Gazprom cuts gas to Ukraine by 25%

Gas to Ukraine has been cut by 25% after it failed to resolve a payment dispute with Russian gas giant Gazprom. Representatives of Ukrianian energy company Naftogaz are coming to Moscow this week for a new round of talks.

Ukraine owes $US 600 million for gas supplied in the first two months of this year. The deadline for payment, set by Gazprom, passed on Monday at 10am Moscow time.

Gazprom has said it has no intention of supplying gas for free.

“As you know Gazprom has already been having talks with the Ukrainian side for a few weeks. No resolution has been reached yet. Ukraine's debt for gas supplied and 1.9 billion cubic metres of Russian gas has not been paid for,” said Gazprom’s spokesperson Sergey Kupriyanov .

It also unclear under what scheme Gazprom will sell gas to Ukraine in the future. But Russia’s gas giant vows that deliveries into Europe will not be affected.

Presidential agreement not implemented

Three weeks ago Vladimir Putin and Ukrainian President Viktor Yushchenko agreed to replace controversial middle companies who handle the gas trade between the two countries.

Instead Gazprom plans to set up a new 50/50 joint venture with Ukrainian energy company Naftogaz, which will carry out all transactions.

Strategically this scheme is more profitable for Gazprom. Now the gas monopoly will sell gas to the company where it owns a 50% stake and not 25% as was the case  with the previous intermediary.

However, Gazprom and Ukraine’s Naftogaz have so far failed to sign any detailed agreement on the new delivery scheme .

Ukrainian Prime Minister Yulia Timoshenko, who was in charge of preparing all the necessary documents, is lobbying for the idea to buy gas directly from Gazprom.

This is not her real intention, according to Konstantin Simonov, Head of the Energy Security Fund.

“Timoshenko’s proposal does make sense, but the problem is that in reality she does not want to work directly with Gazprom. All she wants is to put her people as middlemen in this scheme in order to return to this business,” Simonov believes.

Gasprom said it is ready to continue negotiating with Ukraine. This may happen as early as this week, when representatives of Naftogaz Ukraine arrive in Moscow for a new round of talks.

Vladimir Zharikhin from the Institute for CIS Studies adds that the problem also lies in the decision-making structure in Ukraine.

“The Ukrainian political forces have created a model which is not viable in real life. It turns out that there is no one in Ukraine who takes final decisions. We know who is the final decision-maker in the United States, which is a presidential republic. We know who to talk to in Germany, which is a parliamentary republic, but the system which exists in Ukraine blocks any final agreements with whoever. So the country is virtually ungoverned, which is very dangerous,” Zharikhin said.