Ukrainian President Warns Government Against Gas Deal Revising
11:56, — Politics
Ukrainian President Viktor Yushchenko warned the government of prime minister Yulia Tymoshenko against revising a key natural gas agreement with Russia, saying the plan may backfire and spread chaos in the domestic gas market.
Yushchenko's comments come days after the government pledged to renegotiate the agreement, with an eye to either lowering gas prices or increasing the tariffs Ukraine charges Russian gas monopoly Gazprom for gas transit.
"I warned the people who deal with this issue, in particular the head of Naftogaz," Yushchenko said in an interview with Inter television aired on. "I know how fashionable it has become now to throw into public discussion ideas of revising any particular market sector, including the gas sector."
The comment clashes directly with Tymoshenko's drive to quickly get rid of intermediary gas traders, such as RosUkrEnergo and UkrGazEnergo. First deputy prime minister Oleksandr Turchynov, Tymoshenko's closest aide, recently suggested that Ukraine should renegotiate the agreement, in particular the gas transit fee.
GAS TRANSIT FEE
The agreement, signed in early December 2007 by the government of then-prime minister Viktor Yanukovych, anticipates an increase in gas prices for Ukraine by 38.4% to $179.5/1,000 cubic meters in 2008, up from $130 in 2007.
The same agreement only allows Ukraine to increase by 6.3% the fee it charges Gazprom for the transit of gas bound for the European Union, to $1.70 for moving 1,000 cu m of gas for a distance of 100 km, up from $1.60 in 2007.
Some experts, such as Oleksiy Ivchenko, a former chief of Naftogaz Ukrayiny, the national oil and gas company, said Ukraine could increase the fee up to $3.20/1,000 cu m/100 km.
Other experts called for an even greater increase, since Ukraine controls the transit market by moving up to 80% of Russia's Europe-bound gas.
But Yushchenko warned that a simple transit fee hike is not an option for Ukraine, as the policy may backfire by eventually making prohibitively expensive the price that Ukraine pays for gas imports.
The reason is that Ukraine relies heavily on Russian gas pipelines for moving gas extracted in Central Asia, and a steep hike in gas transit costs would make that gas much more expensive.
RosUkrEnergo, a Gazprom-controlled gas trader that supplies 55 Bcm/year of gas, or 100% of Ukraine's gas imports, says it supplies gas extracted from Turkmenistan.
This gas is later moved for a distance of about 2,500 km via Russian pipelines to Ukraine, and due to the huge distance, the cost of shipment is similar to what Ukraine is charging Russia for its own gas to Europe across Ukraine.
Russia is moving up to 120 Bcm of its gas annually to markets in Europe via 1,100 km of Ukrainian pipelines.
"As long as we are tied up to the Turkmen gas, Ukraine's gas transit policy is very specific," Yushchenko said. "Our policy has certain anchors: increasing [the fee] on our side, which leads to the same increase [on the other side] is illogical."
LOWEST GAS PRICE
Meanwhile, Yushchenko defended the current gas price that Ukraine pays Gazprom--the second-lowest gas price in the region after Belarus--as "a great advantage." Most countries in the region pay close to $300 or more/1,000 cu m.
At the same time, Yushchenko called on the government to try to switch to a different price setting formula, which would take into account hikes in other energy resources, such as fuel oil and nuclear fuel, as the basis for recalculating the gas price.
"The gas price is not modeled on the formula. This is a major minus. That's why every year we face an [unpredictable] new price, which creates risks for the national market, in particular for the industrial sector," Yushchenko said.
Source: Platts
