Ukraine, Russia discussing gas prospects

Gas and political authorities of Russia and Ukraine are negotiating in Moscow this week. Among participants are the Gazprom head, Naftogaz chief Yevgeny Bakulin, Ukraine's PM Nikolay Azarov and fuel and energy minister Yury Boiko. Despite political warming in Moscow-Kiev relations, the sides have rather different premises and objectives at the talks so far. Gas prices for Belarus are still a minimal benchmark for Ukraine that, represented by Azarov, directly threatening to stop gas payments at all by blocking a possibility for Naftogaz to pay to Gazprom with funds loaned from the state budget. There has been no signal about possible cancellation of South Stream that makes Ukraine's gas transportation system almost unnecessary. Moreover, on an official level Russia may very soon reject the idea of a gas transportation consortium as a "correct but outdated" initiative. The sides are unlikely to agree in the near future because even with Kiev's consent to let Gazprom have access to a larger number of Ukraine's final users and to liberalize the domestic gas market (which is rather difficult as it may provoke mass protests of the population), it is not quite clear how much such a concession will cost. Yet, if Ukraine makes April and May payments in due course, which cannot be guaranteed considering Azarov's peculiar hints, by Dmitry Medvedev's visit to Kiev in May one may expect adoption of concrete decisions adjusting the current contract for benefit of Ukraine, though at the expense of Russian taxpayers.

By Stanislav Mitrakhovich, NESF leading expert