Eurasian Integration Yearbook 2012

2011: Data and ReviewsNote:In 2010 Ukraine imported 36.5 billion m 3 of gas from Russia and plans to import around 40 billion m 3 in 2011.During the first half of 2011 Ukraine purchased about 27 billion m 3 of Russian gas. According to the summercontract between Naftogaz and Gazprom, the gas price is reviewed on a quarterly basis based on an oil pricematrix. Thus, the gas price for Ukraine may increase to $354 per 1,000 m 3 in the third quarter of 2011 and$388 per 1,000 m 3 in the fourth quarter (prices are $264 per 1,000 m 3 in the first and $297 per 1,000 m 3 inthe second quarter of 2011). Ukraine has repeatedly asked for the contract terms to be changed and for the gasprice to be tied to coal prices.Gas issue burdens Ukrainian-Russian relationsJuly 11, 2011Expert Online, RBK daily, top.rbc.ruUkrainian President Viktor Yanukovich has declared there will be no mergerbetween Gazprom and Naftogaz of Ukraine. Gas prices remain a major problemfor Kyiv. However, Gazprom chief executive Alexei Miller explicitly linked thepossibility of lowering Russian gas prices for Ukraine with the merger of Gazpromand Naftogaz. Thus, the parties have come to a deadlock in negotiations, whichwill be very difficult to work through.The merger with Naftogaz could enable Gazprom to influence theUkrainian gas transportation system (GTS), and thus significantly reduce theexport risk on this route. However, its sole participation in modernising theGTS is no longer attractive. Belarus ceded control over its pipeline toGazprom in exchange for lower gas prices. Ukraine’s reluctance to follow suitis politically motivated.Raising tariffs for gas transit and becoming embroiled in gas conflicts willeventually lead to a further increase in the capacity of alternative transit routes.Moreover, Ukraine is unable to provide the substantial investment requiredto modernise the GTS. Kyiv’s insistence on a guaranteed loading level for itsgas pipeline appears to be the stumbling block in negotiations on a Gazprom-Naftogaz merger. Given the large-scale transport projects that are aimed atreducing the volumes of gas transiting through Ukraine, Gazprom cannot givesuch guarantees. However, the conflict of interests may possibly be resolvedby Gazprom’s acquisition of a stake in Naftogaz, following the UkrainianPresident’s efforts to restructure Naftogaz and prepare the company for initialpublic offering (IPO). According to Yanukovich, the company is overburdenedand does not always function efficiently. He believes its structure should bedivided up (Naftogaz incorporates 11 subsidiaries) and the different partsdeveloped individually. Those individual companies should register on worldstock exchanges and hold IPOs, he says.RBK daily266 EDB Eurasian Integration Yearbook 2012