11. UKRAINE DENOUNCES DRASTIC GAZPROM PRICE INCREASE

Yekhanurov: Proposed $230/bcm price tag for gas unacceptable

NEWSLETTER: Our Ukraine Update, Vol II, Issue 3
People’s Union Our Ukraine, Kyiv, Ukraine, Thu, Dec 29, 2005

KYIV – Prime Minister Yuriy Yekhanurov denounced Gazprom’s proposal
to charge Ukraine $230 per billion cubic meters of natural gas next year,
calling it “unacceptable economic pressure – this is far from a market
approach.”

Russia is threatening to cut off natural gas supplies to Ukraine on 1
January 2006 unless Kyiv agrees to pay almost five times more than the
$50/bcm stipulated in existing contracts between the two sides signed in
2004 and effective until the end of 2009.

“Ukraine will go to international arbitration if Gazprom unilaterally
reduces gas supplies to Ukraine next week,” Yekhanurov said. Gazprom
sent invitations to reporters for a press opportunity on 1 January that
features turning off Russian gas to Ukraine.

Ukrainian interlocutors proposed raising the price for Russian gas to
$80/bcm, with gradual increases each year in line with existing agreements.
This approach would allow Ukrainian enterprises to gradually adjust to price
increases rather than being confronted by a five-fold price hike, which
could paralyze Ukraine’s economy. Gazprom rejected the offer.
POLITICAL DECISION EXPECTED
President Viktor Yushchenko expects Moscow and Kyiv to reach a political
decision within the next few days regarding the supply of Russian gas to
Ukraine. “In the coming days, we will come to a political decision,”
Yushchenko said, referring to Russian President Vladimir Putin. “Ukraine
intends to justly pay for those goods and services which it receives,”
Yushchenko said.

“There can be no discussion about $230/bcm. This price will never be
accepted by Ukraine. This price is an ultimatum and not one that works
towards cooperation between our two economies, peoples and states. This
price is a provocation,” Yushchenko stated.
CONTRACT WITH GAZPROM
The Ukrainian-Russian gas agreement was signed on 21 June 2002 between
Gazprom and Naftogas Ukrayiny for a period beginning 1 January 2003 through
1 January 2014. Eighty-five percent of Russia’s natural gas supplies to the
European Union pass through pipelines owned and located on Ukrainian
territory.

During the height of last year’s presidential election campaign, Ukraine’s
pro-Russian Prime Minister Viktor Yanukovych signed an addendum to that
agreement 9 August 2004 whereby both countries agreed to transport Russian
gas through Ukraine’s pipeline from 2005 through 2009 for a cost of
$1.09/bcm.

In August 2004, Russia advanced Ukraine $1.25 billion as payment
to secure the transportation of its natural gas through Ukrainian pipelines
to destinations in Europe through 2009. That same addendum guaranteed
Russia would supply Ukraine 25 bcm of natural gas at a rate of $50/bcm
from 2005 through 2009. Gazprom provides Ukraine the 25 bcm of natural
gas as barter in return for the transit of 120 bcm of gas to Europe.
KREMLIN TAXES UKRAINE’S EUROPEAN POLICIES
Since the signing of the August 2004 addendum, the political situation in
Ukraine and its geo-political orientation changed. Ukraine’s President
Viktor Yushchenko declared and implemented a firm policy of closer
integration into Europe, intensified negotiations on accession to NATO,
rejection of deeper integration within the Single Economic Space proposed
by Russia, and refusal to participate in a gas transport consortium with
Russia, which called for Ukraine to give up ownership of its natural gas
pipelines to Europe.
GAS FUELS UPCOMING ELECTION DEBATES
Viktor Yanukovych, leader of the pro-Russian Region’s Party, has used the
gas dispute between Moscow and Kyiv to lobby official Kyiv to ratify the
Single Economic Space agreement with Russia, Belarus and Kazakhstan and
cut a deal with Gazprom for cheap Russian gas.

Gazprom yesterday gave Minsk a cut-rate gas deal of $47/bcm in exchange for
its ownership of Belarus pipelines carrying Russian gas to Europe. Gazprom
proposed similar deals for Georgia and Armenia. Ukraine refuses to give-up
its natural gas pipelines and considers them a vital national security
interest.

To help bolster popular support for Yanukovych’s position and raise hysteria
in the region, officials report that since December 21, pressure in Russian
gas pipelines to Donetsk have been gradually reduced by 30-50%.

“If Yanukovych had Ukraine’s national interests in mind, he would propose
ratifying the free trade agreement between Russia and Ukraine rather than
the Single Economic Space, which strips Ukraine of its national
sovereignty,” Our Ukraine legal advisor Roman Zwarych said. -30-


Newsletter: Our Ukraine Update. Comments and questions:
responses@ourukraine.org, 1 Yaroslavska Street, Kyiv, Ukraine 04071
LINK:
http://www.razom.org.ua/en/news/8686/

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