THE ACTION UKRAINE REPORT – AUR – Number 633

    “THE ACTION UKRAINE REPORT – AUR”
               An International Newsletter, The Latest, Up-To-Date
                    In-Depth Ukrainian News, Analysis and Commentary

                    “Ukrainian History, Culture, Arts, Business, Religion,
        Sports, Government, and Politics, in Ukraine and Around the World”       
                           

“THE ACTION UKRAINE REPORT – AUR” – Number 633
Mr. E. Morgan Williams, Publisher and Editor
Washington, D.C., WEDNESDAY, JANUARY 4, 2006
 
             UKRAINE AND THE INTERNATIONAL NEWS MEDIA
NOTICE:  The gas price conflict between Ukraine and Russia is
producing a very large number of important news articles, editorials,
OP-ED’s; analysis & commentary pieces and other writings.  In order
to bring all these to our readers I have had to increase the size and
number of AUR’s.  I hope you understand and will find the information
interesting, informative and useful. EDITOR.
                           ——–INDEX OF ARTICLES——–
         Clicking on the title of any article takes you directly to the article.               
Return to the Index by clicking on Return to Index at the end of each article
1. UKRAINE ENERGY DIPLOMACY: ACTION PLAN FOR ZERO HOUR
ANALYSIS & COMMENTARY: Oleksandr Chalyi
Ambassador Extraordinary and Plenipotentiary of Ukraine
Ex-Deputy to the Foreign Minister of Ukraine
Zerkalo Nedeli On The Web, Mirror-Weekly, No. 51 (579)
International Social Political Weekly
Kyiv, Ukraine, Sat 30 Dec 2005 – 13 Jan 2006

2.    PRESIDENT SAY NO TRANSIT WITHOUT GAS FOR UKRAINE
UNIAN news agency, Kiev, in Ukrainian 1138 gmt 3 Jan 06
BBC Monitoring Service, UK, in English, Tuesday, Jan 03, 2006

3RUSSIA’S STRONG-ARM TACTICS MAY DO UKRAINE A FAVOUR
                     Kudos to Russia for promoting reforms in Ukraine
COMMENT & ANALYSIS: By Eugene Rumer
Financial Times, London, UK, Tuesday, January 3, 2006

4UKRAINE, IN REBUKE TO RUSSIA, SAYS HAS RIGHT TO TAKE GAS
By Andrew E. Kramer, The New York Times
New York, New York, Tuesday, January 3, 2006

5.                MOSCOW SHOWDOWN FOR GAS ANTAGONISTS
By Thomas Catan in London and Tom Warner in Kiev
Financial Times, London, UK, Tuesday, January 3, 2006

6.           RUSSIA HAS GOOD REASON FOR WHAT IT IS DOING
                    WHY DO WE HAVE TO KEEP DEMONISING IT?            
COLUMNIST: Mary Dejevsky, The Independent
London, United Kingdom, Tuesday, 3 January 2006

7.   RUSSIA’S GAS CUT IS A “SERIOUS MISTAKE” SAYS DEPUTY

   Demonstrated willingness to use its gas as a political and economic tool
Dow Jones Newswires, London, UK, Tue, January 3, 2006 5:13 a.m.

8.                            GAS DISPUTE PINCHES EUROPE
            Russia-Ukraine Row Highlights Concerns Over Kremlin’s Grip
Gregory L. White in Moscow & Chip Cummins in London
Staff Reporters of The Wall Street Journal
New York, New York, Tuesday, January 3, 2006

9RUSSIA LAYS CLAIM TO ALL 1ST QUARTER NATURAL GAS THAT
      CAN BE EXPORTED FROM TURKMENISTAN THROUGH RUSSIA
   Appears to confirm analyst’s suspicions Russia intends to block Turkmen gas
       exports to Ukraine during heated talks over Russian gas sales to Ukraine     
By Greg Walters, Dow Jones Newswires, Moscow, Russia, Tue, Jan 3, 2006

10.     GAS DISPUTE WITH UKRAINE BAD FOR RUSSIA’S IMAGE

      SAYS GAZPROM SPOKESMAN & MUST BE SOLVED QUICKLY
By Greg Walters and Elizabeth Cowley, Dow Jones Newswires
London, United Kingdom, Tuesday, January 3, 2006

11.          UKRAINIANS ANGRY OVER MOSCOW GAS DISPUTE
By Aleksandar Vasovic, Associated Press Writer
Kiev, Ukraine, Tuesday, January 3, 2006

12.                 “RUSSIA’S STANCE A CHILLING WARNING”
EDITORIAL: Irish Times, Dublin, Ireland, Tuesday, January 03, 2006

13UKRAINIANS IN CANADA WANT ACTION ON RUSSIAN GAS

                CUT OFF, SAY IT PURE ECONOMIC BLACKMAIL
Canadian Broadcasting Corporation (CBC) News
Toronto, Ontario, Canada, Tuesday, January 3, 2006

14.         BULLYING TACTICS MAR PUTIN’S G8 PRESIDENCY 
ANALYSIS: By Andrew Osborn, The Independent Online Edition
London, United Kingdom, Tuesday, 03 January 2006

15.                            “RUSSIA’S SAD G-8 PRESIDENCY”
EUROLINKS DAILY VIEW: By Frederick Kempe
Assistant Managing Editor, The Wall Street Journal
New York, New York, Tuesday, January 3, 2006

16.                    PUTIN FLEXES MUSCLES OF ‘KREMLIN INC’
By Mark Franchetti, Moscow, The Sunday Times

London, UK, Sunday, January 01, 2006

17RUSSIA ASSUMES G-8 PRESIDENCY, PROUD OF ITS OIL WEALTH
Vladimir Isachenkov, AP Worldstream, Moscow, Russia, Sun, Jan 01, 2006

18RUSSIA CRITICIZES US DIPLOMAT’S DEMOCRACY COMMENTS 

    US to advance democracy in Russia, Ukraine, the Caucasus & Central Asia
Associated Press (AP), Moscow, Friday, December 30, 2005 10:45 a.m.
 
19.        A DISPUTE UNDERSCORES THE NEW POWER OF GAS
NEWS ANALYSIS: By Simon Romero, The New York Times
New York, New York, Tuesday, January 3, 2006

20FOR PUTIN AND THE KREMLIN, A NOT SO HAPPY NEW YEAR
       “Once again we are seeing that Gazprom is not a leading international
     company, but a tool of policy making for the Kremlin”-investment expert.
NEWS ANALYSIS: By C. J. Chivers, The New York Times

New York, New York, Tuesday, January 3, 2006
 
21.     “WEST WARY AS THE RUSSIAN BEAR GROWLS AGAIN”
                           Is Vladimir Putin really fit to chair the G8?
COMMENTARY
: By George Kerevan, The Scotsman
United Kingdom, Thursday, December 29, 2005
 
              BRIN AND LARRY PAGE AS PERSON OF THE YEAR 
                     FT also running public poll for Person of the Year
          Ukrainian President Viktor Yushchenko now leads in the voting
From the Financial Times (FT), London, UK, Tue, Jan 3, 2006
The Action Ukraine Report (AUR), Number 633, Article 22
Washington, D.C., Wednesday, January 4, 2006

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1
UKRAINE ENERGY DIPLOMACY: ACTION PLAN FOR ZERO HOUR

ANALYSIS & COMMENTARY: Oleksandr Chalyi
Ambassador Extraordinary and Plenipotentiary of Ukraine
Ex-Deputy to the Foreign Minister of Ukraine
Zerkalo Nedeli On The Web, Mirror-Weekly, No. 51 (579)
International Social Political Weekly
Kyiv, Ukraine, Sat 30 Dec 2005 – 13 Jan 2006

Zero Hour in Russian-Ukrainian gas relations is fatally drawing near as
Russia threatens the limitation (to the extent of complete disruption) of
gas supply into the gas transportation system of Ukraine starting January
1, 2006.

In such an environment, increased tension could transfer to other spheres of
Russian-Ukrainian bilateral relations, including such sensitive areas as the
strategic safety and territorial integrity of Ukraine.

The Ukrainian government should not underestimate the seriousness of the
situation and the reasons for the gas crisis by lulling itself with
it-will-work-out talks. On the contrary, Ukraine needs active and weighted
diplomacy not only geared toward neutralizing the crisis, but also aimed at
putting forward a creative and positive solution.

          WE ENVISAGE THAT THIS PLAN SHOULD CONSIST
                           OF THE FOLLOWING ACTIONS:

    [ACTION I] ACTIONS MEANT TO ENSURE THE TRANSIT OF
          RUSSIAN NATIONAL GAS TO EUROPEAN COUNTIES.
1. The government of Ukraine and Naftogas of Ukraine should officially
notify the Russian side that supplying Russian gas into the Ukrainian gas
transportation system for transit to Europe acts as Russian consent to all
conditions of the contract between Naftogas of Ukraine and Gasprom of
Russia (July 21, 2002 and its appendix # 4 of August 9, 2004). Without this,
 it is impossible to settle the issues of customs legalization of Russian
natural gas coming to Ukraine.

2. Ukraine and Naftogas should officially notify the Russian side that the
Ukrainian side will fully meet all of its international legal commitments
concerning the transit of Russian natural gas through the territory of
Ukraine (in compliance with the agreement on the guarantees for the transit
of Russian natural gas through the territory of Ukraine of December 22, 2000
and the agreement on additional measures insuring transit of Russian natural
gas through the territory of Ukraine of October 4, 2001).

But it will do so on condition that the Russian side honors its counter
international legal commitments concerning Gasprom payment for transit
service provided by Naftogas and ensures the transit of Turkmen gas for
Ukraine through the Russian territory.
      [ACTION II] ACTIONS AIMED AT REINFORCEMENT OF
                       THE UKRAINIAN LEGAL POSITION
1. The government of Ukraine and Naftogas of Ukraine should unswervingly
insist on the settlement of the crisis in the gas sphere based on the
principles of the rule of law and conscientious fulfillment of the
commitments undertaken under the contract and international law.

2. Ukraine and Naftogas should file a request of arbitration with Stockholm
arbitration in compliance with article 12 of the contract of July 21, 2002
and officially notify the Russian side.

3. They should publicize the official position of Ukraine that Naftogaz of
Ukraine does not have any commercial contracts with European gas
consumers on transit of the Russian gas through the territory of Ukraine.
Accordingly, failure to supply Russian natural gas in the contracted
amounts will entail legal consequences exclusively for Gasprom, but
not for Naftogas of Ukraine.

4. They should officially notify the Russian side and the European
Commission that, in case of Gasprom’s failure to meet its contract
obligations concerning payment of the transit services with the appropriate
supplies of gas, Ukraine will be forced to resort to the mechanism laid
down in Article 7 of the agreement on the export of Russian natural gas to
Ukraine and its transit through the territory of Ukraine to the European
countries of 1994 and article 4 of the agreement between the Cabinet of
Minister of Ukraine and the government of the Russian Federation on
additional measures insuring transit of the Russian natural gas through the
territory of Ukraine of October 4, 2001.

The above agreements permit Ukraine to collect Russian gas on its own
(without any additional consent of the Russian side) by means of
proportionate reduction of the volume of Russian natural gas transported
through the territory of Ukraine.

At the same time, Ukraine should call our partners’ attention to the fact
that this is not “unsanctioned,” but rather it is an absolutely legitimate
collection of gas provided for in the above-mentioned intergovernmental
agreement of December 22, 2000.

Actions in relation to the guarantor countries under the Memorandum of
guarantees of security of Ukraine due to it joining the treaty on
non-proliferation of nuclear weapons (Budapest memorandum) of
December 5, 1994.

Ukraine should request urgent consultations with the members of the
“nuclear club,” with obligatory participation of the Russian Federation, in
compliance with paragraph 6 of the Budapest memorandum.

The goal of these consultations is to neutralize the unprecedented economic
pressure on Ukraine and to come up with a formula for settling the gas
crisis in Russian-Ukrainian relations based on the principles of the rule of
law and respect to the sovereignty of Ukraine.
             [ACTION III] ACTIONS IN RELATION TO THE G-8.
1. Ukraine should inform the leaders of G-8 that the Russian policy of
revising the acting international agreements and commercial contracts
undermines the energy security of Ukraine and creates a significant threat
to the energy safety of other European states.

2. Ukraine should emphasize in the address to the Russian Federation that
its actions toward Ukraine are in conflict with its future status of the
chairman of G-8 and its intention to dedicate the 2006 summit of G-8 to
the problems of creating global energy safety.
      [ACTION IV] ACTIONS TOWARD THE EUROPEAN UNION
1. Ukraine should inform the EU, as a direct stakeholder, of all the details
of the crisis, placing special emphasis on:

      -actions that the Ukrainian side will take to ensure transit of the
       Russian gas to Europe;
     – force major, due to which Ukraine is forced to collect Russian
       gas from its Gas Transportation System in compliance with the
       international agreements of 1994 and 2001;
     – Ukraine’s readiness to review all legal issues concerning possible
       complications of gas supplies to Europe at the level of Naftogas
       of Ukraine and Gasprom in the Stockholm arbitration;
     – Ukraine’s interest in the settlement of all Russian-Ukrainian
       conflicts in compliance with the requirements of the European
       Energy Charter.
         [ACTION V] ACTIONS AIMED AT GUARANTEEING
                        THE SUPPLIES OF TURKMEN GAS.
1. Ukraine should carry on a constant constructive dialog with
Turkmenistan concerning gas supplies to Ukraine in 2005 and make long-
term strategic agreements in the gas sphere.

2. Ukraine should make more active diplomatic efforts in Kazakhstan and
Uzbekistan to ensure transit of the Turkmen gas through those territories to
Ukraine and should additionally purchase their gas.
                   [ACTION VI] ACTIONS TOWARD RUSSIA.
1. The presidents of Russia and Ukraine should meet urgently according to
the appropriate provisions of the Russian-Ukrainian agreement of friendship,
cooperation, and partnership and to the Budapest memorandum.

2. During the preparation of the Russian-Ukrainian summit, they should
proceed from the fact that the crisis in the Russian-Ukrainian gas relations
has a geopolitical (foreign policy) rather than an economic basis, and that
Ukraine is ready to do its part to reach a strategic compromise.

3. Ukraine should hold the Russian-Ukrainian summit on the regulation of the
gas crisis in the context of an open exchange of opinions on the following
issues:

     – Ukraine’s security and the Budapest memorandum;
     – the Ukraine-Russia-NATO relationships
     – the Ukraine-Russia-EU relationship
     – the Ukraine-Russia-WTO relationship
     – further development of CIS and SES.

4. It should inform the Russian side that Ukraine’s appeal to the
guarantor-states under the Budapest memorandum, EU, and G-8 are made
not to take the Russian-Ukrainian conflict international, but rather to
counter the negative effect that this conflict might have on the European
and global energy security systems, in the creation of which Russia plans
to play a leading role.

5. Ukraine should propose to the Russian Federation a long-term strategic
partnership in the energy sphere that would include:

     – support by Ukraine of the Russian energy initiative on a global
       level;
     – continuation of negotiations on the creation of a gas transportation
       consortium;
     – readiness of the Ukrainian side to take part in the German-Russian
       venture on the construction of the Northern European pipeline; –
       active participation of Ukraine in the creation of a common energy
       space “Russia-EU” and in the development of a general strategy of
       energy safety of the SIS states.

6. Ukraine should propose that Russia keep the gas segment status quo in
2005 with the understanding that the current agreements and commercial gas
agreements can be revised in 2007 to balance strategic interests of the two
states on all key issues in their bilateral relations.  -30-
——————————————————————————————–
NOTE: The author is aware that the proposed action plan is not
indisputable, that it could be and should be amended with other

initiatives and propositions, especially in its technical part. Yet the
author is absolutely sure that the Zero Hour requires well-considered
and coordinated actions aimed not at confrontational settlement of
the crises, but rather at a positive and constructive formula for solution.

This formula should be based on general understanding by Ukraine and
Russia of Ukraine’s place within the system of European and global
security, as well as its role in modern international processes at the
European and global levels.

One should not believe those who say that the Russian-Ukrainian gas
conflict is an exclusively economic issue. In the 21st century, the issues
of gas and oil (energy diplomacy) are basic and fundamental for both
states’ foreign policies and their status in a modern world.

It would be nice to believe that the Zero Hour in Russian-Ukrainian
relations will have not only a negative but also a positive effect and that
the two friendly states will find a way out of the crisis—not only through
one-sided actions and mutual accusations, but also through a strategic
compromise laying down new concepts of the Russian-Ukrainian strategic
partnership in the 21st century.

These future concepts should be worked out in the current foreign policy
of Ukraine. They should guarantee the comprehensive security of Ukraine,
Ukraine’s adherence to the European rules and values, and a non-
confrontational balance of interests in Ukraine of the major geopolitical
players of the modern world.  -30-
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http://www.mirror-weekly.com/ie/show/579/52246/?429496729=817a6a6486180b0886a26a504dfe3aad
———————————————————————————————-

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2.  PRESIDENT SAY NO TRANSIT WITHOUT GAS FOR UKRAINE

UNIAN news agency, Kiev, in Ukrainian 1138 gmt 3 Jan 06
BBC Monitoring Service, UK, in English, Tue, Jan 03, 2006

KIEV – The position of Ukrainian President Viktor Yushchenko is “clear and
comprehensible” – there can be no talk of gas transit via Ukraine without
ensuring Ukraine’s gas balance, the press secretary of Ukrainian Prime
Minister Yuriy Yekhanurov, Valentyn Mondriyevskyy, told a briefing today.

He said that Ukraine’s gas balance for 2006 is 76.5bn cu.m. out of which
20bn cu.m. are produced in Ukraine, 40bn cu.m. supplied from

Turkmenistan and 16.5bn cu.m. come from Russia.

Mondriyevskyy also said that as a reliable partner Ukraine wants to
implement existing agreements and is prepared to discuss “transparent and
justified demands if the other party accepts rational demands too”. He also
said that Ukraine is a reliable commercial partner of Russia and Western
Europe and undertakes to implement the existing agreements.

Meanwhile, the press secretary of Ukrainian Fuel and Energy Ministry Ivan
Plachkov, Liliya Klochko, said that Ukraine and Turkmenistan have a prepaid
contract signed on 22 December 2005. Yesterday Turkmen President

Saparmyrat Niyazow confirmed Turkmen gas supplies to Ukraine.

The press secretary of [national oil and gas company] Naftohaz Ukrayiny,
Eduard Zanyuk, said that “on 1 January our prepaid gas (supplied from
Turkmenistan) was in Russia. This is a fact.”  -30-
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3. RUSSIA’S STRONG-ARM TACTICS MAY DO UKRAINE A FAVOUR
                     Kudos to Russia for promoting reforms in Ukraine

COMMENT & ANALYSIS: By Eugene Rumer
Financial Times, London, UK, Tuesday, January 3, 2006

Kudos to Russia for promoting reforms in Ukraine. A year ago, Russian
involvement in presidential elections played a big role in mobilising
Ukrainians to take part in the Orange revolution, Ukraine’s leap towards
democracy. The current gas dispute can do the same for Ukraine’s economic
reforms and push it closer to western Europe.

Addiction to cheap Russian gas is the worst handicap of Ukraine’s economy.
Every year since 1991, Russia has subsidised it with several billion dollars’
worth of cheap gas. How much this subsidy is worth is hard to say. If
Ukraine buys 25bn cubic metres of Russian gas at $50 for 1000 cu m, as it
did in 2005, it owes Russia $1.25bn.

If Russia charges $200 per 1,000 cu m, as its state-owned monopoly, Gazprom,
has demanded, Ukraine has to pay $5bn. The difference amounts to a $3.75bn
subsidy. According to the US State department, US assistance to Ukraine in
the 2005 fiscal year was about $174m.

Cheap Russian energy has been a crutch that has kept Ukraine’s economy

from learning to walk on its own. Its industry is dominated by iron and steel,
which accounts for nearly a quarter of industrial output and a third of
exports. Cheap Russian energy imports and high commodity prices world-
wide have benefited this sector economically and politically. Metallurgical
plants make up the core of big Ukrainian business groups – oligarchies –
that wield enormous influence in Ukraine’s notoriously corrupt domestic
politics.

Their wealth and power have cost Ukraine dearly. According to a recent

World Bank study, Ukraine’s metallurgical sector is wasteful, with energy
consumption 25-30 per cent higher than elsewhere in Europe. Much of this
sector is obsolete, environmentally unsafe and badly in need of
technological upgrades. But take away Russian energy subsidies and the
picture begins to change. Ukraine’s industrial heartland would have to face
reality: modernise or die. This would create pressure for a more welcoming
investment climate.

Russia’s demands seem to have a political rationale as well. Ukraine’s
leadership is facing a tough test in March, when the country will hold
parliamentary elections. A poor showing at the polls would complicate the
already difficult domestic agenda. To the extent that Russian logic can be
discerned here, a sudden jump in energy prices would send a clear message

to Ukrainian voters that their new leaders were failing and that the Orange
revolution was a mistake.

If that is Moscow’s political logic, it ignores the main lesson of the
Orange revolution – that external interference can have unintended
consequences. Ukraine’s industrial base is concentrated in the east, which
is home to many ethnic Russians. The burden of the gas price hike is bound
to fall disproportionately there.

Why this would endear Gazprom or the Russian government to the residents

of those regions, or anywhere else in Ukraine, is not clear. Russian actions
are just as likely to backfire, as they did during the Orange revolution.

For Ukraine, the removal of Russian energy subsidies would have a liberating
effect. It would weaken Russian leverage in its domestic and foreign
affairs; it would undercut the influence of corrupt oligarchs in Ukrainian
domestic politics; and it would create powerful incentives for long overdue
structural reforms of its economy. With its vast resources, enormous human
capital and location in Europe, Ukraine would be poised to leapfrog into the
post-industrial age.

But as long as Ukraine pays for Russian gas a fraction of what it is worth,
Russia will have Ukraine over the barrel or, more appropriately, over the
pipe. Ukraine’s friends on both sides of the Atlantic should keep in mind
that energy independence is even more important for Ukraine than Nato
membership. Russia’s move to restore deliveries to European customers may
partly ease the present controversy, but the longer Ukraine’s leaders wait
to devise plans to cut dependence, the harder it will be to kick the habit.

Europe and the US should help Ukraine develop a viable energy strategy. An
emergency fund established by the US and the European Union to stave off
disruptions in the work of the country’s utilities would make it clear to
Ukrainian voters who their real friends are.

In the long run, stepped-up assistance for Ukraine’s structural reforms,
some of which are already being undertaken with funding from the World

Bank, would help complete the work of the Orange revolution. -30-
——————————————————————————————–
The writer is senior fellow at the National Defense University’s Institute
for National Strategic Studies in Washington. These are his personal views.
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4. UKRAINE, IN REBUKE TO RUSSIA, SAYS IT HAS RIGHT TO TAKE GAS

By Andrew E. Kramer, The New York Times
New York, New York, Tuesday, January 3, 2006

KIEV, Ukraine, Jan. 3 – Ukraine conceded today that it had withdrawn
natural gas from its pipeline system that Russia said was intended for
export to Europe, but it asserted that it had a contractual right to the
fuel under an agreement with the Central Asian nation of Turkmenistan.

Both Russia and Turkmenistan export natural gas to Ukraine, but the flow
of fuel from Central Asia passes through Russian pipelines before it reaches
the Ukrainian border.

A dispute over pricing and transit fees between Russia and Ukraine, which
led to a brief disruption in gas supplies, has set off alarm bells in
Western Europe at the peak of the winter heating season. Europe imports
about a quarter of its natural gas from Russia, most of it passing over
pipelines on Ukraine’s territory.

Ukraine’s explanation for the disappearing gas from its pipeline system – a
shortage that sent pressures tumbling in gas mains across Europe on New
Years Day – threw back at Russia the same accusations that Moscow has
leveled against Ukrainian leaders.

Ukrainian officials said Russia was claiming a right to natural gas supplies
that Ukraine ships from Central Asia, much as Russia is accusing Ukraine
of disrupting supplies sent to Europe.

“We are demanding the full volume of gas from Turkmenistan today,”
Mikhola Goncharuk, a member of the board of Ukraine’s natural gas
company, Naftogaz, said at a news conference in Kiev today.

Also today, the two countries resumed negotiations, a day after Russia
reversed course and restored natural gas to the Ukrainian pipeline system
under pressure from Western European governments, including Germany, the
largest customer for Russian natural gas in Europe and usually a firm ally
of Russia in energy matters.

Meanwhile, the political fallout from Russia’s brief gas embargo on Ukraine
escalated in Europe and the United States. Austria and other Central and
Eastern European countries agreed to seek to diversify their supplies away
from Russia. In Washington, the State Department spokesman criticized
Russia’s use of energy as a foreign policy tool. The shutoff in Ukraine came
three months before a parliamentary election here.

Still, the European Union’s top energy official said today that the pricing
dispute could fester for weeks to come, jeopardizing one of the Continent’s
primary sources of energy. The union’s energy commissioner, Andris Piebalgs,
said the agreement by the two sides to resume talks on the issue was “just a
temporary calm-down,” Bloomberg News reported.

Russia’s natural gas monopoly, Gazprom, has blamed the disruption on
Ukraine, which it accused of “stealing” gas intended for export to Europe.

Ukraine had previously denied the charge, without explanation. Today, Mr.
Goncharuk said his company, Naftogaz, indeed drew down natural gas from
the pipeline system, but under a contract with Turkmenistan. Russian export
gas, he said, was untouched.

“For now we can get by without Russian gas,” Mr. Goncharuk said, although
most of the gas flows over Ukraine’s northeastern border from Russia.

Underlying the bitter political dispute between Russia and Ukraine are the
technical mechanisms by which natural gas flows west across the Eurasian
land mass, from the Siberian Artic and Central Asian deserts, to households
and factories in Western Europe.

The gas moves over a web of pipelines, where it is sometimes mingled.
Today, Ukraine argued that some of the gas entering its pipeline system
was bought from Turkmenistan; Gazprom asserts that it is entirely Russian
gas for export to Europe.

Mr. Goncharuk said his company paid in advance for 126 million cubic
meters per day of gas from Turkmenistan on Dec. 30.

He said that Ukraine had a right to withdraw this volume of gas from its
pipelines, but that the country had chosen to take only 90 million cubic
meters out of concern for the security of natural gas flows to Europe during
the winter.

Russia’s minister of industry and energy, Viktor Khristenko, said his
country had contracted the entire export capacity of Turkmenistan for the
first quarter of 2006, Dow Jones Newswires reported.

In statements carried by the Russian news media, Turkmenistan’s mercurial
and authoritarian leader, Saparmurat Niyazov, who presides over a repressive
and closed nation deep in Central Asia, confirmed sales to Ukraine without
elaborating on the discrepancy with Gazprom’s statements. Gazprom controls
the pipeline leading north from his country.

Mr. Goncharuk also asserted Ukraine has a right to withdraw additional gas
from the pipelines in lieu of transit fees from Russia under a barter
agreement in force in 2005.

“Ukraine considers if we have not arrived at any agreement, the old one is
in effect; Russia side rejects these arguments,” Volodymyr R. Sidenko, chief
economist at the Institute of Economic Forecasting in the Ukrainian Academy
of Sciences, said.

Meanwhile, the natural gas dispute had already dented Ukraine’s
energy-intensive economy. Chemical and metallurgical industries slowed
production to reduce demand by 15 to 20 percent, according to a statement
released by the Ukrainian government.

While Kiev gained some traction in its long-running dispute with Russia
after the attempt by Moscow to cut the country off, Ukraine’s energy
troubles are far from over.

Much is at stake. Natural-gas-powered steel mills and chemical plants earn
much of the country’s export revenues. They are outdated and inefficient,
and in some instances they are just limping by since the collapse of the
Soviet Union only because of cheap energy from Russia. From modest
growth, the energy crisis may plunge Ukraine back into recession, officials
here have said.

On average, metallurgical plants would become unprofitable at natural gas
prices above $105 per 1,000 cubic meters, according to estimates by Mr.
Sidenko. The chemical industry, which uses natural gas as a feed stock for
fertilizers and other products, would be unprofitable at prices above $85,
he said.

Under the 2005 contract, negotiated before the Orange Revolution brought a
pro-Western government to power in Kiev, Ukraine pays $50 per 1,000 cubic
meters. Gazprom is asking for $220 to $230 per 1,000 cubic meters now,

about double what most other former Soviet states pay.  -30-
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http://www.nytimes.com/2006/01/03/international/europe/03cnd-ukraine.html
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5.           MOSCOW SHOWDOWN FOR GAS ANTAGONISTS

By Thomas Catan in London and Tom Warner in Kiev
Financial Times, London, UK, Tuesday, January 3, 2006

International efforts were under way on Tuesday to resolve Russia’s gas
dispute with Ukraine – a confrontation that this week disrupted gas supplies
to Europe.

Delegates from Naftogaz, the Ukrainian gas company, were expected to meet in
Moscow on Tuesday night with their counterparts from Gazprom, Russia’s
state-controlled gas monopoly. Javier Solana, the European Union’s foreign
policy representative, had earlier urged the two countries to return to the
negotiating table.

Gas supplies to Europe returned to normal on Tuesday after Russia restored
pipeline deliveries under heavy international pressure. However, Gazprom
said Europe’s gas supplies remained under threat as it would not continue to
compensate indefinitely for gas “stolen” by Ukraine. “Sooner or later
Ukraine will have to pay for this,” said Sergei Kupriyanov, a spokesman for
Gazprom.

Ukrainian officials have admitted to taking an unspecified amount from the
pipeline but claimed it was gas from Turkmenistan that travels along the
same route.

Russia said it was buying up all available Turkmen gas and there was none
spare for Ukraine. Officials maintain that any gas taken by Ukraine from the
pipeline is therefore Russian gas stolen from European customers.

The lack of clarity about what exactly occurs in Europe’s main supply
pipeline from Russia will cause concern among European countries about

their energy security. About a quarter of Europe’s gas comes from Russia
and up to 90 per cent of that travels through Ukraine.

Officials from the 25 EU member states will meet Andris Piebalgs, EU energy
commissioner, in Brussels on Wednesday to discuss the crisis.
Representatives from Gazprom, Naftogaz and several European gas companies
will also attend some of the meetings.

European diplomats in Kiev said the EU was expected to announce that it

was prepared to help resolve the dispute. But its influence was limited.

Russia has been trying to end the sale of cheap gas to its neighbour since
the Kremlin’s favoured candidate was defeated in the 2004 Orange Revolution.
Ukraine has refused to pay a four-fold price rise, leading Russia to cut
supplies to the country on January 1.

But on Tuesday there was a growing sense that Russia had overplayed its
hand. The International Energy Agency, the consuming nations’ watchdog,

said Russia had damaged its reputation as a reliable supplier.

“They’ve basically shot themselves in the foot,” said a consultant who asked
not to be identified because he has Russian clients. “They think they can
cut off Ukraine but they can’t – not without cutting off their other
customers.”  -30-
———————————————————————————————-
Additional reporting by Robert Anderson in Prague, Neil Buckley

in Moscow and Sarah Laitner in Brussels,
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6.        RUSSIA HAS GOOD REASON FOR WHAT IT IS DOING
                WHY DO WE HAVE TO KEEP DEMONISING IT?
                  Gas is only the latest example of the West’s double
                           standard in its condemnation of Russia

COLUMNIST: Mary Dejevsky, The Independent
London, United Kingdom, Tuesday, 3 January 2006

So it has happened. The snarling Russian bear has reached out its clumsy
paw to turn off the gas tap to poor, freedom-loving little Ukraine, just as
it threatened it would, and 39 million people face the coldest weeks of the
winter without heat or the wherewithal to cook.

Sometimes, even those of us inclined to give Vladimir Putin’s Russia the
benefit of the doubt have to despair – not about the rights and wrongs of
the gas dispute, of which more later, but about Russia’s abject inability to
present its case and defend itself against the calumnies hurled in its
direction. Perhaps it arrogantly believes it should not have to.

Perhaps it is so ignorant of the ways of today’s world that it thinks it has
no need of PR. Or perhaps it has resigned itself to a world that sees the
bear always as malevolent and considers that it has no alternative but to
pad slowly back into its forest.

You can hardly blame it. The gas dispute is only the latest example of how
the countries that used to be bundled together as ‘the West’ ” and now
usually mean the US and its protégés ” have applied a glaring double
standard in their condemnation of Russia.

The turn of the year has witnessed the flaring of disagreements about the
G8, a new Russian law on non-governmental organisations and now gas
exports to Ukraine. In each one the underlying assumption, even before
Russia has done anything, was that Russia was not a fully paid up member
of the developed world and not a fit partner for civilised countries.

The most egregious of these three, and one that could simmer all year, is
Russia’s presidency of the G8. As soon as the British presidency reached its
dog days last month, all that we heard about the G8 was how ill-equipped
Russia was to lead it. The size and health of the economy, we were told,
nowhere near qualified Russia to sit at the world’s top economic table.

Its human rights record was lamentable: all Putin’s presidency amounted to
perpetual backsliding on media, political and civic freedoms. And just look
at the company it keeps: selling nuclear facilities to Iran, fraternising
with Uzbekistan and murmuring sweet nothings to the Soviet-style dictator
of Belarus.

But there is a great deal of lost history here. However was Russia, so weak
and riddled with failings, accepted into the then G7 in the first place?
Because in 1991, when, incidentally, Britain was president, the West was
lionising the then Soviet leader, Mikhail Gorbachev, in an effort to save
his presidency and his country. When that failed, they hoped the same trick
could work with the new Russian leader, Boris Yeltsin.

And over the years, as the G7 plus 1 transmogrified uncomfortably and
inconsistently into the G8, not one of its members wanted to cut Russia
adrift. They simply badmouthed it behind its back and hoped that a Russian
G8 presidency would somehow not come to pass. Now that it has – the seven
could hardly flout their own rules, while demanding that Russia obey the
letter of every rule they lay down – they are seeking to discredit it.

Then Russia handed them the gift of the draft legislation on NGOs. Every
human rights organisation clamoured to denounce Moscow – and Putin – for
subverting democracy. A somewhat diluted version of the Bill is now on the
statute book.

An objective international discussion of this legislation and what is so
undesirable about it, however, has never taken place. The real reason why
Russian MPs wanted to clamp down on foreign funding of NGOs in Russia
may indeed have been to limit the foreign money available to opposition
groups.

The spectre of the so-called ‘coloured’ revolutions in parts of the former
Soviet Union – Georgia’s ‘rose’ revolution, Ukraine’s ‘orange’ revolution,
Kyrgyzstan’s ‘daffodil’ revolution that now looks more like a coup d’Etat –
looms large in the Russian consciousness, and as a disruptive, rather than
democratic, force.

But Russia is far from being the only country that uses the law to keep
foreign money out of its domestic politics. The US is not far behind, nor is
India, ‘the world’s largest democracy’, nor is post-apartheid South Africa.
Why should Russia alone be demonised for trying to do the same?

And so to the gas dispute with Ukraine. How often have you heard news
bulletins over the past week state precisely how much Ukraine was actually
paying for its gas from Russia? Precious few. Mostly, they say that Russia
wants ‘to quadruple’ the price. Almost never is it said that Ukraine, a
country generously rewarded – by the US and others – for ‘choosing freedom’
a year ago, was paying less than 25 per cent of the world price.

Ukraine may have a case that Russia is ‘bullying’ its erstwhile ally. But
there is another side to this dispute: the Russian side, that has rarely
been heard. It is 15 years since the dissolution of the Soviet Union, quite
long enough for Russia and Ukraine to have sorted out more commercial
terms for their energy relations. If there is a contract dispute, as some
Ukrainian officials insist, this is a matter for the courts, not for a new
cold war.

But Ukraine, and its US patrons, have not resorted to the law. They have
spoken instead about Russia’s unconscionable ‘blackmail’ or ‘brinkmanship’,
about Russia’s desire to ‘punish’ Ukraine for choosing a westward course
and about the unacceptable use of natural resources as a political weapon.
But who says Russia is trying to punish anyone?

When the Ukraine joyfully took the course it did a year last December, one
of the first responsibilities of the new leaders was surely to recognise
that relations with Russia would change. It was unrealistic to expect that a
75 per cent discount on gas would continue once the other aspects of the
alliance – spoken or unspoken – were annulled.

It is all very well for Ukraine, the US, and other energy-poor countries to
object to the use of natural resources as a political weapon, but what about
the deterrent effect of superior armed forces, superior firepower, the power
of the dollar. Is it any more laudable to use such advantages as weapons?
And what about the rules of the free market that the US and others extol so
highly?

Russia is trying to join the World Trade Organisation. Among the conditions
being set, however, is that Russia must phase out the subsidies it grants to
domestic energy consumers. So it is quite all right, indeed necessary, for
Russia to freeze its own children and pensioners, but when it comes to
income-earners in a poorly-run foreign country such as Ukraine, this is
bullying. What are Russians to make of this?

In the last days of the year, Russia offered Ukraine a loan to offset the
higher gas prices it proposed to charge. It also offered a three-month
moratorium on the increase. Ukraine, with US support, dismissed both
offers as unreasonable. Having sniffed around the West’s double standards,
is Russia really so wrong to slope off to more predictable friends from the
past?  -30-
—————————————————————————————–
http://comment.independent.co.uk/columnists_a_l/mary_dejevsky/article336226.ece
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7. RUSSIA’S GAS CUT IS A “SERIOUS MISTAKE” SAYS DEPUTY

            HEAD OF THE INTERNATIONAL ENERGY AGENCY 
                Russia has demonstrated its willingness to use its gas
                                as a political and economic tool

Dow Jones Newswires, London, UK, Tue, January 3, 2006 

LONDON – Russia’s decision to cut Ukraine’s natural gas supply Sunday,

due to a pricing dispute, was a “serious mistake” that will lead consuming
nations to further examine diversifying their energy supply mix, the deputy
head of the International Energy Agency (IEA) said Tuesday.

I think Russia has made a serious mistake. It has demonstrated its
willingness to use its gas as a political and economic tool,” William Ramsey
told Dow Jones Newswires in an interview.

Consuming countries would take additional steps to lessen their reliance on
Russian gas supplies – the biggest in the world – by seeking out alternative
gas suppliers and relying more on coal.  -30-
——————————————————————————————–

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8.                         GAS DISPUTE PINCHES EUROPE
          Russia-Ukraine Row Highlights Concerns Over Kremlin’s Grip

Gregory L. White in Moscow & Chip Cummins in London
Staff Reporters of The Wall Street Journal
New York, New York, Tuesday, January 3, 2006

A day after its decision to cut off natural-gas supplies to Ukraine sparked
fears of shortages across Europe, Russia appeared to take a step back from
the brink. State-controlled gas giant OAO Gazprom pledged to pump enough

of the fuel through Ukraine to ensure customers in Europe get the gas they
need.

But the sudden crisis highlighted concerns about Europe’s dependence on
Russia, which supplies a quarter of the continent’s gas, at a time of
growing fears that the Kremlin is using energy as a political weapon.

Russia cut off gas supplies to Ukraine Sunday after Kiev refused to agree to
Gazprom’s demand for an end to the below-market prices Ukraine has paid

for the last 15 years. Early Monday, Gazprom accused Ukraine of “stealing”
gas valued at about $25 million from the European-bound exports Gazprom
shipped across its territory since Sunday. Ukrainian officials denied the
allegations.

But countries across Europe reported shortfalls in Russian gas shipments of
as much as 50%. Though they said stockpiles would prevent shortages, some
European utilities called on consumers to conserve gas and others warned
that a lasting disruption of Russian supplies would leave them unable to
meet demand.

Late Monday, Gazprom officials said they were increasing shipments to
Ukraine to make up for the missing gas and promised that supplies to
European customers would be back up to contracted levels by the end of the
day Tuesday.

Relations between Moscow and Kiev have been tense since the 2004 Orange
revolution swept pro-Western President Viktor Yushchenko to power, defeating
a candidate backed by the Kremlin. Ukrainian officials say Moscow is now
using gas to punish Ukraine for moving out of Russia’s orbit and seeking to
join the North Atlantic Treaty Organization and the European Union.
Moscow is insisting Ukraine pay European prices of about $230 per thousand
cubic meters of gas, while Kiev wants a price of $80. The two sides also
differ on whether the agreement under which Ukraine paid a $50 rate last
year is still in effect.

European officials called on both sides to resolve the dispute
diplomatically and ensure export shipments are delivered in full. Germany,
Russia’s biggest customer in Europe and, through gas company E.On Ruhrgas
AG, a shareholder in Gazprom, warned that Moscow’s handling of the pricing
dispute raised questions about Russia’s ambitions to supply even more of
Europe’s growing demand for gas.

“Thirty percent of our gas comes from Russia at the moment. That should be
increased,” Economy Minister Michael Glos told German radio, before Gazprom
announced it was boosting shipments. “But it can only be increased if we
know that deliveries from the east are dependable.”

The U.S. took an even harsher line on Russia’s cutoff of Ukraine. “Such an
abrupt step creates insecurity in the energy sector in the region and raises
serious questions about the use of energy to exert political pressure,”
State Department spokesman Sean McCormack said in a prepared statement
Sunday.

President Vladimir Putin has steadily tightened the Kremlin’s grip over the
energy sector in Russia, which is the world’s largest producer of gas and
the No. 2 exporter of crude oil. With prices for both fuels surging, Russia
increasingly has sought to convert its energy resources into political
clout.

Gazprom has emerged as a flagship for the Kremlin’s efforts to expand its
energy reach globally, using surging export revenues to help push into
markets in Europe, in particular.

Europe has few easy alternative suppliers. Big producers already are pumping
at capacity and the continent doesn’t have enough capacity to import gas in
liquid form to make up for prolonged Russian shortfall.  -30-
——————————————————————————————-
Gabriel Kahn in Rome and David Crawford in Berlin contributed to

this article. Write to Gregory L. White at greg.white@wsj.com and
Chip Cummins at chip.cummins@wsj.com.
——————————————————————————————-
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9. RUSSIA LAYS CLAIM TO ALL 1ST QUARTER NATURAL GAS THAT
   CAN BE EXPORTED FROM TURKMENISTAN THROUGH RUSSIA
  Appears to confirm analyst’s suspicions Russia intends to block Turkmen gas
       exports to Ukraine during heated talks over Russian gas sales to Ukraine
            
Greg Walters, Dow Jones Newswires, Moscow, Russia, Tue, Jan 3, 2006

MOSCOW — Russia has contracted the full volume of natural gas that can
be exported from Turkmenistan through Russia during the first quarter 2006,
Russian Industry and Energy Minister Viktor Khristenko told a press
conference Tuesday.

The announcement appears to confirm analysts’ suspicions Russia intends

to block Turkmen gas exports to Ukraine during heated negotiations over
Russian gas sales to Ukraine.

Earlier, Ukraine said it had contracted 40 billion cubic meters of Turkmen
gas for 2006, more than half of its annual consumption.

Russian natural gas monopoly OAO Gazprom (GSPBEX.RS) has said it
contracted 30 bcm of Turkmen gas in 2006, and that 15 bcm would be
delivered in the first quarter alone.

Many observers say Turkmenistan isn’t capable of fulfilling the demands
of both Russia and Ukraine.

Turkmenistan will produce about 64-65 bcm in 2005, according to an estimate
by Moscow-based brokerage Troika Dialog, and the country will use about 14
bcm itself – making hardly enough for 70 bcm in exports to Russia and
Ukraine.

Furthermore, Russia holds a trump card in any dispute over Turkmen gas
supplies with Ukraine, analysts say: all Turkmen exports to Ukraine must
first pass through Russian pipelines.

Khristenko said Russia has contracted all the gas Turkmenistan is capable of
exporting to Russia through Uzbekistan and Kazakhstan for the first quarter
of 2006.

“Gazprom has confirmation from Turkmenistan of deliveries of 140 million
cubic meters of gas from Turkmenistan every day for the first quarter,” he
said. “That is the full transport capacity of the network that goes from
Turkmenistan through Uzbekistan and Kazakhstan.”

“The gas that passes through Russian territory is Gazprom’s gas,” Khristenko
said. Ukraine has said it hopes to use imports from Turkmenistan as a means
of becoming less dependent on Russian gas. -30-
——————————————————————————————–
By Greg Walters, Dow Jones Newswires, greg.walters@dowjones.com
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10.  GAS DISPUTE WITH UKRAINE BAD FOR RUSSIA’S IMAGE

   SAYS GAZPROM SPOKESMAN & MUST BE SOLVED QUICKLY

By Greg Walters and Elizabeth Cowley, Dow Jones Newswires
London, United Kingdom, Tuesday, January 3, 2006

LONDON — The dispute between Russia and the Ukraine over gas prices

is negative for Russia’s image, a spokesman for the Russian natural gas
monopoly OAO Gazprom (GSPBEX.RS) said Tuesday.

Speaking on radio station Echo of Moscow, Gazprom spokesman Sergei
Kupriyanov added it is untenable for Russia to be making up European gas
volumes which the firm said are being siphoned off pipelines by Ukraine.

“The problem must be solved in the coming days,” Kupriyanov said. “This
conflict absolutely has a negative impact on Russia’s image and reputation.”

“Russia’s attempts to reduce the possible consequences for third parties, in
our view, reflects positively on the image of Russia and Gazprom,” he
continued, referring to Gazprom’s decision Monday to return gas volumes
pumped into Ukraine to normal levels.

Gazprom confirmed a group from Ukraine’s Naftogaz (NGAZ.YY) is

currently on its way to Russia for talks, but declined to give any further
detail. Ukraine’s refusal to accept its offer Sunday consciously provoked the
conflict, a spokesman said. There is ongoing controversy over the content of
the Russian gas firm’s reported offer to Ukraine.

Details of what is going on in Ukraine in terms of how they are taking gas
out of pipelines is unknown, Kupriyanov admitted. It only knows how much

is going in and how much is coming out: “It’s a black hole,” he said.

Gazprom halted deliveries to Ukraine Sunday after Ukraine refused to meet
Gazprom’s demand for fourfold rise in the price it pays for gas.

Russian officials have since accused Ukraine of siphoning gas meant for
European consumers, a charge Ukraine denies despite widespread reports of
lower Russian gas imports in neighboring countries. Gazprom pledged Monday
to increase the amount of gas being shipped to European customers through
Ukraine to avoid supply disruption, although the remains unresolved.
——————————————————————————————
Web site: http://www.gazprom.ru; Elizabeth Cowley, Dow Jones

Newswires; elizabeth.cowley@dowjones.com.
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========================================================
11.       UKRAINIANS ANGRY OVER MOSCOW GAS DISPUTE

By Aleksandar Vasovic, Associated Press Writer
Kiev, Ukraine, Tuesday, January 3, 2006

KIEV, Ukraine – Disgruntled Ukrainians thronged Bessarabsky Market in
downtown Kiev in freezing temperatures Tuesday to buy electric heaters

after a natural gas cutoff by Russia brought on by a pricing dispute.

The halt of Russian gas supplies that began Sunday has not yet caused major
heating problems, but Kiev residents feared the two sides were far from a
resolution. Russian and Ukrainian officials agreed Tuesday to resume talks
on the issue.

Residents of the capital largely blamed Russia, which wants Ukraine to pay
four times more for gas than it did last year. “It’s Russia’s revamped
imperialism behind all this. They believe that with the cutoff of gas they
can dominate us,” said Valentyn Vasilyev, 32, who was among those buying

a heater.

“Thanks to Russia I am now wasting handsome money on an electric heater.
But Muscovites will not win this time,” said 46-year-old Olena Kostenko,
wiping her nose as it started to snow.

For the vendor doing a brisk trade at the open-air stand, the gas dispute
has been good news. He sold 10 heaters in less than an hour, for $21 each.
“I regret I didn’t have more of these,” said Yuriy, who gave only his first
name because he feared legal problems for selling unlicensed goods.

“People are buying like crazy.”

Nearby a poster read, “Do not buy Russian goods,” and “Do not give

money to Russian oppressors.”

The cutoff also reduced gas supplies to Europe, which gets about a quarter
of its gas from Ukraine, though the European countries most affected –
Hungary, Austria, Slovakia and Slovenia – reported supplies were back to
normal Tuesday.

In Washington, State Department spokesman Sean McCormack criticized

Russia for “the use of energy for political purposes.” Noting that Europe
was in the midst of winter’s cold, McCormack said the decision by Russia
to restore most of the gas it had withheld Monday to European countries
“does not resolve the issue,”

The gas dispute highlights Ukraine’s dependence on Russia as the key
supplier to its energy inefficient industries. It also demonstrates Russia’s
opposition to Ukraine’s attempts to break out of the Kremlin’s sphere of
influence and join the
                            EUROPEAN UNION AND NATO
Ukraine’s tilt toward the West since President Viktor Yushchenko took

office a year ago has irritated the Kremlin.

Ukraine’s Foreign Ministry has characterized the gas dispute as an attempt
by Moscow to wreck Ukraine’s economy as the country tries to integrate into
Western Europe.

Some Ukrainians, however, mainly pensioners with strong emotional ties to
the former Soviet Union, still believe the country’s future lies in the
renewal of centuries-long economic, ethnic, religious and cultural links
with Russia.

What are we without Russia? A wasteland, nothing. You argue with a bear

and it will ultimately eat you,” retired army officer Mykola Kostenyk said.

Many communities in Ukraine’s west reported a decrease in gas supplies and
local providers said they would stop heating schools during the winter
holidays. In the key western city of Lviv, several factories reported
shifting from gas to coal or oil as their primary energy source.

On Tuesday, a pro-Russian opposition bloc loyal to Ukraine’s first
post-Soviet president, Leonid Kravchuk, demanded an urgent parliamentary
session about the gas dispute and said a new caretaker government should be
appointed until March parliamentary elections.

In a statement, Kravchuk’s bloc said the current Cabinet, loyal to
Yushchenko and Prime Minister Yuriy Yekhanurov, “cannot be an effective
participant in any talks with the Russian side, including the gas issue.”
Yushchenko and his allies “took a deliberately hostile position toward
Russia on a broad range of international issues,” the statement said.

Meanwhile, the office of the prosecutor general ordered a probe into the
activities of all companies responsible for storing and securing gas
supplies throughout Ukraine and overseeing “all the activities related with
rational use of energy,” a statement said.  -30-
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12.                “RUSSIA’S STANCE A CHILLING WARNING”

EDITORIAL: Irish Times, Dublin, Ireland, Tuesday, January 03, 2006

Europeans have entered the New Year suddenly more aware of the extent to
which they rely on Russian gas imports for domestic and industrial energy.
The dependence has grown over recent years, but without sufficient
realisation of the potential economic and political vulnerability involved.

Following Russia’s decision to cut off Ukraine’s gas supplies on Sunday
there was a major knock-on effect elsewhere on the Continent yesterday,
which is bound to be reflected in market prices. It is imperative that the
dispute be settled rapidly and its lessons learned.

Ostensibly, this is a commercial dispute about pricing policy, but behind it
there are clear geopolitical implications concerning Russia’s relations with
Ukraine and states which were formerly were part of the USSR. Russia’s
leadership resents Ukraine’s growing reorientation towards western Europe
since the Orange Revolution last year.

The timing of this row plays into Ukraine’s elections in three month’s time.
Current polls show the more pro-Russian candidate ahead of the outgoing
president Viktor Yushchenko, whose movement is divided. So there are

motives on both sides to play it politically and they have done so in the
past few days.

This brinkmanship is likely to backfire because of the immediate impact on
the rest of Europe. Russia’s Gazprom company says it will immediately
restore supplies to countries such as Hungary, Romania, Austria, Italy,
Poland, Slovakia and Croatia which were down yesterday. Ukraine denies
syphoning off supplies, although it has the capacity and motive to do so in
order to create sympathy for its position. The rights and wrongs of the
pricing dispute are complex.

Gazprom has just been restructured to become a more commercial entity
and it may not suit that profile to continue a substantial gas price subsidy
to Belarus, Georgia and Armenia, compared to the much more expensive
European price. There should be room for compromise on these issues by
phasing in price increases over a longer transition period.

But cutting off supplies is a nuclear option at the best of times, even if
Ukraine has refused to pay a fourfold increase. This decision will damage
Russia’s reputation as a reliable supplier and its long-term position as
Europe’s main source of gas energy.

It will – and should – stimulate a search for alternative supplies,
pipelines and sources of energy and co-ordination of energy policy
throughout the EU. Above all, it should alert Europe to the dangers of
taking Russia for granted.

Energy supplies are President Putin’s major source of power, influence and
income. If these resources are to be used as wilfully as they have been on
this occasion, it will be necessary to confront Mr Putin with the political
consequences of such irresponsibility.

It is in everyone’s interest to create a long-term framework of co-operation
in Europe which can contain such disputes. But that will take a lot more
effort than has yet been shown collectively by European leaders.
——————————————————————————————
LINK:  www.ireland.com
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13. UKRAINIANS IN CANADA WANT ACTION ON RUSSIAN GAS

                CUT OFF, SAY IT PURE ECONOMIC BLACKMAIL

Canadian Broadcasting Corporation (CBC) News
Toronto, Ontario, Canada, Tuesday, January 3, 2006

TORONTO – Some members of Canada’s Ukrainian community have joined
international leaders in complaining about Russian moves to cut supplies of
natural gas to Ukraine.

Russia says the gas-supply fight is about price, and it’s needed for Ukraine
to pay the market rate. But Ukrainian leaders say Russia’s supply cuts over
the weekend are being used to punish Ukraine for an increasingly pro-

Western stance.

“I think it’s pure economic blackmail. They say they’re demanding market
prices; that’s a joke,” said Walter Derzko, a strategic planning consultant
in Toronto who has advised the Ukrainian government.

He says Russia is demanding Ukraine pay $220 US per thousand cubic
metres of gas, far above the $50 US Russian-friendly Belarus pays or the
$110 US that Russia bills Armenia and Azerbijan.

(Natural gas prices vary dramatically around the world. In Southern Ontario,
users pay about $430 Cdn per thousand cubic metres.)

The Russian reductions to Ukraine squeezed European users, prompting anger
and concern about dependence on Russian supplies. The Russian Gazprom
monopoly said it would restore supplies to European customers by late
Tuesday.

Representatives of the Ukrainian community in Canada want Ottawa to take
steps against Russia. Russian President Vladimir Putin took over as head of
the G8 group of countries Sunday.

Bob Onyschuk, vice-president of the Canada-Ukraine Chamber of Commerce,
said he should be fired, and Prime Minister Paul Martin should ask the other
group members to push for that. “He is acting in a way that completely
contravenes every international norm,” Onyschuk said.

Edmonton’s large Ukrainian community is also angry. Darcia Roland said
Russia is using the gas crisis to destabilize the new democratic government
in Ukraine, in advance of parliamentary elections in March.

Foreign Affairs Minister Pierre Pettigrew wasn’t available to comment. But
a spokesperson said the problem is a commercial dispute that should be
settled by the countries involved.  -30-
——————————————————————————————-
http://www.cbc.ca/story/canada/national/2006/01/03/canada-ukraine060103.html
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14.         BULLYING TACTICS MAR PUTIN’S G8 PRESIDENCY 

ANALYSIS: By Andrew Osborn, The Independent Online Edition
London, United Kingdom, Tuesday, 03 January 2006

New Year’s Day was supposed to be a momentous occasion for Russia;
assuming the presidency of the G8 for the first time in its difficult
history and showing the world that it was finally getting its act together

after the collapse of the Soviet Union.

But instead of glowing stories about the country’s coming of age, its
startling economic success and its fabulous natural resources, Moscow
found itself accused of bullying and economic blackmail.

The decision by Gazprom, Russia’s state gas monopoly, to cut supplies to
Ukraine in the depths of winter was not the kind of feelgood publicity that
President Vladimir Putin was seeking. However it was dressed up, it looked
heartless.

That the trouble emanated from Ukraine, a country that Moscow perceives to
have turned its back on its bigger Slav brother in the past year, must have
made the reversal of fortune all the harder to bear.

Little love is lost between Mr Putin and his Ukrainian counterpart, Viktor
Yushchenko, who came to power in a peaceful revolution that appeared to
sweep away centuries of Russian influence in humiliating fashion. That
western European gas customers such as Austria began to feel the pinch
because of the row must have been especially galling for the Kremlin, since
it is eager to portray itself as the world’s most reliable energy supplier.

Criticism of Russia’s stance in the dispute from the US State Department
will also have been unwelcome. President Putin will be disappointed by the
negative publicity, but he will not have abandoned his high hopes for 2006.

The Russian leader is due to host a grandiose G8 summit in a Tsarist-era
palace in his native St Petersburg in July attended by Tony Blair, George
Bush and the leaders of France, Germany, Italy, Canada and Japan. He will

be desperate to ensure that the Ukrainian gas dispute is a distant memory by
then.

Until recently the Kremlin was unfazed by how Russia was perceived in the
wider world, but that has changed. Officials worry that foreigners think of
Russia only as a place where bears roam, vodka is drunk like water, and
where brute force and aggression reign.

Mr Putin tried to head off the crisis before it escalated by making what he
thought were two compromise proposals.

It will stick in his craw, but if he is serious about improving Russia’s
image he may have to make another.  -30-

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LINK: http://news.independent.co.uk/europe/article336259.ece
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15.                        “RUSSIA’S SAD G-8 PRESIDENCY”

EUROLINKS DAILY VIEW: By Frederick Kempe
Assistant Managing Editor, The Wall Street Journal
New York, New York, Tuesday, January 3, 2006

When the West decided to add Moscow to the G-7 leaders of developed
countries, making it eight, the purpose was to encourage the country’s
civilized, democratic direction. Yet Russia’s first act of 2006, which
begins its one-year G-8 presidency, was to cut off gas supplies from

Ukraine when it balked at a four-fold price increase in violation of an
existing contract.

The use of energy as a weapon against the most important country to leave
Russia’s political orbit will bring calls to remove Russia from the world’s
most elite leadership club entirely. “Russia is sinking deeper into
authoritarianism and lawlessness,” writes expert David Satter in our

opinion pages.

Kicking Russia out of the G-8, however, is unlikely. The West’s best
alternative then is to solidify support for Ukrainian democracy and for its
potential membership of NATO and the EU ahead of the country’s March
parliamentary elections.

Russia will argue the gas dispute is all about price, but Brussels and
Washington know better. From their response, Mr. Putin will know how

far he can go.  -30-
———————————————————————————————
Frederick Kempe, an assistant managing editor of The Wall Street Journal,
has spent his career tracking global political, economic and business
issues. Until recently, he was the editor and associate publisher of the
Wall Street Journal Europe. As a correspondent he covered stories
including the rise of Solidarity in Poland, the unification of Germany and
the collapse of the Soviet Union, and he reported on wars in Afghanistan,
Iraq and Lebanon. Write to Frederick Kempe at fred.kempe@wsj.com.
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          Power Corrupts and Absolute Power Corrupts Absolutely.
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16.                 PUTIN FLEXES MUSCLES OF ‘KREMLIN INC’

By Mark Franchetti, Moscow, The Sunday Times

London, United Kingdom, Sunday, January 01, 2006

A FORMER top Kremlin official who led Russia’s successful bid to join
the G8 has warned that democracy has been rolled back so far under
President Vladimir Putin that the country would be refused entry to the club
of leading industrialised nations if it applied for membership today.

Andrei Illarionov, who resigned last week as Putin’s economic adviser in
protest at what he described as creeping authoritarianism, said his country
had ceased to be free and democratic during the past two years.

“I want Russia to be a member of the G8 as a developed, free and democratic
country,” said Illarionov, as Russia prepared to take over the rotating
presidency of the group from Britain for the first time today.

“I did a lot for this to happen. But at that time nobody expected the
changes in Russia’s political tendencies which we now see.
“It is highly unlikely that Russia would have been accepted in the G8 if at
the time everything which has been going on here in the past two years had
been taking place then.”

Russia joined the group alongside America, Britain, Canada, France, Germany,
Italy and Japan in 2002 – in large part because of President George W Bush’s
need to keep the Kremlin on board in the war against terror he unleashed
after the September 11 attacks on New York and Washington. The finance
ministers of the other seven member countries still meet without their
Russian opposite number, however.

The admission of a country once derided as the heart of the “evil empire” to
the top table of international capitalism was nevertheless a potent symbol
of how far Russia had come since the collapse of the Soviet Union in 1991.

But the Kremlin’s relations with the West have worsened since, as Putin, 53,
has moved to consolidate his power by closing down independent sources of
opposition and extending state control of the “commanding heights” of the
Russian economy.

There has been disquiet, too, about attempts by Putin, a judo black belt, to
impose his will on former Soviet states, such as Ukraine, with which the
Kremlin was embroiled this weekend in a row over Russian gas supplies.

Last night Russia said it would cut off supplies to Ukraine at 7am today if
its neighbour did not agree to a five-fold increase in prices. Putin had
tried to break the deadlock by offering to postpone the rise for three
months but his overture was rejected. The pipeline also supplies Germany
and the new eastern members of the European Union.

For Illarionov, 44, one of the last liberals left in Putin’s entourage, the
most dramatic illustration of the new mood in Russia was the Kremlin’s
assault on Yukos, the country’s largest oil company, and the arrest in
October 2003 of its former owner Mikhail Khodorkovsky – now serving an
eight-year sentence in a Siberian labour camp after being convicted of fraud
and tax evasion.

Illarionov described the Kremlin’s subsequent handling of Yukos’s assets as
the “scam of the year” and, as apparent punishment, he was removed last
January from his role as Russia’s G8 “sherpa”.

Illarionov’s departure – and subsequent remarks – have given ammunition to a
growing chorus of critics in the West who are calling for Russia to be
evicted from the G8. Others have suggested boycotting the summit that Putin
is due to chair in July in St Petersburg.

The Kremlin leader’s opponents point to the fact that since coming to power
nearly six years ago Putin, who served 16 years in the KGB, has crushed all
opposition in the media, parliament and in the regions.

He has surrounded himself with former KGB officers and cancelled regional
elections, supported the tyrannical regimes of Belarus and Uzbekistan and
sold weapons to Syria and nuclear technology to Iran – two states accused by
Washington of sponsoring terrorism.

In a further cause for western alarm, Putin is set to sign into law a bill
restricting foreign humanitarian groups and charities. There is concern,
too, about the Russian leader’s economic policies, which appear calculated
to create what some critics have dubbed “Kremlin Inc”.

In the past two years Putin has moved aggressively to reassert state control
over Russia’s huge oil and gas reserves, which had fallen into private
hands. As a result the Kremlin has already regained more than 30% of the
country’s oil industry.

“It’s not quite clear what his model is. It’s neither socialism nor
capitalism,” said an oil industry source who has met the president. “But one
thing is for sure: it’s about making the state more powerful. And it’s about
controlling what Putin thinks are strategically important companies.”

The Kremlin’s move against Yukos was an important first stage in this
process. Its main asset was sold to a state-owned company that is to be
merged with Gazprom, the world’s biggest natural gas producer. The result
will be a Kremlin-controlled energy giant with few rivals on the world
stage.

Next came Roman Abramovich’s Sibneft. In September the Chelsea boss
sold 73% of the oil company to Gazprom for £7.38 billion.

The Kremlin is planning to buy more oil companies and is seeking control of
Avtovaz, Russia’s largest car maker. Putin is tightening his grip by
appointing close aides to the boards of these state giants.

Dmitry Medvedev – widely tipped as one of Putin’s favourite candidates to
succeed him as president when his second and last term expires in 2008 – is
both a deputy prime minister and chairman of Gazprom’s board of directors.
Vladislav Surkov and Igor Sechin, who both work in Putin’s presidential
administration, head two separate state-controlled oil companies; Viktor
Ivanov, a close Kremlin aide, heads Aeroflot, the state-owned airline.

“I can’t think of a single liberal and democratic country where state
bureaucrats are also at the helm of major companies,” said Illarionov.
“Surely there is a conflict of interests.”

Analysts said Putin’s strategy appeared to be to build Gazprom into one
of the world’s largest corporations, which could then be used as a tool of
foreign policy – as in the gas dispute with Ukraine. To underpin this
ambition, Gazprom last month hired Gerhard Schröder, the former German
chancellor, as chairman of a new pipeline venture designed to bypass
Ukraine.

Russia claims its motive is purely economic. Ukrainians believe they are
being punished for the orange revolution a year ago that brought a
pro-western government under President Viktor Yushchenko to power
in place of his Kremlin-backed rival.  -30-
——————————————————————————————-
http://www.timesonline.co.uk/article/0,,2089-1965215,00.html

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17. RUSSIA ASSUMES G-8 PRESIDENCY, PROUD OF OIL WEALTH

Vladimir Isachenkov, AP Worldstream, Moscow, Russia, Sun, Jan 01, 2006

MOSCOW – President Vladimir Putin’s push for the revival of Russia’s global
clout reaches a symbolic peak this year as Moscow assumes the rotating
presidency of the Group of Eight – a position some critics say the Kremlin
doesn’t deserve because of its rollback on freedoms.

Putin has suggested that this summer’s G-8 summit in his home city of St.
Petersburg should focus on energy security, reflecting Moscow’s aspirations
to convert its oil wealth into political influence. Moscow hopes that
ambitious projects such as a prospective Baltic Sea pipeline, intended to
deliver Russian natural gas to Germany and other European consumers, would
help bolster its global clout and muzzle Western criticism of its democracy
record.

“Moscow hopes to use energy as a trump card to persuade the Western

leaders that it’s a powerful player to reckon with,” said Yevgeny Volk, the
head of the Heritage Foundation’s Moscow office.

While other members of the exclusive club of the world’s richest nations
have voiced concern about backtracking on democracy under Putin, they will
likely avoid strong criticism to help Russia maintain a respectable profile
as the G-8 host.

“Despite its discontent, the West won’t toughen its attitude to Russia,”
said Lilia Shevtsova, a leading researcher with the Carnegie Endowment’s
Moscow office. “It will likely apply behind-the-scenes pressure and the
tactics of acting on the basis of reciprocity.”

The Group of Seven, representing the world’s wealthiest nations, first
sought to engage Moscow in 1991, inviting then-Soviet President Mikhail
Gorbachev in encouragement of his perestroika campaign to reform the
Soviet Union. The country collapsed later that year.

In the following years, the group invited Russia’s first president, Boris
Yeltsin, to attend its annual summits in a bid to support the nation’s
free-market reforms and help safeguard its huge nuclear, chemical and
biological arsenals.

While Russian leaders attended the G-7 summits and the group eventually
incorporated Russia, Moscow never has been included in all economic and
financial discussions. That reflects the fact that despite its rapid
oil-driven economic growth, the size of the Russian economy – ranked 16th

in the world – is far smaller than that of the others. The G-7 comprises the
United States, Britain, Canada, France, Germany, Japan and Italy.

While Putin has sought to integrate Russia more closely in the G-8, the
Kremlin’s authoritarian streak has strained its relations with the West and
prompted some members of the U.S. Congress to call for Russia’s

suspension from the group.

Since Putin took charge in 2000, his government has established a firm grip
over all national broadcasters, the national parliament has become a
rubber-stamp for the Kremlin and popularly elected provincial governors

have been replaced with Putin’s appointees.

While the Kremlin has sought to encourage foreign investment, the carve-up
of Mikhail Khodorkovsky’s Yukos oil company in what was widely seen as a
Kremlin vendetta for his political ambitions has underlined doubts about the
rule of law in Russia and kept many investors wary.

Those concerns were deepened last week by the resignation of Putin’s
economic adviser Andrei Illarionov, who stepped down saying he no longer
wants to work for a government that tramples on freedoms. Illarionov, who
earlier this year had been stripped of his job of Russian envoy to the G-8,
said that Russia has turned into a “corporate” state where giant,
government-controlled corporations stifle competition and enrich their
owners at the public’s expense.

“Illarionov’s departure has made it more difficult for the Kremlin to
pretend that Russia is moving in the same direction as the rest of the
civilized world,” said Volk of the Heritage Foundation.

In the latest Kremlin effort to tighten controls over public life, Russian
lawmakers this month endorsed a new bill imposing tight restrictions on
rights advocates and other nonprofit groups.

Relations between the West and Moscow also have been strained over relations
with former Soviet republics. Moscow complains the U.S. and other Western
countries are encroaching on its traditional sphere of influence, while the
West accuses the Kremlin of strong-arming Ukraine, Georgia and Moldova,
including through Russia’s state-controlled natural gas monopoly, Gazprom.

“Russia is actively using gas diplomacy for its expansion over the ex-Soviet
space in a bid to become a regional superpower,” said Shevtsova of the
Carnegie Endowment.

Despite the Kremlin’s increasingly assertive stance at home and abroad, most
analysts predict that the West will try to avoid confrontation because of
Russia’s increasingly important role as a global energy supplier.

The West has shifted from its focus on democracy to a more pragmatic
approach,” said Fyodor Lukyanov, the editor of Russia in Global Affairs
magazine. “Russia’s place in the world’s most exclusive club has been
determined – it’s that of an energy reservoir.”
  -30-
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18. RUSSIA CRITICIZES US DIPLOMAT’S DEMOCRACY COMMENTS 

    US to advance democracy in Russia, Ukraine, the Caucasus & Central Asia

Associated Press (AP), Moscow, Friday, December 30, 2005 

MOSCOW – Russia’s Foreign Ministry responded angrily Friday to recent
comments by a top U.S. diplomat who reaffirmed Washington’s commitment

to help foster democracy in Russia and other ex-Soviet nations.

U.S. Undersecretary of State Nicholas Burns said in a speech this month that
a key policy goal next year would be “to advance the U.S.-E.U. democracy
agenda further east: in Russia, Ukraine, the Caucasus and Central Asia.”

Russian Foreign Ministry spokesman Mikhail Kamynin responded by criticizing
Burns for his “mentor” tone and saying his comments “ran contrary to the
character of trusting and constructive dialogue between our nations.”

“We are far from claiming a monopolist role in the post-Soviet space,”
Kamynin said. “At the same time, we feel sure that enforcing models of
development from outside won’t lead to any good. We have seen examples

of that in the post-Soviet space, in the Middle East and in Africa.”

Russia’s relations with the U.S. and other Western nations have been
strained over what Moscow interpreted as Western encroachment on its
traditional sphere of influence and what the West saw as the Kremlin’s
muscular attitude toward its ex-Soviet neighbors.

Last year, the ties were damaged by an acrimonious dispute over Ukraine,
where pro-Western Viktor Yushchenko won the presidency in a battle against

a Moscow-backed rival. Russian officials have also seen a U.S. hand in the
ascent of opposition leaders to power in Georgia and Kyrgyzstan.

A new crisis erupted in Russia’s relations with Ukraine recently, when the
Russian state-controlled natural gas monopoly Gazprom (GSPBEX.RS) more

than quadrupled the gas price for Ukraine for next year. Ukraine has rejected
the price hike as politically driven and tried to garner Western support.
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19.     A DISPUTE UNDERSCORES THE NEW POWER OF GAS

NEWS ANALYSIS: By Simon Romero, The New York Times

New York, New York, Tuesday, January 3, 2006

HOUSTON, Texas, Jan. 2 – The dispute between Russia and Ukraine over
natural gas supplies has implications for the fast-evolving international
trade in natural gas.

While Gazprom, Russia’s state-controlled energy behemoth, said on Monday
that it would resume pipeline shipments of natural gas across Ukraine to
customers in Europe, its ability to rattle nerves during the European winter
served as a reminder of the growing influence of countries rich in natural
gas reserves.

Global demand for natural gas, which is generally cleaner-burning than other
fossil fuels, is soaring.

Governments in gas-rich countries and international energy companies are
racing to meet that demand with ambitious projects to transport natural gas
to industrialized countries by pipeline or in tankers. The global oil market
developed along similar lines decades ago, laying bare the risks in the
United States and Europe of relying on imported oil from politically
unpredictable countries.

“This further underlies the need for greater diversity of supply and more
storage capacity for natural gas,” said Daniel Yergin, chairman of Cambridge
Energy Research Associates. “Gas-importing countries will recognize the
need to build in buffers.”

At first glance, this newly robust international natural gas market would
appear to put Russia in a strong bargaining position.

Russia has the largest natural gas reserves, with 1,700 trillion cubic feet
of the fuel, or 27 percent of the world’s total, according to BP, the
British oil and gas giant. Just two other countries rival Russia in natural
gas reserves, Iran, with 971 trillion cubic feet, and Qatar, with 910
trillion cubic feet.

But analysts say concern over creating too much dependence on Russian
gas – or natural gas from any one country, for that matter – may propel
large gas-consuming nations to consider importing the fuel from a variety

of sources or switching to other fuels for heat and electricity.

For instance, Finland, which shares a border with Russia, is moving ahead
with plans to build the world’s largest nuclear reactor, a move that would
lessen its reliance on imported Russian natural gas.

The concentration of European natural gas imports from Russia may be why
the threat of cutting off gas exports across the Ukraine evoked cold war-era
fears, when the United States fretted about Europe’s reliance on Russian
gas.

In fact, Russia, which has long viewed itself as a stable energy supplier to
Europe, put energy security at the top of the agenda of the Group of 8, the
club for the world’s large developed economies. Russia assumed the
chairmanship of the group this week.

A more contemporary concern is related to the dispute’s impact on large
gas-exporting projects in Russia and elsewhere.

Gazprom, for instance, has been aggressively promoting projects to export
Russian natural gas to the United States. In a move that focuses attention
on the scramble for natural resources in Arctic areas, Gazprom has ambitious
plans to develop the Shtokman field, a large natural gas field in the
Barents Sea, and sell that fuel in American markets.

Two American energy companies, Chevron and ConocoPhillips, have been
have been listed by Gazprom as possible partners in the Shtokman project,
along with Total of France and Norsk Hydro and Statoil of Norway.
Gazprom has also reached an agreement with Sempra Energy of San Diego
to import Russian natural gas to markets in California and northern Mexico.

Gazprom is believed to need the technical expertise and financial assistance
of foreign partners to help develop the field.

Still, concerns in the United States about becoming reliant on imported
natural gas from Russia are probably premature. The United States imports
much of its natural gas from Canada by pipeline and is expected to increase
tanker imports of the fuel soon from countries like Qatar, Egypt and Angola.
Russia, despite the potential of its gas reserves, is also still struggling
to lift its energy industry to Western standards.

“Russia is reminding people that they’re the powerhouse of natural gas
resources, but it’s a false promise,” said Amy Myers Jaffe, associate
director of the energy program at Rice University. “They don’t have their
sector organized enough.”

Indeed, the most immediate lesson of Russia’s dispute with Ukraine may be
that Russia and other natural gas producers are trying with varying degrees
of success to raise the prices they charge for natural gas. This trend,
which involves gas shipped by pipeline as well as in tankers, has to do with
rising demand for the fuel in Britain, southern Europe and the United
States.

Customers for natural gas in Europe have outbid buyers in the United States
in recent weeks for cargoes of liquefied natural gas, illustrating the
fierce competition for supplies even as natural gas prices in the United
States flirted with records after the damage from last year’s hurricanes to
natural gas platforms in the Gulf of Mexico.

Until recently, the complexity and expense of cooling and condensing natural
gas to a liquid so it can be transported in ships was an obstacle to the
emergence of a vibrant market for liquefied natural gas. Signaling a shift
in this market, though, a tanker of liquefied gas from Trinidad and Tobago
in the Caribbean, the closest supplier of the fuel to the United States, was
rerouted to Britain last month after its producer received a more attractive
bid for its cargo despite relatively high transportation costs.

Still, whether exporters transport their gas in tankers or pipelines, it has
long proved difficult for gas-rich countries to exert lasting leverage over
importing nations. In one example from the early 1980’s, Algeria briefly cut
off supplies to Italy over a pipeline across the Mediterranean Sea. That
effort soon backfired on Algeria, however, costing it billions of dollars in
lost export revenue.  -30-
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http://www.nytimes.com/2006/01/03/business/worldbusiness/03gas.html
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20. FOR PUTIN AND THE KREMLIN, A NOT SO HAPPY NEW YEAR
        “Once again we are seeing that Gazprom is not a leading international
      company, but a tool of policy making for the Kremlin”-investment expert.

NEWS ANALYSIS: By C. J. Chivers, The New York Times

New York, New York, Tuesday, January 3, 2006

MOSCOW, Jan. 2 – For President Vladimir V. Putin and Russia, 2006 was
supposed to be a banner year. Instead, it has begun badly, and with
problems of the Kremlin’s own making.

The Kremlin, which labored in 2005 to distance itself from the ill will that
accompanied its destruction of the Yukos oil company and the bungled
handling of the rigged Ukrainian presidential election in 2004, has begun
the new year with a display of politics and bullying, followed by partial
retreat, that is raising fresh questions about its reliability as an
international energy partner.

The problems are familiar. Even as Russia assumed the presidency of the
Group of 8 industrial nations on Jan. 1, a position it hopes will improve
its stature, Mr. Putin returned to two issues that have previously undercut
his reputation: control and management of Russia’s energy resources and
Russia’s waning influence in Ukraine.

The source of the trouble is a relatively straightforward question: What
will Ukraine pay for imported Russian natural gas? It is a commodity that
Ukraine, and much of Europe, desperately needs.

Gazprom, Russia’s state-controlled gas monopoly, seeks $220 to $230 per
1,000 cubic meters for Ukraine, abandoning the favored rate of $50 for a
more realistic market rate.

Ukraine, while agreeing that it must eventually pay market rates, seeks a
much lower price and a transition period to a full rate – an arrangement
that Russia has offered to other former Soviet nations.

The Kremlin’s solution on Sunday was to reduce gas flows through the
pipeline system for Ukraine, a major transshipment point for gas going to
Western Europe.

The move, in retrospect, seems both spiteful and unwise, because Russia
then tried to send gas through Ukraine to reach European customers on the
other side.

One predictable result was a threat to winter fuel supplies in Europe. By
Monday, declines in pipe pressure were reported in Austria, France, Italy,
Moldova, Poland, Romania, Slovakia and Hungary, which said it would
have to cut exports to Bosnia and Serbia and Montenegro.

Even Germany, usually a faithful Russian ally and Russia’s largest gas
customer, wondered aloud whether Russia could be trusted. Michael Glos, the
German economy minister, said in a radio interview that Germany would like
to import even more gas, but could do so only “if we know that supplies from
the east are dependable,” according to Reuters. Speaking of Russia, he
added, “One should naturally act responsibly.”

Supply concerns seemed to ease Monday as Gazprom announced it was
restoring most of the gas flow to Ukraine. Mr. Putin, amid a fresh din of
international criticism, appeared to blink.

But a set of oddities and problems remained.

First among the oddities was that Mr. Putin, who managed to draw
unflattering attention to himself, did so in a case where almost no one
disputes that in principle he is right: Gazprom’s customers should pay
market prices.

Western governments, the European Union and the customers themselves
have not argued otherwise. The issue is what market prices are, and how
Ukraine should reach them.

To build what seemed a manageable business dispute with a neighbor into a
problem for much of Europe, Mr. Putin, a former K.G.B. colonel who last
year called the collapse of the Soviet Union “the greatest geopolitical
catastrophe of the century,” cast himself anew.

For the purposes of this quarrel, he became not only a capitalist but a
monopolist, embracing a free-market rationale in its harshest form. His
position was clear: If Ukraine does not like the price, let its factories
slow down, let its lights dim, let its people freeze. And let Europe worry
if it will have heat this winter, too.

Other problems followed, as the dispute attracted more attention. While the
Kremlin argued for market rates, it refused to acknowledge why Ukraine’s gas
prices have been so low. The job of clarifying the record fell to Andrei N.
Illarionov, who was Mr. Putin’s top economic adviser until he resigned in
frustration last week.

Mr. Illarionov said in a radio interview that Ukraine’s subsidized rate was
essentially a problem of the Kremlin’s own creation. Gazprom had agreed to
the $50 price in 2004, he said on the Ekho Moskvy radio station, to help a
Kremlin-backed candidate in Ukraine’s presidential election.

The $50 deal was supposed to last until 2009, he said. But when the
Kremlin’s candidate lost the presidency to Viktor A. Yushchenko – who
wants Ukraine to join the European Union and NATO – the Kremlin changed
the rules. Market rates were invoked.

Moreover, Gazprom has been using different pricing criteria for different
nations. Georgia pays $110 for the same amount of gas, as does Armenia and
Azerbaijan. The Baltic states, which are members of the European Union, pay
$120 to $125. Moldova pays $160. Belarus, a firm Kremlin ally, pays $47.

The origins of Ukraine’s current rate, and this variable pricing regime,
allowed critics to suggest that the Kremlin suffers from amnesia and
hypocrisy alike.

The problems only piled on. Experts also charged that Mr. Putin had
undermined the credibility of Gazprom, Russia’s largest company.
Gazprom has been seeking international respect and trying to shed its
image as a Kremlin stooge. But at important moments last week, it was
not the company’s official leadership making proposals for settlement,
but Mr. Putin.

Mr. Putin’s appearances put to rest any questions about who is handling
this affair, and underscored anew that Gazprom is a company bound to
the whims of a head of state.

Investors will get some measure of how the company has fared in the short
term when the Russian stock market reopens after the Russian holiday
season, on Jan. 10. The news, experts say, has been bad.

“Once again we are seeing that Gazprom is not a leading international
company,” said Dan Rapaport, managing director of CentreInvest, a
Moscow-based investment firm, “but a tool of policy making for the

Kremlin.”  -30-
————————————————————————————————–
http://www.nytimes.com/2006/01/03/international/europe/03putin-Q.html?th&emc=th
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21.      WEST WARY AS THE RUSSIAN BEAR GROWLS AGAIN
                           Is Vladimir Putin really fit to chair the G8?

COMMENTARY: By George Kerevan, The Scotsman
United Kingdom, Thursday, December 29, 2005

COME Monday, Russia takes over from the UK the presidency of the G8

group of leading industrial nations. If you thought Tony Blair’s presidency
of the G8 was problematic, just wait till you see Vladimir Putin in the hot seat.

In theory, the G8 represents the major free-market democracies. But for the
first six months of 2006, the grouping will be under the titular leadership
of a government which this week dismissed its chief economic adviser, Andrei
Illarionov, for saying that Russia was no longer politically free but run by
state corporations in their own interests.

If Illarionov is correct about the de-democratisation of Russia, the
question arises: is Vladimir Putin really fit to chair the G8?

Mr Illarionov’s departure coincided with an ominous warning to neighbouring
Ukraine from Russia’s defence minister and deputy prime minister, Sergei
Ivanov. Russia has just decided unilaterally to impose a fivefold increase
in the price of gas exported to Ukraine. The Ukrainians have mused about
retaliating by upping what they charge Moscow for basing Russia’s Black Sea
fleet in the Ukrainian port of Sevastopol.

Mr Ivanov helpfully pointed out that the agreement on the fleet was part of
a treaty that also included Russian recognition of the Ukrainian border.
Tampering with the treaty, the defence minister threatened, could be “fatal”
(ie we will start to claim big chunks of Ukraine). For good measure, the
Kremlin is also threatening to cut off all gas supplies to Ukraine by the
end of this week.

All this capped a month in which Russia tested a new long-range missile
system, took steps to restrict the activities of foreign NGOs on its soil,
and continued to give diplomatic cover to the illegal Iranian nuclear
programme. Moscow has systematically blocked European Union moves to

report Iran to the UN Security Council for violation of its treaty obligations
not to develop nuclear weapons technology.

Is Russia returning to its totalitarian past? Certainly, Putin has taken the
country in a more authoritarian direction by reducing regional autonomy and
expanding the powers of the presidency. That could be explained as an
understandable reaction to the near anarchy of the Yeltsin years and the
need to curb the power of the “oligarchs”, the Mafioso robber barons who
stole most of Russia’s economy after the fall of communism.

On the down side, however, Moscow has systematically restricted the

freedom of the media and been cavalier with property rights when re-
nationalising the energy companies. Mr Putin, a former KGB spy, has
created no serious political party or heir apparent. If he decides to scrap
the present constitutional barriers stopping him running again for the
Russian presidency in 2008, then we are in trouble.

Of course, it is possible to argue that a country such as Russia, with its
sprawling land mass and economic underdevelopment, requires a strong state
to maintain security and mobilise capital investment. If Putin works, why
not keep him? Russia may have expanded state control of its lucrative oil
industry, but there is no sign that it has turned its back on capitalism or
that it wants a return to anything like communism.

We should also put Russia’s new missiles and gunboat diplomacy into some
kind of perspective. Russia is now a medium-scale economy, not a super-

power. Last year, Moscow could only afford to spend dollars 19 billion on its
military. Britain managed dollars 47 billion, while the United States spent
a massive dollars 445 billion. In 2003, the Russian military could afford
just 14 new tanks and five upgraded fighter-bombers.

THE real danger to the West from Russia would be if it fails economically,
and that does not seem to be on the cards. The country has seen seven
straight years of high growth, based on record oil prices. There is now even
something of a consumer boom.

And yet I have a nagging doubt. Russia’s economy is still too dependent on
oil and gas exports and fragile because of that. If Putin fails to create
real democratic institutions, there remains an ever-present threat of either
political instability or a further lapse into dictatorship.

Russia remains an unreformed empire whose diverse regions could still
fragment, because they have no reason to be together, except for the will of
the man who sits in the Kremlin. And the growing confluence of political and
economic power in Russia is a sure recipe for arrogance – as seen in the
bullying of Ukraine. I see problems, but I don’t see solutions.

However, one fact which must not be forgotten in this debate is that,
regardless, the next G8 summit is going to happen in St Petersburg in July,
and that Vladimir Putin will chair it. In which case, the pragmatic thing is
to use the G8 to put pressure on Putin – carrot and stick – to draw back
from the logic of his current anti-democratic course of action.

There is a feeling among some G8 leaders (especially the French) that Tony
Blair hijacked the Gleneagles summit for a utopian political agenda that
ignored real world economic problems such as the surge in oil prices. For
that reason, the St Petersburg meeting is slated to focus on practical
issues such as global energy security rather than curing world poverty
overnight.

Since Russia is a key oil and gas exporter, there is something to be said
for having Mr Putin in the chair. That’s a good position to ensure that
Russia is committed to safeguarding Europe’s gas supplies, taking a more
sensible stance on Iran, and moving back towards the democratic camp.

The Russian Bear is definitely growling again, but it has a lot fewer teeth
than it once did. So far, Mr Putin is responding to national self-interest
rather than ideology. Provided the West is alert to the dangers and the
possibilities, it can use the G8 summit to keep Russia inside the tent.
——————————————————————————————–
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
========================================================
22. FINANCIAL TIMES SELECTS MEN BEHIND GOOGLE, SERGEY
            BRIN AND LARRY PAGE AS PERSON OF THE YEAR         
                   FT also running public poll for Person of the Year
         Ukrainian President Viktor Yushchenko now leads in the voting

From the Financial Times (FT), London, UK, Tue, Jan 3, 2006

The Action Ukraine Report (AUR), Number 633, Article 22
Washington, D.C., Wednesday, January 4, 2006

LONDON – The four strongest contenders to be the FT’s Person of the
Year 2005 were the reforming Japanese Prime Minister Junichiro Koizumi,
the author of the landmark UK pensions report Lord Turner, revolution
leader and Ukrainian President Viktor Yushchenko, and (counted as one)
the men behind Google, Sergey Brin and Larry Page.

The Financial Times has chosen the men behind Google, Sergey Brin
and Larry Page and their Person of the Year (click on the link below for

the story). 
 
A public poll is also being run by the FT’s as to what FT readers think. 
What FT readers now think:
 
                   2.20% UK pensions report author Lord Turner
                 72.00% Ukrainian President Viktor Yushchenko
                   7.10% Japanese Prime Minister Junichiro Koizumi
                 18.70% Google founders Larry Page and Sergey Brin 
 WHO WOULD YOU VOTE FOR AS THE PERSON OF THE YEAR?
VOTE: To cast your vote for FT Person of the year, go to the
following link:
http://www.ft.com/person2005
——————————————————————————————————–
http://news.ft.com/cms/s/0a81664a-7324-11da-8b42-0000779e2340,dwp_uuid=24fd0a56-72fc-11da-8b42-0000779e2340.html
——————————————————————————————————–
[return to index] [The Action Ukraine Report (AUR) Monitoring Service]
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