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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Gas prices

The political component
7 October, 2008 - 00:00

On Oct. 3, Prime Minister Yulia Tymoshenko of Ukraine summed up her visit to Moscow. After Ukraine showed “activity” in the Georgian issue, everyone – from the head of state to the man in the street – realized that the gas talks would be anything but simple.

Additional pressure was brought to bear by RosUkrEnergo, which is in arrears to Russia for the 11.2 billion m3 of gas that have been pumped into Ukraine’s underground storage facilities. Tymoshenko said that Naftohaz Ukrainy is prepared to take possession of this gas and pay Gazprom for it. Despite all obstacles, the negotiators succeeded in achieving positive results.

The Ukrainian side is especially proud of the Ukraine-Russia intergovernmental memorandum on relations in the gas sphere. It reads that, as of Jan. 1, 2009, Gazprom and Naftohaz Ukraine will switch to direct relations. Today gas deliveries are supervised by RosUkrEnergo.

With regard to the Ukrainian economy’s switch to the general European level in terms of gas payments, Tymoshenko said: “Within three years we will adopt a gas price formula and normal market prices, and Naftohaz Ukrainy will be the sole importer of gas.” The same applies to the increase in the gas transit price: “The transit price has not been increased in a long time. This is wrong,” said the prime minister.

The price per cubic meter of the blue fuel is still a secret. Why? Tymoshenko says that the main obstacle is the ambiguous situation with gas prices in the Central Asian countries. She promises that this problem will be solved this month and that she will see to it that long-term contracts are signed “for at least 10 years.”

The Ukrainian opposition says these are empty promises, claiming that Tymoshenko’s recent visit to Moscow drew a blank. “The vague situation with the gas price holds significant risks for Ukraine because without a precise figure, which is one of the main macroeconomic indices, it is impossible to draft the 2009 budget program,” said MP Yurii Boiko, deputy head of the Party of Regions and Ukraine’s former fuel and energy minister.

Experts assess Tymoshenko’s visit differently. “Regardless of who would have gone to Moscow for these talks, the result would hardly have been better,” explained Mykhailo Honchar, director of energy programs at the Nomos Center. “This is a situation where you cannot refuse to make this visit because you have to maintain a dialog, but you cannot expect to solve all problems with just one visit.”

This expert attributes the ambiguous situation with the gas price to Gazprom’s lack of clear-cut progress with regard to a gas price formula, as previously agreed upon by the two sides. In addition, Russia’s gas monopolist is having serious problems because of the global financial crisis and internal difficulties. However, putting aside all these factors and relying only on the dynamics of gas factors, specifically last year’s price, it is possible to negotiate 0-340 per thousand cubic meters.

Gas prices are also influenced by oil prices. World prices have reached a barrel, and international experts believe this is not the limit. Since the beginning of last week prices of oil futures have dropped by three times, and the value of oil futures on stock exchanges has dropped by almost a barrel. “Each side is interested in taking a time-out,” Honchar explained. If oil prices continue to drop, Ukraine will have additional grounds for setting a lower price for gas. If oil prices go up, this will play into Gazprom’s hand.

Be that as it may, the gas price will also depend on the political component of Ukrainian-Russian relations. Russia’s Prime Minister Vladimir Putin made this perfectly clear during his meeting with Prime Minister Tymoshenko: “Russia will build its relations with any states, including Ukraine, on a mirror basis.” To emphasize his meaning, he added: “It’s autumn now, and we know that all illnesses are aggravated during this season.” In other words, read between the lines of my message.

Considering that Russia has lost a significant part of its international image because of last year’s gas wars and the recent events in the Caucasus, it will have to consider the use of harsh methods in relation to the gas issue by opening and closing the gas valve, as ordered by the master. Ukraine should take advantage of this situation and get a gas price that would be maximally acceptable for its economy, without betraying the country’s national interests.

“However, we’ll get a successful result once we have consolidated the national position in the gas sphere, instead of the government taking one position, the Presidential Secretariat another one, and parliament a third,” Honchar summed up.

By Natalia BILOUSOVA, The Day