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This is not the case. I am actually in Russia right now, and just listening to the news from both State-run and independent (few) media outlets, the picture is quite muddled. However, there are some things to clear up:

  1. There's no doubt this move is politically motivated. Obviously Russia is interested in providing cheap natural resources to its strategic partners, just as the US or any other country would do in other cases. The politics behind this are quite annoying, but not unusual. One thing for sure, I would prefer all prices to be controlled by the marketplace, not some political agreements, and for that I blame Russia and other governments.

  2. Ukraine does not pay commercial rates for gas, nor does Russia pay commercial rates for transit. However, when you offset the two, the difference is still quite staggering. Russia sells gas for less to Ukraine than it does internally. The impact of Ukraine's increasing its transit rates to commercial levels would mean Russia would have to fork out extra $1.5 billion. The impact of Russia's increasing gas prices to commercial levels would mean Ukraine would have to fork out around $3.0 billion more. In other words, the difference is $1.5 billion. If I were Yuschenko, regardless of who is right and who is wrong, I would have taken this option, and come out a bigger man and a bigger politician than Putin. This would have been a more stable and pragmatic approach both internally and externally. $1.5 billion is a lot of money, but it's hardly worth the bickering and political capital it will cost Yuschenko (Yanukovich is loving this situation right now).

Again, I want to reiterate by no means do I support Russia's selective pricing. However, it is not uncommon when countries give special deals to strategic partners. What's more worrisome is the level to which this problem has escalated.

Thanks!

Mikhail from SF

by Tsarrio (dj_tsar@yahoo.com) on Mon Jan 2nd, 2006 at 09:34:46 AM EST
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Don't forget that official prices apply to volumes which are rationed. If you want more, you have to pay more, and that's where the "independent" distributors come in. It's the same in Russia, where Gazprom has been pretending for year to be "running out of gas" to avoid delivering gas cheaply to the population. Grey market gas is much more expensive in Russia as well, and the difference goes for a big part in the pockets of the Gazprom managers that control the network.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Jan 2nd, 2006 at 10:36:52 AM EST
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Interesting comment. I have been wondering how this crisis will affect Yushenko especially after his governments corruption scandals, his reprivatisation problem, his falling out with an ally (Timoshenko) and questions over his sons lifestyle.
I guess initially his strong response may be popular but if prices rise as may be inevitable he may face electoral defeat as the corruption allegations continue.
by observer393 on Tue Jan 3rd, 2006 at 01:04:32 AM EST
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