Transit myth. The raise of the fee for gas transit via Ukrainian pipeline system will not make up the extra-expenses for European level gas prices.

According to the info we’ve got now, the Gas summit in Moscow ends without any significant result – at least in frames of bilateral Gazprom-Naftogaz negotiations on gas supply to Ukraine. Nevertheless Europeans may count on re-establishment of gas flow next week, but Ukraine is not likely to sign any contract today for its own energy needs. Though Vice Prime Minister of Ukraine Oleksandr Turchynov told yesterday that today Mrs. Tymoshenko will achieve the total agreement with her Russian counterpart. At the time I’m writing these words Yulia Tymoshenko and Vladimir Putin are still talking in private somewhere in Russian White House, and my story will not be about them. I would like to say a couple of words to unveil a very popular statement of Ukrainian top politicians, claiming that Ukraine will gain super-profits after switching to European level of gas transit prices. That’s not true.

I wrote about the transit-fee-myth in the Ukrainian Ekonomicheskie izvestia (Economic News) newspaper in 2004 and especially in 2005, when – after Orange revolution – the President of Ukraine Viktor Yushchenko, Prime Minister Yulia Tymoshenko and people from Government started to declare their will to move to the European level of prices for gas from Russia. I guess they hadn’t read my articles or just didn’t care about profits of Ukraine, and the “fruitful” negotiations with Russians ended in ruining of the existed agreement on gas price for Ukraine of $50, established until 2009. The transit fee rose from $1.09 per 1 tcm (thousand cubic meters) for 100 km to $ 1.6 ($1.7 in 2008), but that hadn’t influence the harm for Ukrainian economy. Today Ukrainian officials are actively declaring again that the raise of the transit fee to the European level will be profitable for Ukraine.

Here are some figures. In 2008 Ukraine transported around 120 bcm (billion cubic meters) of Russian gas to Europe. The length of Ukrainian export pipelines is up to 120 km (let’s take the average – 110 km). So, last year (not taking to the account the fact that some amounts of transit money went for old-debts-payments) Ukraine received from Russia approximately $2.057 billion. The same time Ukraine bought 55 bcm of gas from Russia, paying $179.5 per tcm – the check was $9.873 billion.

Ok. Let’s imagine that Ukraine raises the transit fee to the average European level. The President of Russia told it’s $3.4 per 1 tcm for 100 km. As a result Ukraine will receive twice more transit money from Russia – $4.114 billion. But the price of gas will be raised also; it will be from 350 to 450, as I can understand the Russian Gazprom’s mathematics. So, Ukraine will have to pay not around 10, but around 20 billion dollars, gaining 2 billion from transit-fee-raise. If Ukraine agreed for Russian proposal of gas price $250 with transit fee of $1,7, it would have to pay to Russia (literally – RosUkrEnergo) twice less – around $3.85 billion more. I would like to remind here that Ukraine has to pay more every year since it declared the will to move to European level of gas prices during three years.