubic meters has had a domino effect, sparking a race for Turkmen gas that could upset the gas balance across the entire region.
Gazprom could be forced to pay more, analysts said.
Following the deal, China began courting Turkmen President Sapurmurat Niyazov in an effort to persuade him to send gas east instead of west. When Niyazov made a five-day trip to Beijing earlier this year, he came back with an agreement to ship gas.
“Turkmenistan is unhappy selling gas at such a low price. It’s pretty clear that it has been made a better offer by China. It’s now in a position to raise the stakes,” Weafer said.
The standoff could affect security across the region. Russia also relies on supplies of cheap Central Asian gas to make up for shortfalls in its own production. Unified Energy Systems CEO Anatoly Chubais on Tuesday said that Gazprom was not supplying enough gas to Russian power stations, even during the summer months.
The International Energy Agency warned recently that a lack of investment by Gazprom in boosting production could mean it will be unable to meet its supply contracts by 2010.
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