Issue 1,
23 May 2006
From May 1, Ukrainian consumers will pay 25% more for their gas. The increase is just one consequence of the gas agreement of January 4, 2006, which saw a doubling of the cost of imported natural gas from Russia and Central Asia.
The impact on energy dependent businesses prompted legal suits calling for a swift annulment of the gas supply deal struck by Gazprom, Naftogaz Ukrainy and RosUkrEnergo. Last month a Kiev court began hearing the first of four actions brought by members of the Donbass Industrial Union (the Dzerzhinsky Dnepr Metal Combine, Alchevksy Metal Combine, Alchevskkoks and Khartsyzsky Pipe Plant). Non-union members OAO Zaporozhstal and Ilyich Mariupol Metal Combine also filed suits.
The legal challenges echo the concerns of energy intensive enterprises struggling to cope with raised gas prices. According to World Bank estimates, the impact of raised gas prices on the economy will range from 0.4 - 8.6 percentage points of GDP “loss.” (Davis Mark et al (2006), The Impact of Higher Natural Gas and Oil Prices, the World Bank).
Worrying to many EU states are issues of dependence and continuity of energy supply, and whether to diversify suppliers and supply routes. The continuing politicising of natural gas resources as an extension of foreign policy is a troubling development as is the lack of bi-lateral discussions to resolve the situation.
BYUT opposed the deal from the outset, declaring it contrary to Ukraine’s national interests. Alarm was also expressed over the Swiss-registered RosUkrEnergo (RUE), which until recently has hidden the identity of its Ukrainian half-owners. Late last month, businessman Dmytro Firtash and banker Ivan Fursin declared themselves the Ukrainian owners. Commentators believe this new found respect for corporate governance was a response to mounting international criticism of RUE’s opaque ownership and an investigation, launched by the US Justice Department, into alleged links to organised crime.
The ownership declaration has done little to mollify concerns and Raiffeisen Investment AG, which holds the Ukrainian’s shares, has announced that it will sever its ties with RUE.
The political maelstrom that has surrounded RUE calls into question the need for an intermediary in the first place.
Olexander Turchynov, deputy head of the Batkivschyna party, dismissed allegations that Ms Tymoshenko’s stance towards RUE was motivated by the desire to replace RosUkrEnergo with Itera, another supplier. “This is nonsense. From the outset we have maintained that there is no need for any intermediary company to ensure the supply of natural gas.
“We appreciate that gas prices should be gradually brought up to market levels and that would require a cooperative effort of suppliers, consumers and transit-countries. A priority for the next government will be to repair the fences and restore international confidence. Ideally, Gazprom should sell gas directly to Naftogaz Ukrainy and there needs to be a pragmatic renegotiation of the gas agreement based on fairness, transparency and sound corporate governance. With the President’s backing and support from Gazprom, this is achievable.”
The first issue of BYUT Inform is also available in PDF by clicking here.
