14.01.09

Prime Minister Vladimir Putin outlined Russia's objectives in the gas conflict with Ukraine in an interview with ARD network (Germany) last Sunday. Putin advised the European Union to loan Kiev money to pay Gazprom and counselled a change of position on the matter of the alternative gas pipelines to Europe. Putin also said Russia was ready to take part in management and privatization of the Ukrainian pipelines.

Considering that it was possible for Moscow and Kiev to reach a compromise on gas prices and transit tariffs in late 2008, heat of the confrontation this time is definitely surprising. Also importantly, the Ukrainians paid a larger part of the debt to Russia (about $1.5 billion) and promised to pay the rest ($614 million) on court orders. "Gazprom demanded $250 for every 1,000 cubic meters and transit tariff at $1.7 for the same amount while we insisted on correspondingly $235 and $1.8," Naftogaz executives announced on December 31. Difference like that was certainly negotiable and should have been negotiated, but gas transit to the European Union via Ukraine was suspended all the same.

"The decision to suspend gas transit via Ukraine cost Gazprom nearly $800 million," ARD quoted Putin as saying. It is fair to add that the interview was scheduled to go on air on January 14, but Russian media outlets have been extensively quoting from it already. It is clear that the Kremlin is doing everything in its power to explain its objectives to the Europeans and Ukrainians and Gazprom's readiness to stand the losses to the Russians.

Putin advised Europe to give Kiev a loan to pay Gazprom (he recalled that in a similar situation Russia itself had given $2 billion to Belarus). At the same time, the Russian premier asked the European Union to signal Ukraine to start behaving in a civilized manner. He said Russia was ready to ponder participation in privatization of the Ukrainian gas pipelines with Kiev's consent. Putin added that establishment of an international consortium would be better, though.

Putin reminded the interviewers of the offer made to Ukraine several years ago. "It was an offer made by Russia and Germany together, and the Ukrainian leadership accepted it then. The joint memorandum was signed," Putin said. "It proclaimed establishment of an international consortium involving Italian and perhaps French partners, one that would lease Ukrainian gas pipelines."

"We can even participate in privatization if what's what the government of Ukraine desires," he added.

Experts do not think that Russia stands a chance to pull it off. They say that Moscow's first objective - control over Ukrainian gas pipelines - is impossible at the moment. "Ukraine will never go for it at this point for political reasons," Alexander Shtok of Due Diligence said. According to the expert, Gazprom could only count on getting its due in terms of the Ukrainian debt and securing advantageous gas prices and transit tariffs.

Some specialists meanwhile perceive what happened as an attempt to punish Europe for delays with construction of alternative pipelines that would bypass unreliable transit countries. Analyst Natalia Milchakova believes that Putin's interview was calculated to make Europe take a stiffer position with regard to Ukraine. "The European Union should be directly involved in the process. It should assist with diversification of routes say, through development of Nord Stream and South Stream projects," she said. "Russia just might channel its export flow to Asia otherwise and that's a turn of events Europe has a morbid fear of."

Experts even suspect that the blow at official Kiev could be political as well. It could be Russia's response to the stand Ukraine took on the subject of the Georgian-Ossetian conflict recently. Moscow made it plain on several occasions that Kiev's part in the conflict wouldn't be forgotten. "Sure, reaction would have been less violent but for the war in the Caucasus," analyst Victor Markov observed. "Putin never said it in the interview with ARD but during the previous press conference he had mentioned Ukrainian arms export to Georgia..."

As for privatization of Ukrainian gas pipelines, experts are convinced that this is but wishful thinking on Moscow' part. "They are too good a watering hole for the Ukrainian authorities themselves and intermediaries," Milchakova said. "Moreover, the very possibility of presidential and perhaps also parliamentary elections in Ukraine this year makes this development (privatization - Nezavisimaya Gazeta) a sheer impossibility."

Moscow cannot help seeing it too. Putin's statement therefore should be regarded as an attempt to frighten Kiev and hopefully the European Union in order to get them accept Russia's terms.

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Source: Nezavisimaya Gazeta