The criteria for having the tiff now: Ukraine under anything but an expressly pro-Russian leadership gets to pay full market price.
Elsewhere, we see this exchange...
Which raises the issue of why Ukraine cannot void the contract using the same rationale asserted by the Russians when they cut the gas.
Then there is the matter of diversified supplies, which Ukraine enjoys, though much of Europe does not:
Now, a quick look at a map will point out that Turkmeni gas has to pass through the Russian network in order to get to Ukraine. A listing of Route options, existing and planned details that Turkmenistan uses the Central Asia-Center Pipeline system to connect to the Russian grid at Saratov and "is using this pipeline to export a total of 8.83 Tcf to Ukraine (via Russia) from 2002 to 2006, as well as smaller amounts to Russia."
The Russians, if inclined, could cut that supply off as well, though at the price of forcing a confrontation with the United States.
However, Russia and China are staunch allies. One of the now five year-old Shanghai Cooperation Organization's goals is to maintain strategic control over the energy reserves of Central Asia, as opposed to letting a non-Asian power (read: the United States or Europe) enjoy that role. Getting access to this energy is the main reason why India has been flirting with membership in SCO, and mending fences and making new friends -- with Pakistan and Iran, respectively. Have Keyboard. Will Travel. :)
Well, because there is no gas contract for 2006 between Naftogas and Gazrprom and this one is commercial contract, whereas fleet agreement is a package international treaty which includes Russia's recognition of Ukraine's borders.
There is no Turkmen gas for the first quarter of 2006 for Ukraine: this gas is all bought out by Gazprom.
I think that just about kills the optimistic scenario.
The Russians are going for the jugular, here. Have Keyboard. Will Travel. :)
Ukraine does not pay anywhere near commercial rates for gas. Current rate for Ukraine is 50$ 1,000 cubic metres of gas and 1.09$ for the transit of the same amount per 100 km. This price is real for all intents and purposes. Say, when Ukraine steals gas from the pipeline in order to sell to Romania for 250$, 50$ is what Ukraine owes Gazprom.
Proportional inrease to 250$ gas/5$ transit will make Ukraine transit fee way above max market rates (2.5$).
Not true; residential rates used to be around 40$, industrial around 60$ (that's why 50$ above is real). Gas bill for appartment can be around 1$ for unmetered appartments.
For Gazprom main issues are that gas and transit fees are tied and the fact that Ukraine can steal gas at any point and resell for 250$.
The retail and industrial prices you mention are the official ones, not the real ones that you need to pay if you actually want gas (I am talking about large users like local distributors). The intermediaries get good revenues form the final consumers - the question is who they pay it to, or who they share it with.
See my new story on the front page. In the long run, we're all dead. John Maynard Keynes
How different are nominal prices from local distributor's prices? They should be pretty much the same. Gas is dirt cheap for end users, otherwise Ukraine would not be #6 gas user in the world with #32 economy.
So "commercial" terms would mean oil-indexed prices for the gas, and "what the market will bear" for transit fees. Ukraine, having absolute control over Russian exports, can capture the rent and set whatever transit price it wants. The current status quo (25 bcm/y of gas vs transit rights) is a great deal for Russia - this is not what this dispute is about. In the long run, we're all dead. John Maynard Keynes
every time Ukraine steals gas, that is the amount Gazprom gets back; current ratio is tilted into Ukraine's favour; Gazprom transit fees for Turkmen gas can be made the same as Ukraine's fees for Gazprom gas; that is the amount Ukraine will pay for the gas in the first quater of 2006 and after 2007, when Turkmen gas is being bought by Gazprom.
Ukraine can not charge whatever it wants for the transit (well, no more than Russia can charge for the gas, being the only supplier), and one of the reasons being that Turkmen gas goes through Russian pipeline.
As for the price, Gazprom is talking about 12 bcm/y, so it does not seem to think that the price is great.
(Obviously, there is gas physically coming from Turkmenistan, but it is bought dirt cheap as Turkmenistan has no other option - the Turkmenbashi doesn't care as he is part of this scam, obviously, and has few people he needs to share with) In the long run, we're all dead. John Maynard Keynes
The only way to "capture value" is to buy for 50$ and resell for 250$ and this done by Naftogaz/Ukraine.
Gazprom suggest market rate which will make this impossible, Yushenko tries to keep this arrangement.
And a $1.5 billion difference, which an above comment (written by you, I believe) argued the Ukrainians should just pay, may not sound like a lot of money, if you live in the US, Western Europe or Russia, but, when your GDP is only about $300 billion, it's a lot of money. It's easy to advocate coughing up the money when your country has it or can easily afford to borrow it.
The entire issue seems to be more political than economic. Former Soviet Republics who have agreed to play nice with Moscow are getting gas for less than half the price being demanded from Ukraine -- even less than the former rate in Ukraine for Belarus. You're seriously arguing that this has nothing to do with politics? WHEEEEEEEEEEEEEEEEEEEEE!
The fact that Ukraine is poor (real or perceived) does not mean it can steal whatever gas it wants.
Russia's government already offered a loan, which was rejected. Gazprom also offered lower gas prices for the share in gas pipelines and Ukraine was not interested. So the problem is not with money.
Belarus never had problems with theft, and Gazprom has a share in pipeline. From Gazprom point of view, low gas prices is a payment for the pipeline ownership.
Thanks! Mikhail from SF
