March 13, 2008 / 8:28 AM / 11 years ago

Russia, Ukraine agree to remove gas middlemen

MOSCOW (Reuters) - Russia and Ukraine will remove all middlemen in their gas trade, Russia’s gas export monopoly said on Thursday, ending years of opaque schemes which caused tensions between the two neighbors and alarmed investors.

Ukraine's Prime Minister Yulia Tymoshenko speaks during a news conference in Kiev March 5, 2008. Russia's gas export monopoly Gazprom has reached a final gas agreement with Ukraine's state energy firm Naftogas after two days of talks in Moscow, the Russian firm said on Thursday. REUTERS/Stringer

“There is no need for them now after we agreed to supply some volumes to Ukraine’s industrial consumers directly and given the upcoming rise in the Central Asian gas price,” Gazprom’s (GAZP.MM) spokesman Sergei Kupriyanov told Reuters.

The move is likely to be hailed by Ukraine’s Prime Minister Yulia Tymoshenko, who has demanded Moscow axe all intermediaries saying their role was unclear and led only to gas price increases for Ukraine.

Her tough stance and Ukraine’s debt for previous supplies of gas were the main reasons behind a new round of tensions between Moscow and Kiev, which prompted Gazprom to briefly halve supplies to Ukraine earlier this month.

Russia supplies a quarter of Europe’s gas needs and most of that passes through Ukrainian territory.

European governments are wary of a repeat of the disruptions to Russian supplies to the continent in the winter of 2006 which came after a similar row between Gazprom and Kiev.

This year, the two sides argued about Ukraine’s debts of between $600 million and $1.5 billion for supplies in 2007 and 2008. They were also at odds over the new contract for 2008 and the role of middlemen.

A breakthrough seemed very close after Russian President Vladimir Putin and Ukraine’s leader Viktor Yushchenko met in February and blessed a new deal between Gazprom and Ukraine’s state energy firm Naftogaz.

Under that deal Gazprom and Naftogaz had been due to set up two joint ventures to sell gas to Ukraine and to consumers inside the country, but Tymoshenko said the scheme was no different from the current use of other middlemen.

In past years, Gazprom has been selling gas it imports from Central Asia to RosUkrEnergo, an intermediary it co-owns with two Ukrainian businessmen on a 50/50 basis.

RosUkrEnergo was them selling the gas to UkrGasEnergo, a 50/50 venture between RosUkrEnergo and Naftogaz, for re-sale in Ukraine.

Gazprom’s minority shareholders have repeatedly criticized the role of both RosUkrEnergo and UkrGasEnergo, saying it lacks transparency.

Kupriyanov said that under the new deal, reached by Gazprom’s chief executive Alexei Miller and Naftogaz’s head Oleg Dubyna on Thursday after two days of talks, there will be no intermediaries at all, including joint ventures between state firms.

“This is a scheme similar to those we use in European countries, such as Italy for example,” he said.

Gazprom said it will sell Ukraine 49.8 billion cubic meters of the gas it imports from Central Asia in March-December at a price of $179.5 per 1,000 cubic meters — a level unchanged from the earlier agreement.

Of these volumes, Gazprom will receive back at least 7.5 bcm annually for direct sales to Ukraine’s industrial consumers.

That is much less than Gazprom would have gained under the scheme approved by Putin and Yushchenko.

Reporting by Dmitry Zhdannikov; editing by William Hardy

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