From Volume 5, Issue Number 2 of EIR Online, Published Jan. 10, 2006
Russia and the CIS News Digest

Five-Year Deal Announced in Russia-Ukraine Gas Conflict

Russian Gazprom chairman Alexei Miller and Ukrainian Naftohaz chairman Olexi Ivchenko announced Jan. 4 at a Moscow press conference that a "mutually beneficial agreement" on resuming the Russian gas supply to Ukraine had been reached during the night. "We are satisfied about the outcome of the negotiations," said Miller. "It allows us to fully meet the Ukrainian gas needs and ensure the transit to Europe." An emergency EU coordinating committee meeting to deal with the gas-supply crisis received the news of the settlement, just as it was about to begin in Brussels.

Miller said that Ukraine will purchase gas via the trading company Rosukrenergo. Under a complex formula, Gazprom will sell Russian gas to Rosukrenergo at the starting price of $230 per 1,000 cubic meters—the "European" market price Gazprom was holding out for. Ukraine's gas imports from Turkmenistan and other Central Asian suppliers will also come through Rosukrenergo, which buys from those producers at preferential prices in the range of $50. Ukraine will pay Rosukrenergo approximately $95 as the starting price, on gas from both sources—Russia and Central Asia. In a separate contract, Russia agreed to pay Ukraine $1.60 per 100 cubic meter per 100 km for gas transit to Europe across Ukrainian territory, instead of the previous price of $1.09.

Russian President Vladimir Putin received a report on the deal from Miller and Minister of Industry and Energy Victor Khristenko, telling them that Russia's original position on prices has been upheld, and that now "Russian-Ukrainian relations are taking on new qualities: partnership, market-based, and transparent." The transit contract will enable Russian gas supplies to Western Europe "for many years ahead," said Putin. Officials on both sides said repeatedly that they were happy to be moving from barter to all-cash settlements, "from the bazaar to the market," as Russian state TV hailed the deal.

Swiss-Based Middleman at Center of Gas Deal

Not everything is transparent about the three-way Russia-Ukraine-Central Asia gas deal. Gazprom vice chairman Alexander Medvedev made fairly clear, in a Jan. 4 interview with the RTR Vesti program, that Gazprom had had the settlement up its sleeve, and sprang it on the Ukrainian delegation last night, as an offer they couldn't refuse.

Rosukrenergo is a 50-50 joint venture of Gazprom-owned Gazprombank and RaiffeisenBank of Austria. Chartered in Switzerland, it is involved in the investment-risk insurance business. One year ago, Rosukrenergo took over one of the murkiest segments of the post-Soviet energy business, the Turkmenistan-Ukraine gas trade. Previous Russian intermediaries in this trade had been Itera, an often-sued international arm of the previous Gazprom management; and then, in 2002-2004, a Hungary-based, Romanian-Israeli-owned outfit called Eural Trans Gas, which Ukrainian security investigators targetted in a probe for ties to Ukrainian-born Russian mobster Semyon Mogilevich. The Moscow Times, Boris Berezovsky's Kommersant and other sources claimed last summer that Rosukrenergo has similar ties.

In July 2005, Ukraine's first "Orange" Prime Minister, Yulia Tymoshenko, said she was trying to shift the Turkmenistan-Ukraine gas trade to direct-sale and cash payment. Even last week, current Prime Minister Yuri Yekhanurov suggested that Kiev could cover most of its needs with Turkmenistan gas. Gazprom, however, retorted that it had contracted to buy the greater part of the gas Turkmenistan will export in 2006. Evidently, Rosukrenergo had these supplies, at $50 or so, lined up in advance.

In a press conference after settlement of the price dispute, Yekhanurov said that Ukraine had been taught a lesson. Russian commentators like Sergei Markov, who spoke on RTR state TV, said they thought that President Victor Yushchenko had expected the European Union to rush to Ukraine's support, but it turned out that Europe's priority is reliable supplies from Russia. Other Russian commentators likewise played up how tarnished the reputation of Yushchenko's government now is, especially after the accusations of gas thievery during the first three days of the year. Any diverted gas has been subsumed in the new agreements.

Putin Confers with Turkmenistan Leader

In the aftermath of the Russian-Ukrainian gas conflict settlement, Russian President Vladimir Putin was on the phone Jan. 5 with President S. Niyazov of Turkmenistan, and it was announced that Niyazov will visit Moscow before the end of January. The supply of gas from Turkmenistan at deep cut-rate prices is a crucial component of Gazprom's solution to the stand off over Russian supplies to Ukraine, reached Jan. 3, and there is some concern in Moscow that Niyazov will demand a higher price or other compensation.

Yushchenko Blasted from Left and Right

Opposition politicians from all parts of the political spectrum attacked Ukrainian President Victor Yushchenko for selling out to Moscow in the gas price war. Natalia Vitrenko, leader of the radical leftist Progressive Socialist Party of Ukraine, said that Yushchenko had committed a crime of state, both in allowing the crisis to come to a head and in the terms of settlement, and should be impeached. From the other side of the political scene, ex-Prime Minister Yulia Tymoshenko announced Jan. 5 that she was going to file suit against the energy company Naftohaz and the Ministry of Energy, for betrayal of the national interest, abuse of office and exceeding their authority in the negotiations.

Parliamentary elections in Ukraine will take place in March. According to the Kiev International Institute of Sociology, its polls during December showed that former Prime Minister Victor Yanukovych's Party of the Regions has close to 27% popular support, while the former Orange Revolution allies, Tymoshenko and Yushchenko, are each polling in the teens.

Wall Street, London Mouthpieces Want Russia Out of G-8

Under the headline "Putin's Gas Squeeze," the Wall Street Journal editorially demanded on Jan. 3 that Russia be removed from the Group of Eight, of which it has just assumed the chairmanship. An accompanying op-ed article by David Satter, a member of both the Hoover Institute and the neo-con Hudson Institute, trumpeted that "Russia is daily sinking deeper into authoritarianism and lawlessness." The article presents an array of violent attacks on Russia. The Journal editorial highlighted the rantings of outgoing economics adviser to Putin and free-trade ideologue Andrei Illarionov, who charged that Russia's present treatment of Ukraine is like the Nazi and Soviet ultimatums. It concluded, "Moscow's inclusion [in the G-8] has never been justified on economic grounds, but was intended to promote democratic reform in a country that retains a huge nuclear arsenal. Perhaps the engineers of that G-8 policy, including President Bush, are now beginning to see that they made a mistake."

The Jan. 3 Financial Times of London, which ran no less than seven articles on Russia, carries a lead editorial nearly identical to that of the Wall Street Journal, calling for Putin and Russia to either change behavior, or be removed from the G-8.

Lyndon LaRouche observed, "The Wall Street Journal editor has gas bags under his eyes," and that this pathetic soul believes that "things go better with gas."

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