Publication: Monitor Volume: 5 Issue: 49

Russia’s Gazprom chairman Rem Vyakhirev headed a delegation to Kyiv on March 9-10 to renegotiate prices for Russian gas and the mechanism of Ukraine’s debt repayment. At Ukrainian insistence, Gazprom chiefs promised to consider cutting the price of gas from US$80 to, possibly, US$40 per thousand cubic meters, in keeping with current international prices. The cut is, however, contingent on Kyiv making significant progress on repaying its US$1.6 billion worth of arrears to Gazprom. That aggregate sum includes government-guaranteed debts, nonguaranteed debts and penalties for missing payment deadlines; the penalties alone amount to nearly US$600 million.

An exasperated Vyakhirev remarked in Kyiv that “it is March and there are absolutely no payments” for the peak consumption months of January and February. Vyakhirev was cited as asking Ukrainian President Leonid Kuchma and Prime Minister Valery Pustovoytenko to “get things moving” on debt repayment. Although Russia and Ukraine agreed last December on reimbursement through a mix of hard cash and Ukrainian goods deliveries, the two sides have failed to agree on a method to calculate the price of the Ukrainian goods. In the Kyiv talks, the Russian delegation agreed in principle to the Ukrainian view that those prices should be set in accordance with Russian market prices.

The only palpable result of the negotiations was an agreement between Gazprom and Naftohaz Ukrainy concerning transit of Russian gas via Ukraine to third countries. According to Naftohaz chief Ihor Bakay, the agreement increases the 1999 transit volume to 137 billion cubic meters, a hefty rise of 14 percent over the 1998 volume of 120 billion cubic meters. The transit fees will, as in the past, help offset part of Ukraine’s debts to Gazprom (Eastern Economist Daily (Kyiv), UNIAN, DINAU, Itar-Tass, March 9-10).

The situation illustrates Ukraine’s effective use of its double counterleverage on the Russian state monopoly. First, a classical debtor’s leverage enables Kyiv to exploit Gazprom’s own income shortfalls and problems with the Russian tax authorities (which, under the nonreformist government of Yevgeny Primakov, now accept settlements not only in cash but also in kind from Gazprom). Second, the leverage which inheres in a transit country enables Ukraine to procrastinate on debt repayment and even siphon off with near-impunity certain amounts of the Russian gas bound for third countries. As the 1999 transit agreement shows, Gazprom needs the Ukrainian transit so badly that it has had to increase its exposure to those risks. Ukraine, for its part, plans to add to its existing transit capacities for Russian gas (see the Monitor, February 9, 25), in effect an investment in its counterleverage on the Russian gas monopoly.–VS

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