Publication: Eurasia Daily Monitor Volume: 2 Issue: 58

On March 23, Gazprom officially acknowledged for the first time that Turkmenistan had ceased gas deliveries to Russia on January 1. Gazprom Vice-Chairman Alexander Ryazanov confirmed to Moscow journalists that the company rejects Ashgabat’s demand for a price increase, from $44 to $58 per 1,000 cubic meters of Turkmen gas at the Turkmen-Russia border. Confirming also that Gazprom chairman Alexei Miller’s discussions with Turkmen President Saparmurat Niyazov last month in Ashgabat had been futile, Ryazanov announced that Miller is scheduled to hold talks with Niyazov in Ashgabat again in late April. Thus, Turkmen gas deliveries to Russia will remain on hold into the year’s second quarter.

The sale-and-purchase contract stipulates a dirt-cheap $44 (50% in cash, 50% in the form of goods and services) per 1,000 cubic meters until the end of 2006. Thus, according to Gazprom, its position is legally solid. Nevertheless, Ryazanov stated explicitly that the company would not initiate legal proceedings, not even arbitration, “because Turkmenistan is a partner.” It seems strange for Gazprom to forfeit legal leverage in this manner, a possible indication that its legal position is less solid than the company had claimed.

The halt in deliveries is not seriously hurting Gazprom yet. Under the long-term agreement, Turkmenistan is scheduled to deliver a relatively modest 6-7 billion cubic meters of gas to Russia in 2005. However, the deliveries are due to rise to 10 billion cubic meters in 2006 and to jump to 60-70 billion cubic meters in 2007. It is only for deliveries from 2007 onward that the price is subject to renegotiation. Gazprom counts on cheap Turkmen gas for ensuring windfall profits for Russia. It uses cheap Turkmen gas to supply certain Russian regions, releasing corresponding volumes of Russian gas for sale at high prices in Europe, and, increasingly, reselling Turkmen gas as Russian gas with a high mark-up in Europe.

In Ashgabat on March 22-23, Niyazov publicly turned down Ukrainian President Viktor Yushchenko’s request to reduce the price of Turkmen gas delivered to Ukraine. On January 3, 2005, Ukraine accepted Niyazov’s demand for a price rise from $44 to $58 (50% in cash, 50% in the form of goods and services) per 1,000 cubic meters of gas at the Turkmen border. Under Turkmenistan’s contracts with Ukraine — unlike the contract with Russia — prices are subject to renegotiation annually. During the talks in Ashgabat, Ukraine’s First Deputy Prime Minister Anatoly Kinakh conceded that Turkmenistan’s position is justified in light of rapidly rising energy prices on international markets; indeed, Turkmen gas remains the cheapest. The price increase should stimulate Ukraine to modernize its heavy industry and conserve energy, Kinakh remarked.

Under the agreement signed in 2001, covering the period 2002-2006, Ukraine imports 36 billion cubic meters of Turkmen gas annually. Ukraine has no contract for 2007 and the following years, when Russia is scheduled under the long-term agreement to soak up from 60 to 80 billion cubic meters of Turkmen gas annually.

(Interfax, UNIAN, RIA-Novosti, March 23)