Skip to content

07KYIV2832, UKRAINE: 2008 GAS NEGOTIATIONS UNDERWAY–NOTHING

November 16, 2007

WikiLeaks Link

To understand the justification used for the classification of each cable, please use this WikiSource article as reference.
Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol).Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #07KYIV2832.
Reference ID Created Released Classification Origin
07KYIV2832 2007-11-16 13:15 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv

VZCZCXRO8480
PP RUEHDBU
DE RUEHKV #2832/01 3201315
ZNY CCCCC ZZH
P 161315Z NOV 07
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 4336
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZG/NATO EU COLLECTIVE PRIORITY
RUEHMO/AMEMBASSY MOSCOW PRIORITY 0271
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 KYIV 002832 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/UMB 
EEB/EEC/IEC-GALLOGLY/WRIGHT 
DOE FOR LEKIMOFF, CCALIENDO 
 
E.O. 12958: DECL: 11/17/2017 
TAGS: ENRG EPET ETRD PREL PINR UP
SUBJECT: UKRAINE: 2008 GAS NEGOTIATIONS UNDERWAY--NOTHING 
SIGNED YET 
 
Classified By: Ambassador for reasons 1.4 (b) and (d) 
 
1. (SBU) Summary.  2008 Gas Negotiations between Ukraine and 
Russia continued in Moscow this week.  Ukrainian Minister of 
Fuel and Energy Yuriy Boyko announced in the press that 
natural gas pricing negotiations with Russia's state-owned 
gas company, Gazprom, that Ukraine would pay close to $160 
per thousand cubic meters (tcm).  Gazprom officials, however, 
underlined on more than one occasion in the press that 
nothing had been signed yet, and negotiations are still 
underway.  The Ukrainian press and our contacts in the 
Ministry of Fuel and Energy reported that the Russians are 
waiting to see if a new Ukrainian government will be formed 
before agreeing on a price.  Tentative other outcomes of the 
negotiations predicted in Kyiv include: the infamous gas 
intermediary RosUkrEnergo (RUE) remains as part of the deal 
for at least 2008, and the Ukrainians hope to get an increase 
in gas storage fees.  The Russians reportedly did not show 
flexibility in Ukrainian proposals for increased transit 
fees, however.  The Russian side also has reportedly proposed 
a glide path to bring gas prices close to European levels by 
2011, when they also will eliminate the price differential 
for Russian domestic customers.  End Summary. 
 
Boyko Busy in Moscow 
-------------------- 
 
2. (SBU) Minister of Fuel and Energy Yuriy Boyko has been 
racking up frequent flyer miles to Moscow since early October 
to negotiate with the Russians.  Despite some press 
accusations that Boyko may be in the pocket of the Russians, 
Boyko has maintained that his primary goal in negotiating a 
gas price with Gazprom was to get the lowest price possible, 
and he did not feel that yearly negotiations or the middleman 
company RUE were necessarily negatives, if Ukraine came back 
with a low price. 
 
A Good Price for Ukraine? 
------------------------- 
 
3. (C) Since the beginning of 2007, Boyko has speculated on a 
gas price for 2008.  Boyko's early predictions ranged from 
$130 to $190, while lately he has been predicting prices in 
the range of $150 to $160.  U.S. energy advisors have 
calculated that Ukraine actually pays closer to $192 tcm 
because Ukraine also has to pay for an additional 15 bcm of 
gas that goes to RosUkrEnergo, besides the roughly 50 bcm 
Ukraine imports for its own use.  If these calculations are 
correct, it appears the Ukrainian economy has been already 
shouldering a gas price of $192 per tcm, so an increase to 
the presumed Gazprom price of $230 would be not so as 
difficult to manage under current economic conditions as many 
presume. 
 
Not Enough Time to Get Rid of RUE? 
---------------------------------- 
 
4. (SBU) On October 12, First Deputy Chief of Staff of the 
Presidential Secretariat Oleksandr Shlapak announced that 
President Yushchenko agreed not to eliminate the middleman 
company RUE from the current gas deal with Gazprom.  Shlapak 
argued that Yushchenko simply does not have time to liquidate 
RUE, and the Ukrainians do not have a better alternative to 
offer the Russians.   Shlapak announced that after 
negotiations, Ukraine will work toward 2009 agreements in 
which Ukraine will again move for the absence of a middleman 
company in a gas deal.  Besides the lack of transparency and 
access to rents that a middleman company provides, energy 
experts also agree that RUE has siphoned billions of dollars 
away from Naftohaz, which is facing severe financial 
difficulty. 
 
Gas Storage Rates Might Increase, but Not Transit 
--------------------------------------------- ---- 
 
5. (C) On gas storage rates, Fuel and Energy Deputy Minister 
Makukha told Econ Counselor November 15 that the Russian side 
was open to some increases by the Ukrainian side, provided 
the Ukrainian side could make a case that their costs (e.g., 
wages, electricity) are actually increasing.  To date, 
Ukraine's regulator has increased storage rates for domestic 
users, but this has not been applied to foreign users thus 
far.  However, Makukha noted that Russia was resisting any 
change in Ukrainian transit rates.  The Ukrainians, Makukha 
 
KYIV 00002832  002 OF 002 
 
 
said, recognize any increase will come out of Gazprom's 
bottom line in its agreements with Western Europeans.  The 
Ukrainians hope Gazprom will increase those rates eventually 
to leave room for eventual increases in Ukrainian transit 
rates. 
 
No Final Deal - Let's Wait to See Who's in Charge 
--------------------------------------------- ---- 
 
6. (C)  Makukha noted the Russians were also pressing to have 
Ukraine agree to a scheme of price increases up to the year 
2011, when Russian domestic prices are to
be in the range of 
European prices, less transit costs.  He felt this price 
increase was likely inevitable, but the Ukrainians were wary 
of making a commitment without more clarity on the basis for 
this price increase scheme.  Makukha reiterated a point made 
before by Boyko -- the Russians will hold off any final deal 
until they see who will become Ukraine's Prime Minister.  He 
implied that if Tymoshenko becomes PM, the Russians might not 
stick to the price levels they have been discussing to date. 
 
7. (C) Comment.  As negotiations move forward, we suspect a 
gas price increase of about $30 for 2008 is plausible, but by 
no means a foregone conclusion.  It appears the Ukrainians 
have not employed any new strategies in their negotiations 
that would allow them to increase transparency or move to 
predictable, long-term pricing for gas.  As in the past, the 
GOU has eschewed a long-term approach in favor of the 
traditional ad hoc approach to gas negotiations.  As in 2006, 
this leaves them in an exposed negotiating position -- they 
still have no agreement with the year end and the coldest 
winter months approaching rapidly. 
Taylor

Wikileaks

Advertisements

From → CONFIDENTIAL

Leave a Comment

Post tour comment here

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: