Gazprom chief casts doubt on Kyiv gas agreement - FT

11:22, 28 March 2008
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The gas intermediary will remain in place for now?

The intermediary at the heart of the strategically sensitive gas trade between Russia and Ukraine will remain in place for now, according to the man in charge of exports at Gazprom, the Russian state-controlled energy group, according to Financial Times.

In remarks that cast doubt on a recent deal between Moscow and Kyiv over a dispute that threatened gas supplies to Europe, Alexander Medvedev, Gazprom`s deputy chief executive, said the group had long-term contracts under international law with Rosukrenergo, the Swiss-based trader, and therefore could not immediately cut it out of the trade.

"We are not finished with Rosukrenergo. You see we have a system of long-term contracts with Rosukrenergo in international legislation," he told the Financial Times in an interview. "We are now working very carefully not to be in breach of the contract signed."

Yuri Prodan, Ukraine`s energy minister, this week confirmed that Russia had proposed Rosukrenergo stay on as an intermediary

In negotiations ahead of the deal struck this month between Moscow and Kyiv, Yulia Tymoshenko, Ukraine`s prime minister, insisted Rosukrenergo, which is 50 per cent owned by Gazprom and 50 per cent owned by two Ukrainian businessmen, be removed as an intermediary, saying the company posed a threat to European energy security due to its opaque ownership structure.

Critics say Rosukrenergo is a vehicle for siphoning off profits from the gas trade. But Mr Medvedev insisted the trader had "always been transparent from our side".

The dispute with Ukraine over contracts and unpaid debts was simply about enforcing a transition to market-based rules and prices as part of a move towards a free market, he insisted.

"It was not an instrument of threat," he said of the cuts. "It was in accordance with a very simple situation: no payments for our gas, no contracts and no schedule of repayment."

Kazakhstan, Uzbekistan and Turkmenistan, which have long sold gas at regulated prices, recently told Gazprom they would charge "European prices" from next year. That could lead to another big price rise for Ukraine, which gets much of its gas, via Gazprom, from the central Asian republics.

A further step towards what Mr Medvedev calls the "transformation of the economies of the former USSR to market-based principles" will come in 2011 when Russia removes regulatory caps on gas prices for industry.

However, there is little sign that Gazprom, which controls a quarter of Europe`s gas supplies, has any intention of relinquishing another vestige of the Soviet planned economy: its monopoly on Russian gas exports which are enshrined in law.

Mr Medvedev brushed aside as "nonsense" recent government proposals to dilute Gazprom`s export monopoly by forcing it to share its export revenues with independent producers. Gazprom can count on the understanding of Russia`s president-elect, Dmitry Medvedev, who is no relation to Alexander - currently the group`s chairman.

"Mr [Dmitry] Medvedev is deeply involved in the strategic aspects of Gazprom`s development," said Alexander Medvedev.

The continued presence of the state in Gazprom was crucial for Russia`s "national interests", he added. But he conceded much could be done to improve Gazprom`s transparency and corporate governance.

"These corporate constructions in Russia are still . . . at the very beginning of the teenage years," he said. Outsiders should remember, he added, that as recently as 1991 state planners had "distributed every item, starting from nails".

Speaking before news broke last week that police had raided the Moscow office of TNK-BP, BP`s Russian venture, in connection with industrial espionage, Mr Medvedev said Gazprom was hoping to finalise a repeatedly-delayed deal with TNK-BP on taking control of its Kovykta field by the end of April.

He also denied that Gazprom used its administrative clout to help muscle in on deals involving foreign investors, saying environmental legislation had not been used selectively against Royal Dutch Shell in order to persuade it to sell control of its Sakhalin 2 oil and gas venture to Gazprom.

"We are facing these [environmental] changes everywhere, not only in Russia, but also in Europe," he said, citing a Gazprom facility in Austria as an example of strict environmental regulations facing energy companies across the continent. "It is really high technology with full environmental standards.

Even the surrounding rabbits were part of the deal," he said with a slight note of incredulity. "We have been forced to construct a 5-metre-high wall around the construction site to protect the rabbits."

By Lionel Barber, Catherine Belton and Neil Buckley, The Financial Times

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