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06KYIV4089, UKRAINE GETS $130 NATURAL GAS FOR 2007 WITH

October 25, 2006

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Reference ID Created Released Classification Origin
06KYIV4089 2006-10-25 15:14 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kyiv

VZCZCXYZ0002
RR RUEHWEB

DE RUEHKV #4089 2981514
ZNR UUUUU ZZH
R 251514Z OCT 06
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 0164
INFO RHEBAAA/DEPARTMENT OF ENERGY WASHDC
RUEHMO/AMEMBASSY MOSCOW 0014
RUEHAH/AMEMBASSY ASHGABAT 0002

UNCLAS KYIV 004089 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DOE FOR LEKIMOFF, CCALIENDO 
 
E.O. 12958: DECL: NA 
TAGS: EPET ENRG PGOV PREL RS TX UP
SUBJECT: UKRAINE GETS $130 NATURAL GAS FOR 2007 WITH 
ROSURKENERGO-UKRHAZENERGO DEAL 
 
 
Sensitive but Unclassified. Not for Internet Distribution. 
 
1.  (SBU) Summary.  Prime Minister Viktor Yanukovych confidently 
announced October 24 that he had just received word from Moscow that 
Ukraine in 2007 would receive 55 billion cubic meters of imported 
natural gas at a price no greater than $130 per thousand cubic 
meters.  All that remained, he said, was to sign an 
intergovernmental agreement to enable this cross-border trade. 
Deputy Head of the Presidential Secretariat Oleksandr Chalyy, 
however, was much less sanguine about the deal on October 25, noting 
that Russia had not yet confirmed the $130/tcm price and that a 
number of questions, included the fee for Russian gas transiting 
Ukraine, remained unresolved.  As of October 25, it appears the 
trumpeted deal indeed has been signed, but the signatories were the 
recently created companies RosUkrEnergo and UkrHazEnergo, and not 
state companies GazProm and NaftoHaz.  End Summary. 
 
2. (SBU) Prime Minister Viktor Yanukovych announced October 24 that 
Ukraine would receive in 2007 "no less than" 55 billion cubic meters 
(bcm) of imported gas at a price "no greater than" $130 per thousand 
cubic meters (tcm).  Yanukovych made the statement at a joint press 
conference with Russian Prime Minister Fradkov, who was in Kyiv for 
a meeting of the economic subgroup of the Yushchenko-Putin 
intergovernmental commission.  Yanukovych said he had received the 
deal details from unspecified negotiators then in Moscow, who were 
completing negotiations and would soon return to Ukraine with the 
contract.  All that remained, he said, was to sign an 
intergovernmental agreement to enable this cross-border trade. 
(Note: Ukraine's usual gas negotiator, Energy Minister Boyko, was in 
the hall with Yanukovych during the announcement.  Yanukovych 
apparently was referring to reports of a contract signed by 
RosUkrEnergo (RUE) and UkrHazEnergo (UHE) that has RUE selling to 
UHE at least 55 bcm at $130/tcm in 2007.) 
 
3.  (SBU) Fradkov, however, did not confirm the $130/tcm price at 
the press conference.  Earlier that day, the Russian press had 
carried news that the gas price would not be on the agenda for the 
Fradkov-Yanukovych meetings.  Fradkov and Yanukovych, however, did 
sign a protocol calling for an inventory of the international 
agreements governing gas supply, and agreed to draft by December 1 
an intergovernmental protocol on 2007 gas and crude oil volumes to 
be supplied to Ukraine.  The protocol noted that the 1994 Agreement 
on Cooperation in Developing the Fuel and Energy Complex provided 
for such yearly agreements, though Ukraine and Russia had failed to 
sign protocols for 2005 and 2006 volumes. 
 
4.  (SBU) Deputy Head of the Presidential Secretariat Oleksandr 
Chalyy cast doubt on the announced deal at an October 25 press 
conference when he noted that Fradkov had not confirmed the $130/tcm 
price, and said that many questions, including the fee for Russian 
gas transiting Ukraine, remained open.  The Presidential Secretariat 
also did not have any information on how the $130/tcm price was 
calculated, Chalyy said. Minister of Energy Boyko confirmed later on 
October 25 that the 2007 supply contract had indeed been signed and 
that, while the transit fee had been considered during negotiations, 
it could not be changed due to existing agreements that fixed the 
fee at $1.60/tcm/100km through 2010. 
 
Comment 
------- 
 
5.  (SBU) If it was RUE and UHE negotiators who reached the deal 
Yanukovych was trumpeting on October 24, it is further proof of how 
far former state champion NaftoHaz has fallen in less than a year. 
While NaftoHaz is 50% owner of the UHE joint venture, the two are 
clear competitors on the Ukrainian domestic market.  There is 
speculation the intergovernmental agreement to be drafted by 
December 1 will likely include language to allow RUE and UHE to 
benefit from VAT-free interstate commerce, which will serve to 
further solidify these companies' places in Ukraine's energy supply. 
 While information on the deal remains sketchy (our MFA contact said 
his Ministry was not kept informed on the status of negotiations), 
it now does appear that Yanukovych and his Party of Regions have 
gotten the price they prepared Ukraine to accept.  If Ukraine 
granted any concessions in exchange for cheaper gas, they remain 
hidden at present.  The $130 price, however, is only good for one 
year, which means come next winter, it will be deja vu all over 
gain. 
 
Taylor

Wikileaks

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