Publication: Eurasia Daily Monitor Volume: 2 Issue: 4

Rising world prices for oil and gas, and to a lesser extent for metal products, as well as the dollar’s fall, have enabled Turkmenistan to force up the dollar price of its gas deliveries to Ukraine and to present similar demands to Russia. Already in November 2004, Ashgabat notified Kyiv and Moscow that it intends to renegotiate the price for gas deliveries to be made in 2005. On December 23, 27, and 29, Turkmenistan’s government publicly warned Ukraine and Russia that it would stop the deliveries at the year’s end, pending renegotiation of the prices. And, at midnight December 31-January 1, Turkmenistan closed — purportedly for “maintenance work” — the valves on the pipeline that runs to Russia and on to Ukraine.

Ukraine could not address this situation until its presidential election ended. On January 2, Naftohaz Ukrayini holdover chairman Yuriy Boyko and his first deputy, Vadym Chuprun (formerly ambassador to Turkmenistan and negotiator for gas), rushed to Ashgabat, to sign on January 3 with Turkmen President Saparmurat Niyazov the supply agreements for 2005 at new prices. That same day, Turkmenistan reopened the valve for deliveries earmarked for Ukraine (as distinct from deliveries earmarked for Russia). Boyko, noting the worldwide price trends, declared himself “very happy with this contract” during the signing ceremony in Ashgabat.

Niyazov provided details on the contract in an unusually detailed presentation on live television during the signing ceremony. The volume of Turkmen gas deliveries contracted for 2005 remains almost unchanged at 36 billion cubic meters, constituting more than 40% of Ukraine’s annual consumption. The new price is $58 per 1,000 cubic meters, up from $44 in 2004, for gas delivered at Turkmenistan’s border en route to Ukraine. (Niyazov tried to show generosity after asking $60 last month). Niyazov is now asking Russia to pay $58 as well; however, Russia plans to buy only a small volume of Turkmen gas in 2005. The contract with Ukraine reserves Turkmenistan’s right after 2005 to increase the gas price still further, in keeping with anticipated world price rises and declining dollar rates.

Ukraine will pay half of the price in dollar-denominated cash and half in Ukrainian commodities and services — the same formula as was used in recent years. Steel pipes and other steel products form the mainstay of Ukraine’s commodity deliveries as part of that barter. Rising prices of Russian-supplied energy to Ukraine forced Ukrainian metal producers this year to recalculate upward the price on their deliveries to Turkmenistan. This situation provided Niyazov with an added argument to increase the price of gas supplied to Ukraine. In the negotiations with Boyko, the Turkmen president characterized such barter arrangements as a Soviet-era relict and urged a shift to full payment in cash from 2007 on.

On top of the price paid to Turkmenistan at the latter’s border, Ukraine must pay for transit of the gas via Uzbekistan, Kazakhstan, and Russia through Gazprom-controlled pipelines. Last year, those increments amounted to $17 per 1,000 cubic meters, by the time the gas reached Ukraine’s border. Gazprom and its affiliate trading company take the lion’s share of transit and delivery charges.

Opening this year’s first session of Ukraine’s caretaker Cabinet of Ministers on January 5, Acting Prime Minister Mykola Azarov stated that the government had not authorized Boyko to sign any agreement with Turkmenistan on the price of gas. Azarov instructed Boyko to present a detailed report, and the Ministries of Finance, Economy, and Energy to assess the agreements just signed. Ukraine’s transition to a new government and new presidency, as well as pending personnel changes in the energy sector, may make it difficult for Kyiv to focus on this issue fully and immediately.

(Turkmen government press releases, December 30; January 1; Turkmen Television First Channel, January 3; Invest-Gazeta [Kyiv], December 28; Era [Kyiv], January 1, 3, 5).