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Cablegate: Ukraine: Tymoshenko Promises to Pay Gas Debt,

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O 111433Z FEB 08
FM AMEMBASSY KYIV
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DEPT FOR EUR/UMB, EB/ESC/IEC - GALLOGLY/WRIGHT
DOE PLEASE PASS TO LEKIMOFF, CCALIENDO

E.O. 12958: N/A
TAGS: EPET ENRG ECON PREL RS UP
SUBJECT: UKRAINE: TYMOSHENKO PROMISES TO PAY GAS DEBT,
SUPPLY CUT-OFF LESS LIKELY

REF: MOSCOW 367

1. (SBU) Summary: Prime Minister Yulia Tymoshenko took
Ukraine's gas dispute with Russia (ref A) public on February
11. She acknowledged that NaftoHaz owed gas intermediaries
RosUkrEnergo (RUE) and UkrHazEnergo (UHE) $1.07 billion for
gas deliveries in October-December 2007, and said Ukraine
would pay off the debt in a timely manner. She confirmed
that NaftoHaz reps were in Moscow that same day for
discussions with Gazprom, but did not say whether Ukraine had
reached an understanding with Russia to prevent a cut-off of
gas supplies, which Gazprom had threatened for February 12.
She said that Ukraine would meet its obligations to transit
gas to western Europe regardless of what actions Russia would
take in the short term. Tymoshenko also indicated that
Ukraine's current round of troubles with Russia goes deeper
than simple payment arrears. RUE and UHE were trying to
change the rules of the game for gas already delivered, she
argued. Tymoshenko said Ukraine would not bow to the demands
of the intermediaries, but was open to new negotiations on
gas deliveries beginning in January 2008 if intermediary UHE
is removed from the picture immediately. A supply cut-off is
probably less likely in the short term as a result of
Tymoshenko's willingness to pay off the gas debt. Her
remarks may also signal that intermediary RUE is having
trouble meeting its 2008 delivery commitment to Ukraine at
prices agreed in late 2007. End summary.

Tymoshenko: Debt Exists, and It Will Be Paid
--------------------------------------------

2. (SBU) In February 11 meetings with the media and with the
diplomatic corps, Tymoshenko acknowledged that NaftoHaz owned
$1.07 billion to gas intermediaries RosUkrEnergo and
UkrHazEnergo for gas delivered between October and December
2007. NaftoHaz had collected the sum from its Ukrainian
customers, yet had failed to pass it on to its suppliers, she
said. The GOU still did not know what happened to the money,
she added. Nonetheless, the GOU was ready to pay the debts
in full. (Note: She did not say how the GOU planned to come
up with the money, but media reports quoted government
sources as saying that the GOU would borrow the money from
Deutsche Bank. End note.)

3. (SBU) Tymoshenko did not indicate when Ukraine would pay
off the arrears, or whether the GOU had reached an
understanding with Gazprom that would prevent the Russian gas
company from cutting off supplies to Ukraine. She confirmed
that NaftoHaz reps were in Moscow on February 11 for
discussions with Gazprom. Her open acknowledgment of the
debt and the GOU's determination to settle it will probably
make supply disruptions less likely in the short term,
however. Late on February 11 the Ukrainian media reported
that negotiations in Moscow would continue on February 12.

Intermediaries RUE and UHE at Heart of the Dispute
--------------------------------------------- -----

4. (SBU) Tymoshenko's statements indicated, however, that the
dispute with the gas intermediaries goes much deeper than the
issue of unpaid gas bills. In her February 11 meeting with
the diplomatic corps, Tymoshenko claimed that RUE, in its
yearly supply agreements, only announces what amount of gas
will be available for sale to Ukraine, and at what price.
During the course of the year NaftoHaz subsequently concludes
agreements with the intermediary on a monthly basis.
Apparently, these agreements are reached after the fact, i.e.
subsequent to the actual delivery of the gas. Tymoshenko
said that Ukraine was probably the only country in the world
that had to conclude agreements on a monthly basis for the
delivery of natural gas.

5. (SBU) Tymoshenko said NaftoHaz still had no contracts for
the delivery of gas in the last three months of 2007. In the
ongoing negotiations over this period, RUE and UHE were now
demanding that NaftoHaz pay the 2008 price ($179.5/tcm) for
gas deliveries in November and December, rather than the
$130/tcm that had been anchored in the 2007 gas delivery
agreement with RUE, Tymoshenko claimed. She did not say how
the intermediaries were justifying the higher price, but
insisted that Ukraine had made no provisions to pay the sum
and would not do so under any circumstances.

6. (SBU) RUE was also claiming that an increased portion of

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the gas it supplied to Ukraine in January 2008 came from
Russia, instead of central Asia. RUE was demanding that
NaftoHaz pay $314/tcm for this increased portion of Russian
gas, Tymoshenko claimed. Tymoshenko disputed the RUE claim,
citing customs figures to argue that RUE sold far more
central Asian gas to Ukraine in January than was actually
consumed in the country. Ukraine should only pay $179.5/tcm
for this gas as per the 2008 delivery agreement, she said,
and in any case the GOU could not pay more since it had not
budgeted the money.

7. (SBU) Tymoshenko indicated that, for deliveries beginning
in January, the GOU was prepared to negotiate the delivery
agreement with the Russian side, presumably Gazprom, but
Ukraine would insist on removing intermediary UHE
immediately. Parallel to the abolishment of UHE the GOU
would propose beginning negotiations to gradually abolish RUE
as well, replacing it with direct arrangements with Gazprom
or its subsidiary Gazexport for the purchase of central Asian
gas.

Comment
-------

8. (SBU) It appears increasingly unlikely that Gazprom will
actually cut off supplies on February 12, now that Tymoshenko
and others in the GOU have openly acknowledged the arrears
and promised to pay them back in a timely manner. The dispute
surrounding the purported demands of the intermediaries may
be more difficult to solve, however. If Tymoshenko is to be
believed, the intermediaries may be having trouble meeting
their commitment to sell gas to Ukraine in 2008 at the
$179.5/tcm agreed upon in late 2007. Post will report septel
on the details of Tymoshenko's claims against the
intermediaries. End comment.

Taylor

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