The story seems so simple. The Russians cut off gas supplies to
Ukraine for not paying their gas bill. The European Union depends
on Russia for 25% of its gas requirements of which 80% arrives
via Ukraine’s pipelines. Except, as in everything regarding
Russia, it is not quite so simple.
To begin with, the entire history of Russian gas development goes
back to the days of the Soviet Union and the broad expanse of the
post-revolutionary Russian empire. The gas pipelines, pumping
stations and storage facilities of the Ukraine originated with
the development of the gas deposits of the Ukraine. As these
deposits played out, the source of Soviet gas shifted to Siberian
drillings, though their transportation infrastructure remained
centered on the Ukraine.
With the breakup of the USSR, the increasing export of Russian
and central Asian gas to Western Europe was dependent on the
pipeline and storage structure of independent Ukraine through
which the product still transited. The Ukrainians made money on
their transportation and storage role and the Russians made money
from their monopoly on the provision of gas to Ukraine and
Western Europe. Here is where things become a bit more
complicated.
Gazprom, the giant Russian energy company, controls the
production and sale of Siberian gas and the transport of central
Asian gas through Russia. Naftogaz is the principal Ukrainian
instrument importing gas for their use. The actual supplier of
this gas is UkrGazEnergo. This company is a joint venture of
Naftogaz and RosUkrEnergo, a Swiss-based middleman that sells gas
to UkrGazEnergo. And, just to be clear, RosUkrEnergo is 50% owned
by Russia’s Gazprom.
Here is where the tricky part comes in. The money said to be owed
by Ukraine’s Naftogaz to Gazprom must be paid first to
RosUkrEnergo and then sent on to Gazprom. Fine, you say, send the
money Ukraine (Naftogaz) owes to Russia (Gazprom) via
RosUkrEnergo. Not so fast: Naftogaz is said to owe money to
UkrGazEnergo — which as noted earlier is a Swiss company jointly
owned by Naftogaz and RosUkrEnergo, the one half Gazprom-owned
corporation.
Behind all of this wonderfully complex business arrangement is
the fact that Gazprom would like to own the entire pipeline that
brings Russian and central Asian gas to Western Europe through
Belarus and Ukraine. Moscow has gained a 50% ownership of the
Belarus line, but so far has failed in regard to Ukraine. Any
debt on gas deliveries to Ukraine therefore puts pressure on Kiev
to rethink its stubborn refusal to negotiate the Ukrainian
pipeline ownership with Gazprom.
The debt owed Russia by Ukraine for gas deliveries is claimed to
be $2.4 billion. Kiev says that amount is incorrect. Anyhow, it
says, it doesn’t have the money. The International Monetary Fund,
however, insists that Ukraine does have the money if it will
consider transferring assets such as a portion of ownership of
its pipeline. Back to square one.
To add to the complication is the fact that Swiss-registered
RosUkrEnergo is a joint venture between Gazprom and the Ukrainian
billionaire gas trader, Dmitry Firtash, and his holding company,
Group DF. This latter organization is a haven for several of
Firtash’s high rolling friends. The Ukrainian prime minister, the
dynamic Yulia Tymoshenko, has referred to RosUkrEnergo as “one of
the corrupt intermediaries” involved in the Russia gas trade.
Ms. Tymoshenko, who before entering politics had made her fortune
through ownership of an energy company, wants to cut out
RosUkrEnergo and shift its gas supply contract to a more direct
agreement between Naftogaz and Gazprom. Presumably this is what
she and Vladimir Putin will talk about during their “emergency”
meeting on January 17. President Medvedev’s invitation for a
summit meeting with EU leadership of gas import companies did not
bring an enthusiastic reaction, but an EU Commission energy team
has agreed to go to Moscow.
The accord to have EU monitors check on Russian gas transiting
Ukraine has been frustrated by ill-defined protocols. The Moscow
claim that the Ukrainians were pilfering gas destined for Europe
has been denied, of course, by Kiev, and the gas spigot remains
at “off.”
Both sides continue to fling claims of perfidy at each other. The
vice chairman of Gazprom stated that U.S. interests are urging on
Ukraine. The International Energy Agency says Russia has lost its
status as a reliable gas supplier. Meanwhile, the president of
the European Commission suggested that the offending Ukrainian
and Russian companies should be sued. The Balkans is freezing and
the rest of Europe is expecting that it might. No, there’s
nothing simple in this energy politics brawl.
