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Cablegate: Gazprom: 2008 Gas Price Deal with Ukraine

VZCZCXRO4251
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHMO #5717 3391434
ZNR UUUUU ZZH
P 051434Z DEC 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 5687
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS MOSCOW 005717

SIPDIS

SIPDIS
SENSITIVE

DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT
EUR/CARC, SCA (GALLAGHER, SUMAR)
DOE FOR HARBERT, HEGBORG, EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER

E.O. 12958: N/A
TAGS: EPET ENRG ECON PREL RS
SUBJECT: GAZPROM: 2008 GAS PRICE DEAL WITH UKRAINE
CONCLUDED

REF: A. KYIV 2939

B. MOSCOW 5563

---------------
"DONE FOR 2008"
---------------

1. (SBU) Confirming press reports, Gazprom International
Affairs Director Ivan Zolotov told us December 5th that a
deal had been concluded with Ukrainian Minister of Energy
Yuriy Boyko the previous day on the 2008 gas price to Ukraine
and transit fees to and through Ukraine. Zolotov said
negotiations are now "done for 2008." The agreement calls
for Ukraine to pay $179.50 per thousand cubic meters (mcm),
up from the current $130. Ukraine will raise transit fees on
Russian gas to Europe from $1.60 to $1.70 per mcm per hundred
kilometers, and pay Gazprom $1.70 per mcm per hundred km for
transit from Turkmenistan for the gas destined to Ukraine.

2. (SBU) Zolotov claimed the Ukrainians "were happy" with the
deal, given Gazprom's "compromise" on the transit tariff
increase. He said the previous agreement leading to "market
prices" by 2011 still stands and reiterated that "Ukraine is
still getting a good deal" compared to the rest of Europe,
which is expected to pay over $300 per mcm in 2008. When we
asked Ukrainian Embassy first secretary Yaroslav Dubovich if
they were happy with the deal, he replied, "...happy? We're
happy that the negotiations are over." He also confirmed
that the deal has been finalized.

-------
COMMENT
-------

3. (SBU) Given that Gazprom basically sells to Ukraine the
gas it buys from Turkmenistan, and that Turkmenistan raised
its price to $150 per mcm for the second half of 2008
(reftels), a rise above the previously expected $160 per mcm
price for Ukraine was inevitable. There was some anxiety
last week as to whether this year's negotiations, somewhat
derailed by the Turkmen price increase, would go down to the
wire. But both sides seem to have shown some flexibility,
and this appears to be the end, for now, of the gas price
saga between Russia and Ukraine. It is welcome news and
should be well-received by European gas consumers.
BURNS

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