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08KYIV2008, UKRAINE: CHERNOMYRDIN CRASHES KYIV ENERGY

October 9, 2008

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Reference ID Created Released Classification Origin
08KYIV2008 2008-10-09 12:40 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kyiv

VZCZCXRO2166
RR RUEHIK RUEHLN RUEHPOD RUEHVK RUEHYG
DE RUEHKV #2008/01 2831240
ZNR UUUUU ZZH
R 091240Z OCT 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 6503
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 KYIV 002008 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/UMB, EEB/EEC/IEC - LWRIGHT 
DOE FOR LEKIMOFF, CCALIENDO 
USDOC FOR 4231/ITA/OEENIS/NISD/CLUCYK 
 
E.O. 12958: N/A 
TAGS: EINV ENRG EPET PINR PREL UP
SUBJECT: UKRAINE: CHERNOMYRDIN CRASHES KYIV ENERGY 
CONFERENCE 
 
REF: KYIV 1967 
 
Sensitive But Unclassified.  Not for Internet Distribution. 
 
1.  (U) Summary.  An animated Viktor Chernomyrdin, Russian 
Ambassador to Ukraine since 2001, provided a spirited 
presentation on Ukraine's energy sector on October 7 at the 
"Ukrainian Energy Forum," a three-day event organized by Adam 
Smith Conferences.  According to Chernomyrdin, reliability is 
key for Russia in its gas relations with Ukraine.  Referring 
to Ukraine's natural gas pipeline system, he said it needs at 
least $1 billion of investment and that it would be a "heap 
of scrap metal" without gas supplies.  The Russian-Ukrainian 
gas consortium, which was established in 2003 and aimed to 
manage Ukraine's extensive gas pipeline infrastructure with 
participation from European companies, should be 
re-energized.  Ukraine in cooperation with Russia should take 
steps to complete the Bogorodchany-Uzhgorod gas pipeline; no 
progress has been made to-date.  The Russian Ambassador said 
that if Ukraine wants to buy "more expensive," "lower 
quality" nuclear fuel from the U.S., so be it.  Post 
assesses, however, that this statement about the cost and 
quality of Western-supplied nuclear fuel to Ukraine simply is 
not true.  End summary. 
 
Russia Seeks Reliability in its Gas Relations with Ukraine 
--------------------------------------------- ------------- 
 
2.  (U)  Russian Ambassador to Ukraine Viktor Chernomyrdin on 
October 7 presented his views on Russian-Ukrainian energy 
relations at an Adam Smith conference called "The Ukrainian 
Energy Forum."  He said that Ukraine's gas transportation 
system is more than 40 years old, so Russia "needs to be 
careful."  As much as $1.5 billion is required to modernize 
Ukraine's gas infrastructure.  The Russian Ambassador said 
that without gas supplies, Ukraine's gas pipeline system 
would be a "heap of scrap metal."  Chernomyrdin added that 
the amount of gas Ukraine can transport across its territory 
varies between 112 billion cubic meters (bcm) and 120 bcm, 
and that the potential throughput capacity numbers quoted in 
the press (much higher than 120 bcm) are nonsense. 
 
3.  (U)  Most important for Russia, according to 
Chernomyrdin, is the operation and management of Ukraine's 
gas pipeline system, which annually transports about 80 
percent of the gas Russia sells to Europe.  In 2003, the 
Russia-Ukraine gas consortium was formed, which aimed to 
better manage and improve Ukrainian gas infrastructure with 
participation from European companies.  Chernomyrdin 
expressed regret that nothing had happened during the past 
five years to advance the consortium project. 
 
Pipeline Projects: Ukraine Needs to Act 
--------------------------------------- 
 
4.  (U) Chernomyrdin, expressing his wish "not to hurt 
anyone's feelings," said that if Ukraine wants to use the 
Bogorodchany-Uzhgorod (B-U) gas pipeline project to boost 
transit volumes, it should act.  Referring to smaller 
pipelines that would be used in the B-U project, he noted 
that they had been empty since the 1980s (Note:  The B-U 
pipeline's capacity is expected to be 19 bcm; its cost 
currently is estimated to be $560 million.  End note.) 
Chernomyrdin noted that Russia and Ukraine had been talking 
for three years about the B-U project and encouraged the 
Ukrainian side to work with Russia to move the project 
forward. 
 
5.  (U) Regarding the Odessa-Brody oil pipeline, Chernomyrdin 
questioned why the $500 million project was completed in the 
first place.  Nevertheless, the reversal of the 
pipeline--using it to transport Russian crude oil south to 
Odessa--so far has netted Ukraine $250 million.  If Ukraine 
now aims to reverse Brody-Odessa, it should first secure the 
necessary crude oil supplies to fill the pipeline. 
 
Chernomyrdin on Nuclear Fuel Supplies 
------------------------------------- 
 
6.  (SBU) An incredulous Chernomyrdin said that if Ukraine 
wants to buy "more expensive," "lower-quality" nuclear fuel 
from the U.S., so be it.  Post assesses that this statement 
is untrue.  Under the US-Ukraine Nuclear Fuel Qualification 
Project (UNFQP), six fuel assemblies manufactured by 
 
KYIV 00002008  002 OF 002 
 
 
Westinghouse were supplied to the South Ukrainian Nuclear 
Power Plant (NPP) number 3 reactor in 2005.  These fuel 
assemblies have been tested and inspected by U.S. and 
Ukrainian technical experts who for more than three years 
indicated that the fuel met safety and quality standards. 
Ukrainian nuclear utility (Energoatom) expressed its complete 
satisfaction with the operation, safety, and quality of these 
Westinghouse fuel assmeblies after the physical inspection 
and analyses were conducted in September 2008.  Under the 
the UNFQP, the U.S.
will provide an additional 42 
Westinghouse fuel assemblies in 2009 for operation in the 
South Ukraine NPP unit number 3.  Regarding price, then 
Energoatom President Yuriy Kovryzhkin on March 30, 2008, 
publicly said that "Westinghouse fuel offers high quality and 
competitive prices."  Russia, on the other hand, during the 
last three years has almost doubled the price it charges 
Ukraine for reprocessing and storing spent nuclear fuel from 
Ukraine's nine reactors.  Post also believes that Russia has 
increased its prices of fresh nuclear fuel for Ukraine (Note: 
 If Ukraine's fuel supplies are not diversified, Russia will 
continue to dominate Ukraine's nuclear sector, which 
generates almost half of Ukraine's electricity; Moscow also 
will dictate whatever prices and conditions it wants.  End 
note) 
 
Gazprom Executive on Russia-Ukraine Gas Negotiations 
--------------------------------------------- ------- 
 
7.  (U)  Anatoliy Podmyshalskiy, General Director of Gazprom 
sbyt, a Ukraine-based subsidiary of Russian energy giant 
Gazprom that sells gas to industrial consumers in Ukraine, 
also attended the energy forum in Kyiv.  He said that Gazprom 
may supply Russian instead of Central Asian gas to Ukraine 
next year because prices of Central Asian gas are likely to 
be much higher than the price Ukraine pays in 2009 for 
imported gas.  Podmyshalskiy said that the numerous gas 
agreements Russia and Ukraine concluded in the past would 
need to be examined and then canceled to complete new 
agreements, which could remove gas intermediaries and allow 
Ukraine a three-year period to transition to European prices. 
 He also noted that before removing gas intermediaries their 
debts to Gazprom would need to be settled. 
TAYLOR

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