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Ukrainian PM Leans Toward Gas Union with Russia

Ukraine Prime Minister Mykola Azarov says he has no objections to a surprise proposal by his Russian counterpart to combine the state-owned gas companies of both countries if they are treated as equals.

Ukrainian Prime Minister Mykola Azarov told a Kyiv news conference his Russian counterpart's idea to unite Gazprom and Naftogaz deserves attention.

Prime Minister Vladimir Putin presented the proposal during a news conference Friday in the Black Sea resort city of Sochi.

Mr. Putin says the two government leaders discussed integration of their nuclear industries. He adds that Russia is prepared to do the same in the gas sector and offers to unite Gazprom and Naftogaz.

With that 12-second statement, the Russian prime minister shut off his microphone and stood to shake Mr. Azarov's hand. The Ukrainian official says he did not discuss the issue with Mr. Putin before it was made public. Mr. Azarov adds there is no question about consolidating the two gas companies, if they are treated as equals. He quotes Mr. Putin as saying Ukraine would gain access to Russian energy resources and assets.

In Kyiv, independent energy analyst Ivan Poltavets told VOA the proposal remains vague. But he cautioned it could result in an energy monopoly that may kill Ukraine's modest domestic gas industry.

Poltavets says if Ukrainian purchases of Russian gas increase, then Ukrainian gas production will either decrease or it will need to be exported, but that will be very difficult because it would be competing with Gazprom supplies.

Russian National Energy Security Fund Director, Konstantin Simonov, says Russia's plan to build the Nord and South Stream pipelines to Europe around Ukraine applied pressure on Kyiv. He says Ukrainian leaders did not expect those lines to be built. But now that Nord Stream construction has begun, Ukraine, according to Simonov, has been forced to deal with Mr. Putin on his terms. Nord Stream will begin carrying gas in 2011 from Russia under the Baltic Sea to Germany. From there, it will be distributed to other western European countries.

Simonov says no one is prepared to invest in the Ukrainian gas pipeline system, adding the European Union has distanced itself from Ukraine. The analyst says the E.U. concern is to get fuel, not whether supplies get to its borders over, through or around Ukraine. He says the issue of gas transit is for Ukraine and Russia to figure out, and claims Ukraine has no allies or alternatives.

Ukraine's aging pipeline system is in need of repairs and the country's previous leaders firmly resisted Russian attempts to gain control over it. Konstantin Simonov says such control would spare Moscow the expense of building South Stream under the Black Sea.

Simonov asks why such an expensive pipeline is needed if Russians can get a guaranteed gas transport corridor, which would be their property and their responsibility. He says gas wars would become impossible, and if there are supply disruptions, they would be Gazprom's responsibility, because it will own the pipeline.

Europe gets about 20 percent of its natural gas from Russia through Ukrainian pipelines. Bitter pricing disputes in recent years between Moscow and Kyiv resulted in mid-winter gas shutoffs to European homes, hospitals, and industry.

Former Ukrainian Prime Minister Yulia Tymoshenko has condemned the proposed gas company consolidation as part of a large-scale Russian plan to eliminate Ukrainian independence. Former President Viktor Yushchenko also considers it a threat to independence that would allow a gas monopoly to dictate terms to Ukrainian consumers.

Ivan Poltavets says both politicians were considered energy sector reformers in 2000 when Mr. Yushchenko was prime minister and Ms. Tymoshenko served as his deputy. But the analyst says they allowed energy problems to accumulate when they assumed the country's top positions in 2005. He says those problems include wasteful use of supplies.

Poltavets says Ukrainian politicians do not focus on saving resources or at least reducing consumption, but talk instead about the need to get greater and perhaps cheaper supplies of gas. This, says Poltavets, is the wrong political emphasis.

Analysts say higher energy prices would force efficiency, but populist politicians refuse to raise them for fear of losing elections.

Ukrainian President Viktor Yanukovych recently secured a 30-percent reduction in the price of Russian gas imports for 10 years in exchange for an extension of the lease allowing Russia's Black Sea Fleet to remain in the Ukrainian port of Sevastopol through 2042. The Ukrainian parliament ratified the agreement without debate, which sparked an egg-throwing brawl last week by lawmakers opposed to the deal.

Critics argue the agreement violates a constitutional ban of foreign military bases on Ukrainian territory, and also represents a bad energy deal for Ukraine.

Gazprom chairman Alexei Miller says Russia and Ukraine will discuss gas consolidation in Moscow after World War Two Victory Day celebrations on May 9. There are no details about what either side plans to negotiate.