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Cablegate: January 1 - "Groundhog Day" in Ukraine?

VZCZCXRO2605
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHPOD RUEHROV RUEHSR
DE RUEHBS #1945 3571626
ZNR UUUUU ZZH
P 221626Z DEC 08
FM USEU BRUSSELS
TO RHEHNSC/NSC WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY
INFO RUCNMEU/EU INTEREST COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHKV/AMEMBASSY KYIV
RUEHMO/AMEMBASSY MOSCOW
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEKJCS/DOD WASHDC

UNCLAS BRUSSELS 001945

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG EPET EUN RS UP
SUBJECT: JANUARY 1 - "GROUNDHOG DAY" IN UKRAINE?

1. (SBU) Ambassador Silverberg spoke with Ukraine Ambassador
to the EU Andri Veselovsky on December 22 to discuss the
dispute between Russia and Ukraine over the terms of the gas
supply contract. Veselovsky said the Russians claim $2
billion is due on the contract and will not enter into a new
agreement until the funds are paid. He countered that
Ukraine owes only $1 billion, of which $800 million has been
paid. Veselovsky continued that an additional $1.4 billion
owed Russia is not due until the end of January 2009. He
said Russia has warned the EU that if it has to cut of gas
supplies to Ukraine, Ukraine will then siphon off gas
intended for EU customers. Veselovsky refuted this
allegation, insisting that Ukraine "has sufficient reserves."

2. (SBU) Econ officers met earlier in the day with a member
of Energy Commissioner Piebalgs' cabinet to discuss the
implications of (another) cutoff of gas supplies to Ukraine
in January. Piebalgs met with Naftogaz of Ukraine Chairman
Oleg Dubina in London this past weekend. Dubina told
Piebalgs that there are two main issues - the future price of
gas and outstanding payments. According to our contact,
Gazprom officials recently advised Piebalgs that Ukraine had
agreed to a new gas contract with a price phase-in which
would eventually double the current price. On the issue of
payments, Dubina, like Veselovsky, claimed payment is not due
until the of January 2009, rather than the end of December as
the Russians insist. Dubina also told Piebalgs that under
the existing agreement, Ukraine is only obligated to pay for
"'gas consumed, rather than gas delivered.'" Dubina believes
the impasse can be resolved "'through negotiations,'" adding
that Ukraine has "'enough storage reserves.'" He thus told
Piebalgs that EU intervention is not necessary at this point.

3. (SBU) As far as the Commission is concerned, there are
three possible scenarios:

(A) Russia cuts off gas supplies to Ukraine, and there is an
impact on EU supplies;
(B) Russia cuts off gas supplies to Ukraine, but there is no
impact on EU supplies; or
(C) Russia and Ukraine come to an agreement, and there is no
gas shutoff.

The Commission believes the first two scenarios are the most
likely but is not concerned about the potential impact on EU
supplies as demand is down due to warm weather this winter
and the EU has high gas stocks (85%-95% full). (See
http://transparency.gie.eu.com/history.php?y= 2008&page=1.)
As such, the Commission believes it will be able to manage
any short-term reductions in supply via Ukraine. How the EU
would react to allegations of gas siphoning by Ukraine or
shorting supply by Russia is not clear. In any event,
Commissioner Piebalgs is ready to travel to Moscow or Kyiv
should the situation warrant.
.

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