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  • Ukraine does pay commercial rates for its gas, but as it is not paid in cash, but in barter for transit fees, the price it is expressed in is essentially meaningless (which suggests that the simple solution is to increase both gas prices and transit fees, to save face)


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$).



  • the Ukrainian consumers already pay pretty much full rates for their gas; what is at stake is who gets that money: Ukrainian oligarchs or Russian ones. with the change in government in Ukraine, I suspect that either new Ukrainians are trying to grab a bit of the pie (and the "old Ukrainians" and the Russians are trying to keep them out) or Yuschenko is trying to clean up that business and pissing off those that used to profit. The fact that this has ascalated so much and so publicly makes me think this is plausible.


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$.

by blackhawk on Mon Jan 2nd, 2006 at 08:59:51 AM EST
[ Parent ]
The reselling to other countries has always been negligible, because the transfer points are heavily monitored by Russia, for obvious reasons.

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

by Jerome a Paris (etg@eurotrib.com) on Mon Jan 2nd, 2006 at 09:27:13 AM EST
[ Parent ]
Last year Ukraine "lost" 7,8 billion cubic metres in one shot, yesterday it was 100 milion cubic metres. Annual gas exports from Ukraine is 5-6 billion metres, not exactly negligible.

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.

by blackhawk on Mon Jan 2nd, 2006 at 09:57:24 AM EST
[ Parent ]
What do you mean by the price is "real"? Both the nominal gas price and the nominal transit price are low by international standards. There are good arguments to augment both. They have been set simply to offset one another and have no economic value per se.

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

by Jerome a Paris (etg@eurotrib.com) on Mon Jan 2nd, 2006 at 09:30:18 AM EST
[ Parent ]
They have perfect economic value which makes them real:

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.

by blackhawk on Mon Jan 2nd, 2006 at 10:15:37 AM EST
[ Parent ]
There is no such thing as "Turkmen gas", it is an illusion created by Gazprom management to capture value in Ukraine at the expense of Naftogaz AND of Gazprom. Yushenko has disrupted that cozy arrangement, that's what this is about.

(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

by Jerome a Paris (etg@eurotrib.com) on Mon Jan 2nd, 2006 at 10:34:52 AM EST
[ Parent ]
You are pointing at the wrong side.

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.

by blackhawk on Mon Jan 2nd, 2006 at 10:39:40 AM EST
[ Parent ]
Let's not pretend as though Gazprom gives a damn about market prices.  Energy markets are nowhere near perfectly competitive, and, despite all the complaining about Ukraine not paying the "market price," Gazprom turned in a 10% profit (over $6 billion) this year.

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?

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Jan 2nd, 2006 at 02:37:02 PM EST
[ Parent ]
I'm saying that Gazprom as a private company is interested in more profit.

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.

by blackhawk on Mon Jan 2nd, 2006 at 08:36:38 PM EST
[ Parent ]
Who are they selling gas to at 250$/tcm? And in such huge volumes? Not any of their Western or Southern neighbors, that's for sure.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Jan 2nd, 2006 at 03:30:47 PM EST
[ Parent ]
This year at least Romania pays this rate.
by blackhawk on Mon Jan 2nd, 2006 at 08:21:27 PM EST
[ Parent ]
They probably pay this rate, but they pay it to Russia, don't they? Do you have any link to any such large scale transaction between Ukraine and Romania?? A transactino that would use 25-30% of the capacity of Gazprom's export pipelines to Turkey, Greece and Bulgaria?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Jan 3rd, 2006 at 10:04:06 AM EST
[ Parent ]
What I'm wondering about is whether this gas goes through Transnistria? If yes, Russia should have a strong lever there.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Jan 3rd, 2006 at 04:45:04 PM EST
[ Parent ]
It does, go have a look in my story on Dec. 30, all the mpas are there.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Jan 3rd, 2006 at 05:45:32 PM EST
[ Parent ]

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