The Gas Wars

For nearly three weeks earlier this month, Russia and Ukraine were locked in a dispute over the price Kiev was to pay for Russian gas. As the two sides bickered, Russia shut off all gas supplies to Ukraine, while paying customers in Eastern Europe who depend on Gazprom's supplies had to endure freezing temperatures. Bulgaria declared a national emergency and vowed to reopen a Soviet-era nuclear power station to ensure its energy independence.

Both sides called it a purely commercial dispute, but politicians in Kiev charge that the gas war has something to do with the Kremlin's dislike of Ukraine's pro-Western, pro-European Union president. The role of RosUkrEnergo, a gas trading company that has acted as a middleman, has also been attacked for allegedly giving kickbacks to top politicians on both sides. Russia switched the gas back on last week—but on Monday Kiev called for a new round of talks to decide future prices, raising the specter of renewed new gas warfare. NEWSWEEK's Anna Nemtsova spoke to Ukraine's deputy Prime Minister Hryhoriy Nemyria who, along with Prime Minister Yulia Tymoshenko, played a key role in resolving the dispute. Excerpts:
NEWSWEEK: Why does Russia insist on raising the price Ukraine pays for gas when world energy prices are falling?

NEMYRIA: Let us look at what a 'fair price' means, both for gas we consume and gas we transit to Europe. The calculation for Russian gas should be very simple: you take the price paid by end users like Germany, then deduct the transit fees Russia has to pay to [pipe the gas through] the Czech Republic and Ukraine. By that logic, the approximate price we should be paying at the Russian border is $200 to $230. That was where our price came from when we negotiated with Gazprom. We also had a memorandum on prices signed by two prime ministers. We can only guess now about what has happened to our Russian partners since October [2007]. Russia has several motives [for raising prices]. Oil prices fell significantly; even Mr. Putin admitted that the price of gas will also fall tremendously by this summer. But we would like to avoid any political retaliation.
Why has Ukraine allowed a middleman company, RosUkrEnergo , to make huge profits trading gas between Gazprom and Ukraine over the last three years? Putin called it "corruption on a grand scale."

Like any monopoly, RosUkrEnergo is dangerous. It has been a gas-transit monopoly since January of 2006. There was an attempt to create a monopoly for domestic distribution as well. In one of his interviews, one of RosUkrEnergo's Ukrainian owners, Mr. Dmitry Firtash, mentioned that his company controlled 75 percent of the domestic market. For years now Prime Minister Tymoshenko has been highlighting how nontransparent the company was, that its corruption led to the highest political levels. [Anti-corruption NGO] Global Witness investigated RosUkrEnergo and had serious questions for its owners, but did not get any good responses. There is no good reason for it to exist. Everything would have been different now if there were no RosUkrEnergo and its corruption, which extends to politics on both sides [in Russia and Ukraine]. It takes two to tango. We are glad to hear that Putin believes it is corrupt; it means that the last days of RosUkrEnergo have come.

The Russians say they have nobody to negotiate prices with in Ukraine because Ukrainians are so divided between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko.
Ukraine is not the only country with such political complications. The prime ministers and presidents in the Czech Republic and Poland have their issues too. In spite of all our political tensions, Prime Minister Tymoshenko has been trying her best to depoliticize the gas issue in Ukraine.
What does Russia want from this? Is Russia taking hard stands in these negotiations to influence or even control the pipeline?
One of Russia's goals is to shift European opinion in favor of building the Nord Stream and South Stream pipelines [which bypass Ukraine]. But in reality Gazprom is killing the goose that brings Russia golden eggs. The Russian economy depends on gas sales to Eastern and Central Europe. The longer each gas war lasts, the more ruined both Gazprom's and Ukraine's reputations are going to be, as the customers are not willing to go into details of our disputes when their homes are cold.


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