Progress in negotiations with Russia on natural gas reveals how far apart the two sides are, not just in dollars but also in their concepts of a model for the trade. Ukraine paradoxically seeks what amounts to a common market with Russia in natural gas; Russia wants Ukraine to behave like a proper foreign country.

In talks in Moscow July 19, the two sides agreed that Ukraine owes Russia $1.5 billion for gas delivered through December 31, 1999. Moscow claims another $700 million for deliveries so far this year, a figure Ukraine disputes.

The large Ukrainian delegation proposed a long-term relationship based on a “common energy balance,” under which Ukraine would get Russian gas at Russian domestic prices and could pay (as many Russian consumers do) in barter. Shipments to Ukraine would also be exempt from the surtax on exports that Russia plans to impose next month. In exchange, Ukraine would agree to make timely payment (assuming steady deliveries) and to involve Russian banks and industry in Ukrainian nuclear-power development.

The Russian side wants Ukraine to pay in full and on time. Moscow claims (and Kyiv does not dispute) that Ukraine siphons off gas in transit through Ukrainian pipelines to other European countries, so Russia seeks greater control over Ukrainian pipelines and related assets. Russia’s Gazprom monopoly is exploring alternate routes to the central European market, so far without success. Poland, the main destination, has political objections to a pipeline through Belarus, and the technical and financial obstacles to building a seabed line across the Baltic seem for now insurmountable.