Yushchenko Calls for Gazprom Deal to Secure Gas Flows

By Halia Pavliva and Daryna Krasnolutska
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Sept. 23 (Bloomberg) -- Ukraine's President Viktor Yushchenko urged the country's government to sign a contract for natural-gas shipments from Russia's OAO Gazprom for domestic use in 2009, a move that would ensure stability of flows to Europe.

``These talks should be finished as soon as possible,'' Yushchenko said in an interview in New York yesterday. ``We should not wait until December, because December is when the political component dominates.''

The European Union gets a quarter of its gas from Russia, 80 percent of which is shipped across Ukraine. Since 2006, Russia's gas-export monopoly Gazprom has reduced flows to Ukraine twice during pricing disputes, raising EU concerns that Russia is unreliable as an energy supplier.

Ukraine's state-run energy company NAK Naftogaz Ukrainy said Sept. 16 it may delay signing the agreement on 2009 gas supplies with Gazprom until the end of the year because falling oil and gas costs may result in a better price. Ukraine may be forced to tap supplies destined for Europe if a deal isn't signed.

``Banking on the idea that oil prices will drop makes little sense,'' Nick Piazza, an analyst at Galt & Taggart Securities Ukraine, said in an interview from Kiev. ``We are likely to see an incredible amount of volatility in commodity prices over the next three months. Beginning work on a long-term agreement now would certainly be welcomed by investors; the last thing anyone wants to see this Christmas is another gas standoff.''

Russia Halts Gas

Russia, the world's largest gas and second-largest oil exporter, cut off gas supplies to Ukraine at the beginning of 2006 and reduced deliveries by 50 percent this March. It also halted shipments of crude oil to Belarus last year.

Government officials in Ukraine and Belarus have repeatedly said Russia is using its energy resources to wield influence over its former Soviet satellites, accusations Russia has denied.

Yushchenko said he told Gazprom Chief Executive Officer Alexei Miller in July that Ukraine wants to sign the agreement sooner rather than later, in part because affordable gas is ``crucial'' for Ukrainian industries such as metallurgy and chemical production.

``I am convinced that the agreement must be signed before the winter months,'' Yushchenko said. ``The major issue is to agree on a formula for the price,'' which should include the tariffs that Russia pays for shipping its gas via Ukraine to Europe.

Transit Fees

Naftogaz CEO Oleh Dubina said in a Sept. 16 interview that Ukraine doesn't plan to increase 2009 transit charges for Russian gas in a bid to limit the price it pays for supplies from Gazprom.

Still, transit charges remain under discussion, Yushchenko said. Ukraine relies on Russia for 71 percent of its gas needs.

Russia doubled Ukraine's gas price in 2006, and raised it 37 percent in 2007 and 38 percent this year. Russian Foreign Minister Sergey Lavrov said in June that his country may double the price again for 2009 deliveries.

Ukraine increased its transit fee to $1.70 per 1,000 cubic meters of gas over 1,000 kilometers this year, from $1.60 in 2007 and 2006.

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Halia Pavliva in New York at hpavliva@bloomberg.net.