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08KYIV450, UKRAINE: AMBASSADOR’S MEETING WITH NAFTOHAZ

February 27, 2008

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Reference ID Created Released Classification Origin
08KYIV450 2008-02-27 11:28 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv

VZCZCXYZ0001
OO RUEHWEB

DE RUEHKV #0450/01 0581128
ZNY CCCCC ZZH
O 271128Z FEB 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5082
INFO RUCNCIS/CIS COLLECTIVE IMMEDIATE
RUEHZG/NATO EU COLLECTIVE IMMEDIATE
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC IMMEDIATE

C O N F I D E N T I A L KYIV 000450 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/UMB, EB/ESC/IEC - GALLOGLY/WRIGHT 
DOE PLEASE PASS TO LEKIMOFF, CCALIENDO 
COMMERCE PLEASE PASS TO CLUCYK 
 
E.O. 12958: DECL: 02/22/2018 
TAGS: EPET ENRG ECON PREL RS UP
SUBJECT: UKRAINE: AMBASSADOR'S MEETING WITH NAFTOHAZ 
CHAIRMAN OLEH DUBYNA 
 
REF: 07 KYIV 2939 
 
Classified By: Ambassador for reasons  1.4 (B) and (D) 
 
1.(C) Summary.  Ambassador met with Oleh Dubyna, the new 
chairman of Ukraine's state oil and gas company NaftoHaz, on 
February 22 to discuss the highly publicized gas negotiations 
with Gazprom.  Dubyna admitted that he did not participate in 
the meeting between Prime Minister Tymoshenko and Gazprom's 
Chairman Alexei Miller, which took place a day earlier in 
Moscow, so he could not comment on the meeting's outcome. 
However, Dubyna reiterated his public stance advocating the 
immediate removal of gas intermediaries RosUkrEnergo (RUE) 
and UkrHazEnerho (UHE).  He said he supported the plan, 
announced by Presidents Putin and Yushchenko on February 12, 
to replace RUE and UHE with two new joint ventures.  Of all 
plans to deal with the intermediaries, the Presidents' plans 
were the best option to date, he said.  Dubyna was confident 
the two new joint ventures would different significantly from 
RUE and UHE because NaftoHaz would have a 50 percent stake in 
each, and because UHE would no longer be able to take profits 
that rightly belonged to NaftoHaz.  He also acknowledged that 
current disagreements on the gas issue between Tymoshenko and 
Yushchenko were being exploited by the Russian side.  End 
summary. 
 
NaftoHaz Head Left out of Meeting 
--------------------------------- 
 
2.(C) Dubyna was unable to answer any specifics regarding PM 
Tymoshenko's reported 5-hour meeting with Gazprom Head Alexei 
Miller, which took place a day earlier, on February 21, in 
Moscow, because he had not been invited to participate. 
Dubyna, who was suffering from an injured back, joked that he 
stood in the antechamber of the meeting at Gazprom 
headquarters for 5 hours because he could not sit.  He added 
that he was not privy to any agreements or documents from the 
meeting.  Dubyna repeated that he supported the gas strategy 
of the President and the National Security and Defense 
Council (NSDC) and seemed to evade questions regarding the 
role of Tymoshenko in resolving the gas dispute. 
 
RUE/UHE Arrangement and NaftoHaz Debts 
-------------------------------------- 
 
3.(C) Dubyna reiterated that the current RUE/UHE arrangement 
was unacceptable to NaftoHaz.  He calculated NaftoHaz's 
outstanding debt would increase by $2 billion by the end of 
2008 if RUE/UHE were not removed (Note: Gazprom claims that 
NaftoHaz owes $1.5 billion for the months of Nov 2007-Jan 
2008, and has again threatened to cut off supplies if 
NaftoHaz does not pay by March 14.  End note.).  He added 
that NaftoHaz had been incurring additional multibillion 
dollar debts since 2006, the year UHE took over the 
industrial gas distribution business from NaftoHaz, although 
he declined to give an exact figure.  (Note:  As of December 
2007, analysts' reports indicated that NaftoHaz had about 
$2.5 billion outstanding debt in the form of loans. See 
reftel.  End Note.)  Answering the Ambassador's question, 
Dubyna confirmed that the two Presidents had agreed on a new 
arrangement to replace RUE/UHE with new joint ventures.  The 
NSDC had already approved the step, which Dubyna said he 
welcomed. He said he was convinced that if RUE and UHE were 
removed from gas dealings with Russia, NaftoHaz would regain 
the revenue needed to return the company to solvency and 
future profitability. 
 
Gazprom Gets More Control in Ukraine via Joint Venture? 
--------------------------------------------- ---------- 
 
4.(C) The Ambassador asked Dubyna about details of the 
proposed joint ventures.  Dubyna was evasive at first, 
claiming there would be only one joint venture, but when 
pressed admitted there would be two.  According to Dubyna, 
the first joint venture would deliver gas to the border of 
Ukraine, fulfilling the role RUE currently plays.  The other 
joint venture would distribute gas within Ukraine, fulfilling 
the role that UHE now has.  Gazprom and NaftoHaz would each 
hold 50 percent of each new joint venture.  Dubyna emphasized 
that NaftoHaz has no influence over UHE under the current 
arrangement.  In the new joint venture, however, NaftoHaz 
would share 50 percent of the control and 50 percent of the 
profits with Gazprom.  (Note: Nominally, Gazprom only has 
only a 25% stake in UkrHazEnerho (via RUE), so this new joint 
venture on the face of it increases Gazprom's influence in 
 
the downstream Ukrainian gas market.  End note.) When 
Ambassador asked who would head the new joint venture, Dubyna 
stated that issue had not yet been discussed. 
 
5.(C) Serhiy Korsunskiy, the MFA's Director General for 
Economic Cooperation who attended the meeting, said 
afterwards that he felt the new joint venture would give 
Gazprom tremendous control over Ukraine's domestic gas 
system.  Korsunskiy was not sure if Yushchenko or Dubyna 
really understood this alarming byproduct of the new joint 
venture arrangement, but was confi
dent Tymoshenko did. 
Korsunskiy wagered that this issue might be the real stalling 
point for the negotiations, especially if Tymoshenko 
continued to push the issue in future talks with Moscow. 
 
President and Prime Minister Still at Odds 
------------------------------------------ 
 
6.(C) When asked why press reports continued to highlight 
differences between President Yushchenko and Prime Minister 
Tymoshenko in resolving the gas dispute, Dubyna repeatedly 
shook his head and admitted that the infighting had 
compromised Ukraine's negotiating position.  Dubyna claimed 
that he had offered to sit down with both Yushchenko and 
Tymoshenko to create a plan that NaftoHaz could realistically 
fulfill, but he had not been successful to date.  Dubyna felt 
neither Yushchenko nor Tymoshenko was willing to pursue what 
might be the most logical negotiating option for expelling 
the middlemen:  pay the full Russian price of $314/thousand 
cubic meters for gas, and then renegotiate transit charges. 
A clearly frustrated Dubyna closed the meeting by stating 
that he would gladly give up his position as NaftoHaz 
Chairman to anyone who could return from Moscow with a new 
gas arrangement that finally protected Ukraine's interests. 
 
7.(C) Comment.  One would expect the head of Ukraine's gas 
monopoly to be in the know on what has transpired between the 
political leadership of Ukraine, Putin and Gazprom, but the 
meeting demonstrated that he is being kept out of the 
discussions, and likely intentionally so.  Dubyna is clearly 
in the President's camp: during the hour-long meeting with 
the Ambassador he strongly supported the President's views, 
while barely mentioning Tymoshenko's name.  His loyalty to 
the President, and his apparently deliberate exclusion from 
Tymoshenko's meeting with Gazprom's Miller might validate 
rumors that Tymoshenko is devising a negotiation plan 
different from the President's.  Unfortunately for Ukraine, 
the increasingly apparent inability of Tymoshenko and 
Yushchenko to put aside their rivalry on the key issue of gas 
will benefit Gazprom and Russia.  If Gazprom is able to 
exercise more control over the Ukrainian gas system through 
whatever new joint ventures emerge from the latest round of 
negotiations, we suspect the former intermediaries will most 
likely not be missed much by Moscow.  End comment. 
Taylor

Wikileaks

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