Some things you just can’t get over: they niggle at you, bubbling away in the background until eventually, inevitably, the pot boils over. Russia and Ukraine have been stuck in an energy impasse in recent years, where an unsatisfactory agreement on gas prices has often left Ukraine in a tight spot, prepared to upset its European transit commitments in order to gain a little leverage with Russia.
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Ukraine believes it is paying too much under its current gas supply deal with Russia - it pays what amounts to US$ 400 per 1000 m3 of gas, and is obliged to buy at least 33 billion m3/yr in a strict ‘take-or-pay’ deal. Kiev wishes to change these terms, which were agreed in 2009 under the previous Ukraine administration.
Russia has said it will only agree to review the gas supply deal if Ukraine joins its customs union with Belarus and Kazakhstan, which would kill the hopes Ukraine has for setting up a free trade deal with the European Union.
In talks taking place at the end of September, Presidents Dmitry Medvedev and Viktor Yanukovich were said to be making progress on resolving the issues each country has, with a view to avoiding disruption to European gas supply through Ukraine, as has happened twice since 2006, most recently in January 2009, when a dispute over prices led to a three week cut-off.
Yanukovich has promised that Europe needn’t be concerned about supply disruptions this time, claiming that his administration “is a slightly different government, a more responsible one” to ex-Prime Minister Yulia Tymoshenko’s government, which is responsible for the current gas deal. It should be noted that Tymoshenko is now awaiting trial on charges including abuse of power by agreeing to overpay for Russian gas.
Newspapers are running pictures of the two Presidents, along with Russian Prime Minister Vladimir Putin, gathered for crisis talks and posing for press in winter jackets at a Russian hunting estate. This photocall comes just after Medvedev made a shock move in asking Putin to take over the presidency from him in March polls.
It’s an interesting time for the two countries as they struggle to find a point of agreement. Yanukovich must show the Ukraine citizens that he isn’t Medvedev and Putin’s puppet, whilst Russia is keen to continue its policy of slowly raising the price it charges former soviet states for gas, after having subsidised them for years.
It’s an uneasy friendship that exists between a country that needs a reliable transit route to Europe, and a country that desperately needs gas for an energy industry that relies heavily on gas-produced electricity.
Ukraine has announced plans to break up Naftogaz in order to force a renegotiation of the gas deal, which seems like a rather drastic strategy. It has also proposed that Gazprom and European Union countries could play a role in the managing of its natural gas pipelines, once Naftogaz is restructured. This would bring much-needed investment, which would be used for pipeline upgrades, and would go some way to ensuring stability of supply – if Gazprom is helping to manage the Ukrainian pipeline system, then the risk of supply interruption would naturally be reduced.
The best deal would perhaps involve giving Russia some stake or interest in upgrading Ukraine’s pipeline infrastructure, while Ukraine keeps its independence and reforms Naftogaz so that its operations are transparent to both Russia and the EU.
This month, Gazprom began pumping gas through the Nord Stream pipeline, which runs from Russia to Germany under the Baltic Sea, bypassing Ukraine.
The power that it has as a transit state suddenly seems diminished.