Threatens to cut gas supplies if Ukraine fails to pay back $1.2B debt
y by market value, gas giant Gazprom, should enable it to insist on payment from major debtor Ukraine. But Ukraine, whose President Leonid Kuchma was in Moscow last week, holds a powerful ace: pipelines taking Gazprom's gas to European markets transit it, so it can affect Gazprom's earning power.
Although Kuchma's visit culminated in a deal set to boost bilateral trade between Russia and Ukraine to $35 billion a year, a two-and-a-half fold increase over the next 10 years, relations remain strained over the huge gas debts. The prime ministers of the two countries will hold detailed discussions on the debt on March 5, news agency TASS reported.
Ukraine owes Gazprom an estimated $1.2 billion for gas from Russia last year and in the period 1991-1994. And Gazprom is running out of patience. The company's head, Rem Vyakhirev, said in February that Gazprom could cut supplies completely if arrears were not paid. 'On the first of April in Ukraine in theory there will be no gas,' he warned.
Vyakhirev was in London on a long-planned business trip on Friday when Kuchma and Russian President Boris Yeltsin signed the accord, a Gazprom spokesman said. But his absence will not have kept the company's spectre far from Kuchma's thoughts. Vyakhirev's predecessor as Gazprom's head, Viktor Chernomyrdin, is now prime minister and often touted as a presidential contender to succeed Yeltsin. Links between the company and the government run deep. Gazprom deputy head Pyotr Rodionov served briefly as Russia's energy minister before returning to the board. And first deputy prime minister Boris Nemtsov, himself a former energy minister, was recently vocal in his support for Gazprom.
'Ukraine's failure to pay its debt for gas, electricity and oil has become legendary,' he told a forum at the fuel and energy ministry this week. 'If you don't pay, then you won't get any energy: that's what we've got to say, once and for all.'
He also suggested Ukraine pay some of the arrears with property. 'If you can't give us cash, give us equity,' he said.
Impoverished former Soviet republic Moldova on Thursday offered 50 percent of its gas distribution network to Gazprom to pay off arrears.
Moldova had run up a $650 million debt to Gazprom, making it its biggest creditor ahead of the International Monetary Fund.
Other former Soviet republics have also frequently clashed with Gazprom. Central Asian Turkmenistan did so last year in a row over gas prices and pipeline access. Turkmenistan suspended exports of gas through Russia last March. It is now looking to build a pipeline south to Pakistan, in its search for a new market.
Gazprom was originally a member of the consortium to build this line, but pulled out recently. Vyakhirev told a press conference in February that he thought2 Pakistan would prove no better at paying its bills on time than former Soviet customers.
Turkmen President Saparmurat Niyazov told journalists last month that it would not 'crawl to Russia' for help, and Russia has recently allowed Turkmen gas to transit Russia on the way to Ukraine, thereby allowing Ukraine an alternative supply source.
But Gazprom does not always get its way. The chairman of state-owned Latvian Gas, Adrian Davis, said in Latvian newspaper Bizness i Baltiya on Friday that it wanted to diversify away from Gazprom and import Norwegian gas. 'Any European country, whether in the European Union or not, wants at least two suppliers of gas,' he said. The remarks followed the release of a frosty letter from Vyakhirev to Latvian Prime Minister Guntar Krasts on Thursday, in which Vyakhirev complained that Krasts had said Gazprom was an 'unreliable' supplier and 'incapable of guaranteeing demand.'
Vyakhirev said that Latvian demand was too small for Norway to be able to supply it economically, and refuted the suggestion that Gazprom was unreliable. But Davis has turned him down.
Ukraine has a powerful answer to Gazprom's perceived bullying: so far, it is the only route for gas in transit to hard currency markets in Europe. Supply cuts lead Ukraine to siphon off gas for these paying customers. Gazprom is countering with a raft of alternative pipeline plans, including a line from Germany to the remote but gas-rich Yamal peninsula through Poland and Belarus. Plans also exist to pipe gas to northern Europe through Finland, and under the Black Sea to Turkey.
But until they are complete, Ukraine will remain a vital, as well as an irritating, partner for Gazprom
