Ukraine Offers Russia Pipeline Control for Cheap Gas
Ukraine is reportedly willing to give Russia joint control of a pipeline to southeastern Europe in exchange for access to natural gas supplies. Ukrainian Prime Minister Mykola Azarov made the comment as negotiations continue between the two countries.
Ukraine’s government wants Russia to review the "extremely unfavorable agreement," it charges for natural gas supplies.
The governments are seeking to create the venture between their respective gas monopolies, Naftogaz Ukrainy and Gazprom, by year-end, Azarov said.
The proposed venture would allow Russia to upgrade the pipeline that supplies the Balkan region, eliminating the need for the proposed South Stream project to bypass Ukraine.
Upgrading the southern pipeline link to the Balkan region “is a very promising project,” Azarov said. This “will allow Russia to transit fuel reliably to Bulgaria and to implement the South Stream project, only on our territory,” he said.
The project would be “mutually profitable” and provide Ukraine with “transit guarantees.” Transit guarantees are critical for Ukraine, which ships about 80 percent of Russia’s gas exports to Europe through its pipelines. Russia is planning several pipelines bypassing Ukraine, including Nord Stream, which is being built across the Baltic Sea, and South Stream across the Black Sea. The links may lower volumes crossing Ukraine.
Azarov declined to provide specifics on how joint control of the pipeline would work or what access to Russian gas would mean for Ukraine because the negotiations are continuing. The joint venture should involve renegotiating the formula used to price Russian gas shipments to Ukraine, he said.
In April, Russia agreed to provide Ukraine a 30 percent discount of the gas price. In return for the deal valued at $40 billion, Ukraine agreed to extend Russia’s lease on a naval base in the Black Sea.
Even after the discount, fuel costs are squeezing the Ukrainian economy.
The government is raising the gas price for households by 50 percent to 725 hryvnia ($91.88) beginning Aug. 1 and plans to increase it by another 50 percent from April 1st. The increases are to help trim a budget deficit and qualify for future payments from a $15.2 billion loan program that the International Monetary Fund approved last month.
Russia has said it would drastically reduce its export gas price for Ukraine, if Gazprom were allowed to merge with Naftogaz Ukrayiny.
Source: Bloomberg, NGFE Archives