Ukraine may seek changes to Russian gas deal

10:49, 26 January 2009
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Though Tymoshenko made clear it will not be reconsidered

Ukrainian President Viktor Yushchenko indicated Friday he would like to revisit a hard-won natural gas deal with Russia later this year because the terms will further undermine his country`s battered economy, AP reported.

His fierce rival Yulia Tymoshenko, the prime minister who signed the deal, made clear it will not be reconsidered, and the head of Russia`s gas company said the idea was laughable.

But the conflicting statements sent a worrying signal to European countries still reeling from a nearly two-week cutoff of gas.

As more details of the contract emerged Friday, questions also arose about Ukraine`s ability to pay for Russian gas amid a devastating financial crisis and fulfill the deal`s other stringent terms.

Yushchenko`s economic adviser Olexandr Shlapak told reporters that while the agreement will be honored, Ukraine may try to revise it this summer because the prices are still too high. He said Ukraine will propose changes to the contract after consulting European experts.

"I believe the Ukrainian side must analyze this agreement one more time," Shlapak said.

Tymoshenko`s top aide, First Deputy Prime Minister Volodymyr Turchynov, dismissed the statements as irresponsible. He said the deal serves Ukraine`s national interests and the government will not allow it to be revised.

The CEO of Russia`s state-controlled gas monopoly OAO Gazprom, Alexei Miller, said the deal would not be reconsidered. "Such proposals could only appear in some Ukrainian humor newspaper," Russia`s RIA-Novosti news agency quoted him as saying.

Yushchenko`s harsh criticism of the agreement with Russia caused alarm in Europe, still recovering from the cutoff that left more than a dozen European countries with little or no gas.

European Commission President Jose Manuel Barroso spoke by telephone with Yushchenko and asked him to honor the gas deal, according to Tymoshenko, who also spoke to Barroso.

Monday`s deal, which ended the politically charged dispute between the two neighbors and restored supplies to Europe and Ukraine, doubled the price Ukraine has to pay for Russian gas in the first quarter of 2009. Gas prices will be revised on a quarterly basis and are expected to fall sharply later this year.

But Ukraine still faces a significant price hike, which it will offset in part by purchasing less gas and relying on the fuel it already has in storage.

Valery Nesterov, a gas analyst with Troika Dialog in Moscow, predicted that Ukraine will have to pay a total of about $11 billion for 40 billion cubic meters of gas this year, compared with $10.6 billion for 56 billion cubic meters last year.

Ukraine could barely pay for Russian gas before the increases. The national currency, the hryvna, has lost more than 40 percent of its value since September, the banking sector has suffered a run on banks, and the economy is plunging into a painful recession.

Ukraine is relying on a $16.5 billion loan from the International Monetary Fund to avoid an all-out collapse. Yushchenko met Friday with IMF officials, who are evaluating the country`s progress on fulfilling the loan requirements before releasing a second tranche of the money.

The contract with Russia presents Ukraine with even bigger obstacles.

Under the contract, published by the respected news Web site Ukrainska Pravda after Ukrainian officials disclosed the terms, Ukraine is obliged to purchase a fixed amount of gas every quarter. If it imports less than 94 percent of the contracted amount of gas, it will be forced to pay three times the price of the gas it does not use.

Neither Gazprom nor Ukraine`s state gas company Naftogaz would comment on whether the published contract was authentic.

The deal also stipulates that Naftogaz will have to make advance payments if it fails to pay its bill on time. The gas dispute erupted over a $2.1 billion debt accumulated by Naftogaz in 2008, and Ukraine may now find it even more difficult to keep up with its payments.

"The probability of Ukraine`s failure to pay is very high," said Nesterov of Troika Dialog.

If Ukraine fails to pay on time, it could lead to another gas dispute in which European countries are again held hostage.

AP

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