Publication: Eurasia Daily Monitor Volume: 2 Issue: 197

On October 20 in Ashgabat, Turkmen President Saparmurat Niyazov reassured the visiting Minister of Foreign Affairs of Russia, Sergei Lavrov, on two counts: First, Turkmenistan will continue to under price the gas it sells to Russia; and, second, it would only sign a long-term gas supply agreement with Ukraine if Russia consents.

That same day, Ukrainian President Viktor Yushchenko held a telephone conversation with his Russian counterpart Vladimir Putin during which “particular attention was paid to problems in the gas and energy sector” (Interfax-Ukraine, October 20).

Turkmenistan currently sells gas to Russia at the dirt-cheap price of $44 per 1,000 cubic meters. Niyazov proposed to Lavrov to raise the price to the still preposterously low levels of $50 in 2006 and $60 for the period 2007-31. Significantly, Niyazov twice said during the public part of the meeting, “until the end of the 25-year period” and “for the ensuing 25 years” (Interfax, October 20). That is the period of the Turkmenistan-Russia gas supply agreement, signed in 2003, whereby Moscow cemented a quasi-monopoly on the Turkmen gas trade for the long term, to the strategic detriment of Ukraine and the European Union.

At present, Turkmenistan is Ukraine’s main supplier of gas. The existing contract envisages the delivery of 59.5 billion cubic meters for the period July 2005-December 2006. Its implementation this coming winter seems uncertain because of Ukrainian arrears to Turkmenistan. From 2007 onward, Ukraine is not covered by any agreement with Turkmenistan. From that point on, the bulk of Turkmenistan’s export is pre-committed to Russia under the 25-year agreement. Thus, Kyiv risks finding itself at the mercy of Moscow in the latter’s dual role as exporter of Russian gas and middleman for Turkmen (and other Central Asian) gas. The EU faces similar risks, but Kyiv lacks the various types of counter leverage that the EU might bring to bear.

In front of Lavrov during the televised ceremony, Niyazov declared, “Ukraine is a bit upset, it also wants a long-term, deal with us. They in Kyiv are giving interviews every day saying that the [post-2006] contract is about to be signed. Actually, the contract is not ready yet and there is nothing to be signed. We have told them that such a deal is only possible when Russia gives its consent to pump the gas through its pipelines” (Turkmen Television Channel One, October 20).

The existing pipeline, Turkmenistan-Uzbekistan-Kazakhstan-Russia, will have to be used to its full estimated capacity of 60 billion cubic meters to handle Turkmen gas deliveries to Russia. This will leave little or no spare capacity for deliveries to Ukraine. Anticipating this problem, Kyiv and Ashgabat agreed in May 2005 to study the feasibility of constructing a new pipeline with a capacity of 30 billion cubic meters annually, dedicated to Turkmen gas supplied for Ukraine. The line would originate in eastern Turkmenistan, continuing via Kazakhstan and curving around the Caspian Sea coast before crossing into Russian territory en route to Ukraine. While separate from Gazprom’s pipeline system, this project does not obviate the root problem of dependency on Russian transit, and it can hardly be considered without Moscow’s political approval. As Niyazov reminded Lavrov during their meeting, Moscow has not yet responded to the May 2005 Ukrainian-Turkmen pipeline construction proposal.

Ukrainian Fuel and Energy Minister Ivan Plachkov and Naftohaz chairman Oleksiy Ivchenko had held talks with Niyazov in Ashgabat the week before Lavrov’s visit there. Niyazov upbraided them on live television over Ukraine’s arrears of almost $500 million for Turkmen gas delivered during 2005 (Interfax-Ukraine, October 12, 13; UNIAN, October 14). Those arrears are to be paid in the form of Ukrainian goods and construction services as part of barter arrangements. “You have ruined all construction projects, including the bridge [over the Amu-Darya River] where construction has come to a full stop. Despite glaring facts, you still claim that the goods have been shipped. Nothing of the kind. If it is too difficult [to send goods), then pay in cash. Please do not try to deceive us” (Turkmen Television Channel One, October 12, 13).

Several times during 2005, Niyazov used such undiplomatic language in reminding Ukrainian officials of the arrears on the barter portion of the gas bill. This time, he made clear that he has canceled his visit to Kyiv, originally planned for September at Yushchenko’s invitation. While Niyazov called for switching to full cash payments, Yushchenko had sought to increase the barter portion or at least maintain it.

Under the existing agreement, Ukraine pays 50% of that bill in cash and 50% in barter for the Turkmen gas. The price is the same as that paid by Russia at $44 per 1,000 cubic meters at the Turkmen border. Kyiv also pays in barter for Russian gas, the payment in this case taking the form of Ukrainian transit services for Gazprom’s deliveries to Europe. Thus, it can be said that Ukraine enjoys unusually favorable conditions as a gas consumer of gas. The Kremlin seems determined to end this situation by preempting the Turkmen gas exports, raising the price on its own gas, and pressuring Kyiv to turn Ukraine’s gas transit system into a Russian-Ukrainian consortium.