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Gazprom Is Unlikely to Yield on Ukraine

Published: November 14, 2012 (Issue # 1735)



  • Several EU nations have procured discounts but Ukraine lacks political leverage.
    Photo: MAXIM STULOV / VEDOMOSTI

MOSCOW Gazprom may have agreed tocut prices formany ofits European customers, but thechances ofits biggest foreign market, Ukraine, getting adiscount appear slim, according toan analyst report.

Perhaps Gazprom cannot afford yet another price cut when its revenues andnet profits are under such strain, Andrew Neff, aRussia analyst forIHS Energy, said last week.

Inthe latest concession, Gazprom agreed last week toshave 10 percent off theprice that it charges Polish gas importer, PGNiG. Germany andItaly had won similar discounts inpast months onthe backdrop ofincreased scrutiny bythe European Commission ofGazproms business inEurope.

Not amember ofthe EU, Ukraine doesnt enjoy thepolitical backing ofthe bloc, andit doesnt have analternative source forits huge gas imports, Neff said inthe research note.

Ukraines current political leaders bear part ofthe blame forthe price impasse with Russia, thenote said.

Ukrainian policymakers also can point thefinger squarely inthe mirror fortheir current predicament, Neff wrote.

After President Viktor Yanukovich came topower inUkraine, thecountry made amajor strategic error when it didnt tear up thecurrent contract with Gazprom containing what Neff called aninflated base price, thenote said. Instead, Yanukovich secured adiscount forUkraines national energy company Naftogaz inexchange forextending theRussian lease ofthe Sevastopol naval base.

Not only has Russia argued since that time that Gazprom already has granted Naftogaz aprice discount but that accord set expectations onthe Russian side that any concessions byGazprom would be matched byconcessions byNaftogaz and/or theUkrainian government as well, Neff wrote.

Thus, Russia has dangled thepossibility oflower gas prices forUkraine if it joins aRussia-led customs union anoffer that Ukraine has resisted so far.

Gazproms European customers have wrangled lower prices andretroactive discounts fromthe Russian export monopoly bythreatening or, inPGNiGs case, actually launching arbitration proceedings. But Ukraine didnt cross that line, Neff noted.

Ukrainian President Yanukovich avoids araucous legal standoff because his voter base is loyal toRussia, said Volodymyr Fesenko, director ofthe Penta political studies center inKiev. TheUkrainian government is also afraid oflosing that battle, he added.

Kiev damaged its odds ofgaining theupper hand inthe price dispute byalienating theEuropean Union political establishment, which criticized theprosecution andimprisonment ofUkraines former prime minister Yulia Tymoshenko as politically motivated, Fesenko said.

Ukraine has chosen thepath ofincreasing its own production ofgas aneffort that will not bear fruit any time soon, he said. Even so, significant progress onthis could over time compel Gazprom toreconsider its adamant approach todealing with Ukraine, Fesenko said.





 


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