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07KYIV2671, UKRAINE:TALK OF REMOVING RUE FROM GAS DEAL

October 23, 2007

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Reference ID Created Released Classification Origin
07KYIV2671 2007-10-23 12:34 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv

VZCZCXRO7088
PP RUEHDBU
DE RUEHKV #2671/01 2961234
ZNY CCCCC ZZH
P 231234Z OCT 07
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 4170
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 02 KYIV 002671 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/UMB, EEB/EEC/IEC - GALLOGLY/WRIGHT 
DOE FOR LEKIMOFF, CCALIENDO 
MOSCOW FOR LYON 
 
E.O. 12958: DECL: 10/22/2017 
TAGS: EPET ETRD PREL RS UP
SUBJECT: UKRAINE:TALK OF REMOVING RUE FROM GAS DEAL 
INCREASES 
 
REF: A. KYIV 2611 
     B. MOSCOW 5069 
 
Classified By: Ambassador, Reasons: 1.4 B) AND D) 
 
1. (C) Summary:  Local reaction to Gazprom Chairman 
Medvedev's comments (ref b) about removing RosUkrEnergo (RUE) 
from the gas deal have ranged from positive to muted. 
Minister of Fuels and Energy Boyko told Ambassador he had 
heard nothing from the Russians about possibly removing RUE 
from the gas deal.  Both Boyko and First Deputy Prime 
Minister Azarov made the traditional argument of RUE 
proponents that removing RUE from the deal would lead to much 
higher prices from Gazprom.  Tymoshenko and her advisers were 
more positive, strongly supporting the idea of a direct gas 
relationship.  Oleksandr Shlapak of the Presidential 
Administration was also positive but a bit more cautious, 
saying direct relations with Gazprom might have to wait until 
2009.  End Summary. 
 
BOYKO - NO ONE TALKED TO ME ABOUT IT 
 
2. (C) Medvedev's October 15 comments were widely carried 
here, but even earlier there had been speculation, based on 
Yulia Tymoshenko's campaign promises to extract RUE for the 
gas deal, that direct gas relations might be possible.  In an 
October 11 meeting (ref a), Boyko disavowed the idea that 
direct gas relations might be possible.  He stated no one in 
Moscow had raised this possibility with him so far.  In 
Boyko's view, the only way Gazprom would agree to direct gas 
relations is if Ukraine paid the full price of $230/thousand 
cubic meters (tcm).  He expected in any case that Gazprom 
would wait until a new government was formed in Kyiv to 
address the issue of 2008 gas prices; he expected them to 
fight with others on gas prices first, like Belarus and 
Lithuania. 
 
AZAROV ONLY CARES ABOUT PRICE 
 
3. (C) Azarov's initial public reaction to Medvedev's 
comments was contradictory.  In one comment he said direct 
gas relations were worth studying, but speaking to another 
reporter he said that canceling the existing gas relationship 
would take Ukraine back to the debacle of early 2006. 
Meeting with the Ambassador October 18, Azarov professed to 
care only about the price Ukraine paid for gas and did not 
care whether a middleman was involved or not.  He argued 
direct gas relations would mean paying the full price of 
$230/tcm.  However, he noted that both Russia and Ukraine 
realized middlemen had a cost, and would seek to reduce 
intermediaries' role. 
 
TYMOSHENKO PRAISES THE RUSSIANS 
 
4. (U) Tymoshenko, who has long publicly called for ejecting 
RUE, was very positive.  She told the press in reaction to 
Medvedev's statements, "It is very good that Russia has 
supported our concept of the relationship."  She promised 
there would be "well-balanced and moderate" gas pricing after 
formation of a new government and termination of RUE's role. 
Oleksandr Gudyma, her adviser on energy policy issues, 
commented that the statements meant Gazprom was caring for 
its international image, which had been damaged by such 
non-transparent schemes.  He expected that abolishing such 
intermediaries would give Gazprom access to greater profits. 
 
PRESIDENT'S MAN CAUTIOUS 
 
5. (U) First Deputy Chief of the Presidential Administration 
Oleksandr Shlapak told a press briefing October 10 that he 
hoped Russia and Ukraine could eliminate gas intermediaries 
by 2009.  He noted that although the Ukrainian side might 
raise the issue in negotiations for the 2008 prices and 
deliveries, he was unsure if direct relations would be 
possible by then. 
 
6. (C) Comment:  Many here were pleasantly surprised to hear 
a senior Gazprom official like Medvedev broach the idea of 
removing intermediaries from the deal.  However, some feel 
this may be a ploy, since there is no concrete sign Gazprom 
is ready to offer prices to Ukraine below $230/tcm without 
RUE.  We also doubt that Ukrainians have suddenly seen the 
light that intermediaries reduce transparency and increase 
costs.  More likely, it is just that as the gas price creeps 
closer to European levels, the justification for an 
intermediary correspondingly diminishes.  End comment. 
 
KYIV 00002671  002 OF 002 
 
 
Taylor

Wikileaks

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