There is a threat to Independence and Integrity. President Yushchenko addressed Ukrainian citizens.

Today on 21.00 the President of Ukraine Viktor Yushchenko has made an extraordinary address to the citizens of Ukraine, translated by all the national TV and radio channels.

“January the 17th may become the day, when country will be pushed to backward direction”, Viktor Yushchenko said. Among the main threats President mentioned “a threat of energy dependence and loss of the influence to the gas transit system”, “a debt load of tens of billions dollars”, “a threat of reconsideration and postponing the European direction”, and “a threat to the integrity and sovereignty” of Ukraine.

Also President has emphasized a threat of the falsification of voting results.

Viktor Yushchenko appealed to election commissions at every polling place (to respect the rule of law), to judges (“you will play the unique role”), and to the ‘shoulder-strap people’ (“your duty is to defend the people’s choice”).

The Miraculous Healing. Government is to declare the conclusion of flu epidemic in Ukraine, but what will be the next ‘red herring’ for the nation?

After more than two weeks of alarmed statements of top Ukrainian officials concerning the flu expansion through all the regions of Ukraine, the tone of state evaluation of the health situation in country has changed dramatically. Now everyone, starting from functionaries of the Health Ministry and finishing with the Prime Minister herself, is talking about the end of the flu epidemic in Ukraine. Miraculous healing of the nation, isn’t it?

Tomorrow the decision on termination of quarantine state in Ukrainian schools, universities and other institutions is to be taken. Almost no one is wearing protection mask in public places. Candidates for Presidential election are vigorously preparing new multi-thousand public rallies.

The Ministry of Health went further, starting to deny the very fact that we had a noticeable amount of swine flu cases at all. Today, on 19 November 2009, First Deputy Minister of Health of Ukraine Vasyl Lazoryshynets stated that “we had performed an examination of probes of 1168 people, and in 225 cases it was proved that it is a flu virus of A/H1N1 type” (the quotation according to the UNIAN information agency). 21 from 238 fatal cases have proved to be caused by the flu of A-type, and 17 from them – by A/H1N1.

Since the start of the flu epidemic on 29 October 2009, 1 million 120 thousand of people has recovered, Mr. Lazoryshynets added. ‘The situation is stabilizing and the quantity of regions, where the epidemic threshold has not been overcome is 12’ (half of the regions of Ukraine).

Prime Minister Yulia Timoshenko also informed the members of Government during today’s Cabinet sitting that there is a substantial reduction of the quantity of sick people in Ukraine. ‘Step by step we are getting out of the epidemic we had at the end of October and at the beginning of November’, she said. ‘And Government has done all it had to do’. Thanks to the Governmental actions, 7 regions of Ukraine have not reached an epidemic threshold at all, Prime Minister declared.

So, the day after tomorrow Ukraine may start to forget the word combination ‘swine flu’. What will be the next alarming phrase Ukrainians will hear the most in the speeches of top politicians? ‘Russian gas’?

The Camouflaged Gas. Naftogaz Ukraine paid the February-2009 bill to Russian Gazprom; the same time agents in masks were raiding its headquarters.

Today the State oil and gas company Naftogaz Ukraine has paid $50 million to Russian Gazprom. Together with yesterday’s payment of $310 million it settles the gas supply bill of Ukraine for February 2009. Now all the Europe may breathe a sigh of relief: this month there will be no gas cut-off.

(Besides, I’ve noticed at least one mismatch – in figures. The figures I’ve mentioned above, given according to the information of the Secretariat of the President of Ukraine, have in total $360 million – which means that Ukraine imported only 1 billion cubic metres (bcm) of Russian gas in February. Gazprom’s officials have recently mentioned that Naftogaz has to pay $400 million. Hopefully it will not be a purpose for a new gas-fight between Ukraine and Russia).

Nevertheless, the gas supply remains in a center of a domestic turmoil in Ukraine. Muscular men wearing black masks and camouflage entered the Naftogaz Ukraine headquarters yesterday. They passed by the helpless company guards, and started to question the accountants of the company, and to search for something in the management office. All the main TV channels were translating this fascinating story in almost live regime (it’s a democracy!). “Armed people in camouflage pushed aside security, and showed no documents,” a spokesman of Naftogaz Valentyn Zemlyansky said to journalists.

The masked men appeared to be the secret service agents, who came to the Naftogaz Ukraine to take off the documents, related to Russian-Ukraine gas supply agreement, signed in January. The spokeswoman of the Security Service of Ukraine (SBU) Maryna Ostapenko informed press that the national security service is investigating criminal case on the illegal appropriation of 6,3 bcm of gas by the State company Naftogaz Ukraine. “Everything is within the frames of law”, Mrs. Ostapenko assured, and added that the Naftogaz authorities knew that the documents are to be seized that day. (The last remark explains such a huge media support of the action).

Anyway, the most interesting thing is not a scary picture, but the reasons of the scandal. As every contemporary problem in Ukraine, it has origins in the struggle for power between the President of Ukraine Viktor Yushchenko and the Prime Minister of Ukraine Yulia Tymoshenko.

The story begins in November 2008, when the Ukrainian Customs office refused to perform customs clearing of 11 bcm of Russian gas, pumped to Ukrainian gas storages by Russian Gazprom. The gas was dedicated for the well-known Swiss-registered intermediary RosUkrEnergo, half owned by Gazprom, and half – by Ukrainian billionaire Dmytro Firtash. The Customs of Ukraine bonded all the amount of gas (for some reasons), until the gas conflict with Russia started. (Here I would like to suppose again that the gas “war” with Russia was a planned thing).

In January 2009 – in frames of a settlement of the Russia-Ukraine gas dispute – Russians transferred to Naftogaz Ukraine the rights to claim from RosUkrEnergo the debt, which it has to Gazprom. The same time Russia received a 20 per cent discount on pipeline transit fees. A new set of bilateral Agreements eliminated RosUkrEnergo from Russia-Ukraine gas trading scheme.

As the PM says, Gazprom agreed to give the gas to Ukraine at a privileged price of $1,7 billion for all the 11 bcm of gas, and these money were to be considered as a payment for a transit of Russian gas to Europe. (I haven’t seen the documents, but it sounds like a true). This fact permitted to the Prime Minister Yulia Tymoshenko to declare that the average gas price for Ukraine in 2009 is $228 per tcm.
After the signing of the Agreements with Gazprom, Naftogaz Ukraine faced a new problem: a Head of the State Customs office of Ukraine Valery Khoroshkovsky refused to perform a custom clearing of mentioned amount of gas. He claimed the gas belongs to RosUkrEnergo.

The Prime Minister solved the problem: Mr. Khoroshkovsky was fired. But the President appointed him as a Deputy Head of the Security Service of Ukraine (SBU).

At long last, the Ukrainian Customs released the 11 bcm of ex-RosUkrEnergo-gas from the bond – in favour of the State company Naftogaz Ukraine. After that the SBU started the investigation mentioned above. On 3 March at night Deputy Head of the department of Energy Customs office Taras Shepitko was arrested. The next day men in mask appeared on the threshold of Naftogaz.

As for this moment, there is a ruling of a court, which states the SBU should stop the actions concerning the mentioned Naftogaz-case. Pro-presidential and pro-government experts are giving controversial comments. RosUkrEnergo still insists that is owns the gas. Gazprom didn’t make any statements concerning this concrete question.

Mrs. Tymoshenko is condemning the actions of the SBU. “They simply wanted to paralyze the activities of Naftogaz and destroy the gas distribution system in Ukraine,” she said. She also accused Mr. Yushchenko of lobbying on behalf of RosUkrEnergo. First Vice Prime Minister Alexander Turchynov also declared yesterday that “Viktor Yushchenko was patronizing RosUkrEnergo”, and that Mr. Khoroshkovsky “has joint business with Mr. Firtash”.

The press secretary of the President of Ukraine Iryna Vannikova informed yesterday that “President fully supports the actions of the SBU”. “The Security Service acts in frames of law. The actions of the Security Service agents are rather tough, but it is a demand of the circumstances of this case, - Mrs. Vannikova said. - President is sure that it is necessary to show a determination and insistence in the investigation of the identified corrupt practices”.

Credit History. Ukraine will receive the second bailout of the IMF credit, but it is not enough to support the economy.

I was not blogging here for a long time due to some personal reasons, but also because it was rather difficult to write about the messy situation we’ve got here in Ukraine. Every day we receive a portion of new information on what’s wrong in the country. And the picture really frightens. Ukrainian economy is getting worse, national currency is falling down (starting from the last week, the price of one dollar is more that 9 hryvnias, it’s twice more than five months ago).

To save the economy Ukraine is in need of the external financing. Here is also the problem: the International Monetary Fund (IMF) refused to issue to Ukraine the second bailout of its $16,4 billion dollars (Kyiv was supposed to receive $1,864 billion on 15 February), because Ukrainian authorities failed to comply with the requirements of the Arrangement with the IMF.

As a result, all the main world rating agencies have cut Ukraine’s credit rating. Fitch Ratings cut the rating to B, the fifth-highest non-investment grade, and kept the outlook “negative”. Standard & Poor's Ratings Services cut Ukraine's foreign currency sovereign credit ratings by two notches, to CCC+/C from B/B. S&P left Ukraine's outlook negative, indicating it may reduce the ratings further. I have to remind, that the next letter after C is D, which means ‘default’. The new S&P rating for Ukraine is the lowest in Europe – one of the ‘rating colleagues’ of Ukraine is Pakistan.

Experts said that Ukraine has no chance to attract investments and receive new loans, until its relations with the IMF will not be ‘repaired’. The only country that is ready to give money to Ukrainian economy is Russia, but the interest of Moscow is the geopolitical influence and the control on some of the strategic centers of the economy – for example, the gas transport system of Ukraine, which is a key to Ukrainian and all the European energy security. Besides, there is an evidence of upcoming problems in gas area. The 7 of March is a deadline date for a new payment of Naftogaz Ukraine to Russian Gazprom. Gazprom has already warned it may cut off gas supply to Ukraine on March 8.

Coming back to the troubles of Ukrainian economy, I have to add that people who were making such a sad prognosis on the destiny of the IMF loan didn’t take to the account the fact that the IMF as an Organization is not interested in loosing of such a big borrower as Ukraine is (actually a biggest one for the current moment). The break-up of the cooperation with Ukraine would also mean for the IMF the failure of the IMF policy, which may question the appropriateness of all the system of anti-crisis measures, worked out my the IMF experts.

As a result, the IMF decided to change the tone of a dialogue with Ukraine: if the country cannot accomplish its obligations and commitments, one of the ways out is to change the rules. Ukrainian authorities were asked to write a new Letter of Intent to the IMF, listing a new set of measures, more appropriate for the today’s economy state. I wrote about this issue for one Ukrainian newspaper, and here and here are the links to my recent articles (in Russian language).

So, next week (or a bit later) the Mission of the IMF will be back to Kyiv. Ukraine may receive the second tranche of the loan in March 2009. But it will not resolve the whole problem. To deal with the essential budget deficit, Ukraine has to ask for extra-loans (back to question of Russian ambitions), or to monetize it (back to the question of a severe inflation). Let’s see, which evil will be chosen by Ukrainian authorities?

Hugging to Death. The gas consortium of Ukraine, Russia, and Europe will not solve a problem of EU energy security, but undermine Ukrainian interests.

There is at least one clear conclusion from the “Cold war” of January 2009: to avoid a future gas supply crisis, Europe needs a common energy security policy. I would suggest to read a blog-post of Charles Tannock, Member of the European Parliament for London, and an article of Andrew Wilson, a senior policy fellow at the European Council on Foreign Relations, published in the Wall Street Journal, for extra thoughts and information on this point.

I agree that the unified energy supply scheme is a very positive thing for Europe. But what worries me is that the new European energy security concept is moving step-by-step against the national interests of Ukraine – not without help of Russia and powerful trans-national corporations. In a widely proposed system of co-operation, which foresees a foundation of gas consortium with the participation of the EU, Ukraine and Russia, all the parties are winning some benefits, except Ukraine, which is supposed to lose control over its gas pipelines’ system for decades (or for ever, depending on ‘flexibility’ of Ukrainian officials).

To my point of view, the first step to the formation of the united system of European Energy Security should be a very straight price talk. Europe cannot be united in the gas supply questions, until it doesn’t have a common formula of price for gas and its transportation. Without such an agreement all the other steps would be inefficient.

I liked very much a recent speech of the Prime Minister of Ukraine Yulia Tymoshenko at the Munich Security Conference on Saturday, 7 February 2009. “The price of the gas transit has not been formed in unified way. The question is: Why?” she said. “If we find such common approaches, we will be able to eliminate a political component from the system of pricing and supplies of gas to all the European countries.”

But why indeed the EU, not talking about the European continent as a whole, hadn’t manage to form the unified gas price and transit approach for all the time of its existence? The question is not rhetoric, and the answer is simple: the formation of the common Energy Supply (or Security, if you want) System for Europe is disadvantageous for the main European energy corporations. It is not a secret that the oil and gas trade business is very profitable, inter alia, by its shadow or semi-shadow schemes, which would be impossible to realise, if all the business were totally transparent and understandable even for members of the European Commission or the European Parliament. So, the establishment of a really clear system of gas trade in Europe looks like a miracle at the moment.

What next? The international investment conference on the modernisation of Ukrainian gas transit system is going to take place on 23 March in Brussels, according to the mutual arrangement of the President of Ukraine Viktor Yushchenko and the President of the European Commission Jose Manuel Barroso of 27 January 2009. The talk-work on the preparation of public opinion has already started. Vladimir Chizhov, Russia's ambassador to the European Union, said to journalists on 4 February 2009 that “the fact that the Ukrainian pipeline network was neglected ever since the collapse of the Soviet Union is recognised by everybody... The fact that its technical status is not up to standard is recognised by everybody. The fact that money supposed to be spent on maintenance from transit fees was spent on something else is recognised by everybody”. Only the last question may be considered as a full truth.

The potential members of the future Consortium are: Gazprom, Naftogaz Ukraine, and directly involved European companies – like E.ON Ruhrgas AG, GDF Suez SA., Gaz de France, BASF SE's Wingas, and Eni SpA. Russians, Ukrainians and Europeans would own the one third of the company each. People from GDF Suez, E.ON Ruhrgas AG and Eni SpA have already had the consortium-related meeting with the Prime Minister of Russia Vladimir Putin in Berlin on 16 January 2009.

Ukraine is supposed to give (rent) to the consortium its gas pipelines system, Russian Gazprom – gas fields, European companies – money. Some Western analysts say that Ukrainian government could sell a stake in Ukraine’s gas transit system to a new consortium. I don’t think it’s a good idea for Ukraine and its future.

Yes, Ukraine needs money for the gas transit system upgrade, but it may find money by itself (it will be not difficult to take a credit for a good-written & well-thought project), going on with receiving the full profits from the transit of the Russian gas to Europe. Ukraine is going to receive from Russia from $2 billion in 2009 to $4 billion per year, starting from 2010.

As for the European Union there is no economic difference at all, whether there is the Russia-Ukraine-EU consortium or not. Russia may find a purpose to switch off gas anyway, and the possible consortium-profits will be collected in hands of managers of the multinationals. And what is good for Ruhrgas, Shell or Gaz de France is not automatically good for Germany, Netherlands, or France. Don’t even mention the interests of tax-payers: the companies, which may directly operate with Ukrainian gas pipeline system, would be for sure an affiliated structures of famous brands, registered in offshore zones.

The establishment of the European common energy security system is not a question of today. It is even not a question of tomorrow. But the Europe has to start preparations for the day after tomorrow right now, working out all the papers needed, and communicating with partners – especially hard talks are supposed to be with Russia. Moreover, I may bet that the talks would finish with nothing. The real goal of Russia, Gazprom, and European energy corporations in Consortium-project are extra profits they may have, fooling Ukraine around. The sorting out the system of the gas supply to Europe looks like not profitable for them at all. The common sense had never beaten the business strategy. It’s a rule for today. What will be the day after tomorrow or later (I mean in long-term period)? Nobody knows, but the little strokes fell great oaks.

The theater of the absurd. President Yushchenko's address to the Ukrainian nation - full text.

State of Ukrainian politics is getting worse, more and more resembling the theater of the absurd. I would like to give here a full text of President Yushchenko's urgent televised address to the Ukrainian nation of 30 January 2009 (the official tanslation, provided by the Press office of President).

Dear fellow countrymen,
I decided to address you to provide clear and honest information on economic, budgetary and financial situation in Ukraine. I appeal to you, dear fellow countrymen, to back up the demand to Ukrainian government and parliamentary majority to stop the flow of lie, hypocrisy, aspersions and to immediately, I emphasize that, immediately start acting to save national economy.
The state has absolutely misbalanced financial system.State institutions are knowingly being ruined because of lack of financing. I am not speaking of personal accusations now. I leave this dirt aside.
We were witnesses to a witches’ sabbath in the parliament around the question of the National Bank. It was evidently explained by single intention – to gain access to money printing in order to cover losses in the State Budget. This can result in inflation unseen before. This can result in social catastrophe. I am forced to say this to bring politicians round. Ukrainian industry is falling. People are being fired or forced to long-term leaves. In Moscow, Prime Minister Yulia Tymoshenko made gas deals disadvantageous for Ukraine. The contracts do not correspond with my directives.
The Prime Minister made that decision personally, without consulting collegial opinion of the government. The majority, supporting Yulia Tymoshenko, beginning with her block and to communists, must explain this. The state was put before the fact. The contracts were signed and we must abide by them. In 2009 Ukraine will have to pay for gas 25 billion hryvnyas more than last year. However, Naftogaz’s profit from the transit remains the same as in 2008.The Prime Minister undoubtedly knows that finding additional resources to pay for gas is only possible at internal market, meaning increase of prices for the consumers. Every passing minute is priceless now.
I demand immediate alterations to 2009 State Budget. This is the only way to put things right. I have warned the government and parliamentary majority, who were authors of this year’s state budget, that the document is a cloud-castle. For today the government has not collected even a half of the amount of taxes and dues, planned for January. The cause is the same again – unreal budget. My conclusions are based on evaluation by Minister of Finance Viktor Pynzenyk. The opinion of this Minister is decisive in preparation of estimate in any state. Today he is not heard, first of all in the government.
I address Yulia Tymoshenko and the majority she has organized. This is your responsibility. Respected Yulia Volodymyrivna, you knowingly put unrealistically high numbers and promises into the budget, which you are unable to keep up to today. The funds, including those meant for next repayment of savings, are not concentrated, they are scattered. I address each deputy from Yulia Tymoshenko’s majority. Respected deputy, you support populism, which will tomorrow result in unpaid wages, pensions, scholarships, and other social support. I emphasize that – it is your responsibility. Because of your silent consent – doctors, teachers, and military men will not get their money. There will be no funds for schools or hospitals. You will be answering for that before Ukrainian people.
I address Verkhovna Rada Speaker Volodymyr Lytvyn. Respected Volodymyr Mykhaylovych, you perfectly understand that current budget is top provocative factor to the crisis in Ukraine. For the sake of state interests I ask you to consolidate the parliament to make alterations to the budget and approve urgent anti-crisis decisions. On behalf of the whole country I demand that the government and the parliament immediately worked out honest budget, where expenses would correspond with capabilities of the economy. This is your constitutional, state and political duty.
I emphasize – all the responsibility for economic situation, for disruption of budgetary process, for destruction of banks system in accordance with the Constitution is upon Prime Minister Yulia Tymoshenko in person. When she reaches deadline, she will not be able to hide in opposition. Enough lies.
I appeal to all fellow countrymen to stay calm. You will be protected. We are able to protect the country and people. The most important thing now is to find political will and courage and to approve a realistic budget for 2009.In order to achieve that I will use all instruments necessary in the state of crisis.

Jaap de Hoop Scheffer: "If there is a Russian-Ukrainian dispute on energy security I think NATO allies should pick that up".

Let me not to tell anything about Ukrainian politics today. Everything is going well here in Kiev, the politicians are going on with presidential campaign, claiming each other in all the possible sins. The main topics of discussion: gas contracts (Presidential secretariat has issued a new research, making the conclusion that the papers signed in Moscow are not good for Ukraine and may - and possibly should - be revised), the date of Presidential election (December 2008 or January 2009), and a couple of dismissals and appointments - current and prospective. Instead of Ukrainian domestic politics saga, I propose some NATO-reading for today: Transatlantic Leadership For A New Era: Speech by the NATO Secretary General at the Security and Defence Agenda - 26 January 2009. This speech, followed with questions and answers session, really worth to be read. I will give here the words of NATO Secretary General Jaap de Hoop Scheffer, which were concerning directly Ukraine and its geopolitical role in global processes.

"We have seen how the need for reliable energy supply is transforming from a mainly economic question into a central security issue. For many nations, being cut off from energy is a matter of national survival. The recent quarrel between Russia and Ukraine was only the latest reminder of this. This latest crisis showed how a bilateral dispute can have a powerful knock-on effect, both in terms of the heat in houses and a chill in international relations".

"Clearly, no one gets a veto over NATO enlargement. That process is central to our aim of consolidating Europe as an undivided and democratic security space and it is not negotiable. The pace and direction will be of our choosing. But the NATO-Russia relationship is too valuable to be stuck in never-changing arguments. We need a positive agenda, one that befits the importance of both Russia and NATO".

"Considering the political, security and energy issues that run through Central Asia and the Caucasus, I believe we need stepped up focus on those regions as well. I think NATO should consider its role in energy security much more seriously. There is, to my mind, clear added value for the Alliance".

"It is simply not enough to have Heads of State and Government provide NATO with a mandate in energy security, yet to have Allies hesitate to use NATO as a forum for discussion during crises".

"The Bucharest decision was rather clear, or was very clear, I should say, and as I said in my introductory remarks, we will set the pace and we will decide upon the moment. But the moment is performance-based. So I cannot give you a timeframe. It is not around the corner, I would say, as we speak, as far as, of course, Ukraine and Georgia are concerned. We are intensifying our relationship, as you know, through the NATO-Ukraine Commission, the NATO-Georgia Commission, but I do think that enlargement in this sense is not around the corner, but I can't be more specific here in that regard".

"If there is a Russian-Ukrainian dispute on energy security I think NATO allies should pick that up. Not because we have any ambition, or we pretend to play any role. Please, no! There was a Czech presidency which immediately was proactive and involved. That was the European Union involved. Other people were involved. Certainly not NATO. But that does not mean that those subjects are irrelevant for NATO, if you agree with me that NATO is a political military organization".

"I think Russia cannot afford to have a non-dialogue with NATO, and NATO cannot afford to have a non-dialogue with Russia".

"Of course I'm discussing protecting pipelines in times of crisis. I said protecting pipelines is first and foremost a national responsibility. And it should stay like that. NATO is not in the business of protecting pipelines. But when there's a crisis, or if a certain nation asks for assistance, NATO could, I think, be instrumental in protecting pipelines on land".

"NATO is not in the energy business. So if in a situation like we had over the past weeks NATO allies are totally deprived of gas you will not see a NATO Secretary General stepping forward, raise his finger and tell the Europeans or the Russians or the Ukrainians for that matter, listen, guys, you have to stop this. We have other international organizations, other people to do this, and certainly not a NATO Secretary General, the European pres... the European Union presidency, rather, or others.
So we are not in the energy business, but of course when a nation is for a long time deprived of all gas, or all energy, in the North Atlantic Council, and quite rightly so, when a nation raises its finger and says, Secretary General, we would like to discuss the energy situation, should NATO then say no, that's none of our business? I don't think so. Although you'll not see us in the forefront in the energy business because we are not in the energy business. We're in the security business.
And I say again, we usually use the word energy security. And that's our business".

Europe wants action, not talks. While the President of Ukraine was visiting Brussels, he was criticized in Strasbourg.

The Parliamentary Assembly of the Council of Europe adopted the resolution on the state of investigation of a murder of Ukrainian journalist Georgiy Gongadze, mentioned in my previous post. Here is the press release with some highlights: PACE wants action to bring to justice those who ordered murder of Georgiy Gongadze. One more interesting thing about the Council I'd recommend to read is a speech of Terry Davis, the Secretary General of the Council of Europe (January 26, 2009).

The same time the President of Ukraine held talks in Brussels, giving a lot of attention to the issue of gas supply to Europe. Here is the interview of Mr. Yushchenko to the Financial Times, given during the visit. “The myths cranked out by the Russian government or Gazprom are apparently aimed at discrediting Ukraine as a reliable gas transport partner, to get political and commercial control of the Ukrainian gas system,” he said, talking to the FT correspondent.

One of the results of the visit - the scheduling of a high-level conference on March 23 in order to find investments for the modernization of Ukrainian system of gas transit pipelines. Some details of the Brussels talks are given here in the article of the Guardian.

At a joint press conference with Jose Manuel Barroso Viktor Yushchenko said also that the Gongadze case has to be solved as soon as possible. "I hope that using our joint efforts, including those of Interpol, we will find this criminal and finalize this case. This is a priority for me. I promise that Ukraine will devotedly and transparently do all it can to solve this case as soon as possible," he added.

Gas tricks. The Secretariat of the President of Ukraine issued an analysis of Russia – Ukraine gas agreement.

Just to note some figures for a future reference. Yesterday (23 January 2009) the Secretariat of the President of Ukraine issued an analysis of Russia – Ukraine gas agreement.

Acording to the Secretariat, an average price of Russian gas for Ukraine in 2009 will be $256/tcm (price in the 1st quarter 2009 - $450, actual Ist quarter price with the 20% discount - $360). Average price of Russian gas in 2009 for Slovakia will be $240 (Ist quarter price - $296), for Hungary – 237 ($403), for Poland - $300-310 ($458), for Czech Republic - $340-350 ($420), for Romania - $310-320 ($470), and for Germany - $250-260 ($330-340).

If the “Secretariat prices” are true (I may question the current gas price for Germany, which is told to be $330-340, but is around $450), Ukraine with the base price of $450 in the 1st quarter of 2009 looks like a definite loser.

Ukraine-Russia gas transit and supply contracts: Europe will not suffer from gas-cut during next 10 years, gas price for Ukraine still in shadow.

First of all, I would like to thank Tammy Lynch, Bakinets, and Anonymous reader for their comments to my gas posts. Well, I have to confess that my price prognosis has appeared to be rather pessimistic. I will be really happy, if I am wrong: the less the gas price is, the better it is for Ukraine and its economy.

Why I suggested that the gas price for Ukraine will be around $320 per tcm in 2009? My thoughts were based on three things:
1. Ukrainian negotiators were insisting on fixed gas price (I was pleasantly surprised when I’ve heard today that the gas price formula has been worked out for Ukraine).
2. The Prime Minister of Russia Vladimir Putin, President Dmitri Medvedev and the head of Gazprom Alexei Miller were declaring the “European price” for Ukraine at the level of $450 per tcm (last time Mr. Putin told that on Saturday, 17 January).
3. Gazprom has just switched to some “European formula” in his relations with Turkmenistan, and the price of Turkmen gas for Russians in the first quarter of 2009 will be about $300 per tcm.

It seemed logical to assume that the gas price for Ukraine should be at least more than $300. It is really great if the today’s statement of Prime Minister of Ukraine Yulia Tymoshenko is true, and Naftogaz will pay only around $235-250 per tcm. (She also told that the 20% discount will save $5 billion, which is possible when the price is $220). It would be like a miracle, if the average price for Ukraine were $199 as was suggested by the Secretariat of Ukrainian President. But we have to think, why Moscow agreed for such a low price level, as the Gazprom is clearly not a charity foundation, especially at crisis times.

Anyway, it is still difficult to say, how much Ukraine will pay for gas in 2009. There is not much information about the gas supply contract at all. Here is all I know today:
a) Gas supply and gas transit contracts are signed for 10 years;
b) Starting from 2010, the transit fee and the gas price will be calculated on a base of a clear formula (I hope this “Ukrainian formula” does already exist);
c) In 2009 there will be a fixed gas price for Ukraine, based on “average European gas price minus 20%”;
d) Transit fee in 2009 will stay at the level of 2008 – $1.7 per tcm for 100 km;
e) There will be no mediators in gas trade between Ukraine and Russia (but I think it’s early to say good bye to RosUkrEnergo as a player on European gas market).

Yulia Tymoshenko promised to make the new gas price public “in one-two days”, and it seems that the price is not agreed yet, despite of any paper signed. As the Russian TV reported, after signing the documents and press briefing Mrs. Tymoshenko went to the Gazprom office for some extra negotiations.

Talking about the gas price in 2010, I would like to propose a link, which leads to the fresh prognosis of Goldman Sachs Group Inc., forecasting “swift and violent rebound” in energy prices in the second half of the 2009.

Oil prices may have reached their lowest point already, after falling to $32.40 in mid-December, and are expected to rise to $65 by the end of this year, Goldman Sachs Group Inc. commodity analyst Jeffrey Currie said at a conference in London today. A recent tactic of using supertankers to store crude oil to take advantage of higher prices later this year is “difficult” to profit from and is “near the end of this process” anyway, the Goldman analyst said.

New York crude futures for delivery in December, trading near $56 a barrel, currently cost some $15 a barrel more than March futures, a market situation known as contango, where prices are higher for later delivery. The contango is likely to flatten as supply cuts by OPEC and other producers take effect, reducing the availability of oil for immediate delivery, Mr. Currie said.

Double-cross. New gas agreement with Russia will cost Ukraine from 3 to 4 billion dollars.

Today (at night actually) the Prime Minister of Ukraine Yulia Tymoshenko reached a preliminary agreement with the Prime Minister of Russia Vladimir Putin on gas supply to Ukraine in 2009-2010: Ukraine will switch to “European price” with the 20% discount, and the gas transit fee will stay at the previous level.

In my previous post I gave the main figures of Russia-Ukraine gas trade. I mentioned that if Ukraine had agreed for Russian December proposal of gas price of $250 per tcm and unchanged transit fee of $1.7 per 1 tcm for 100 km, Kiev would pay to Russians around $3.85 billion more in 2009. But in new reality the losses of Ukrainian economy will be much more significant.

If the “average European price” is $400 per 1 tcm (Russian authorities have previously declared that it may be up to $460), Ukrainian price for this year would be around $320 per tcm. Ukraine consumes 55 bcm of gas every year, this amount costs $17.6 billion. So, this year Ukraine will overpay the price-2008 on $7.727 billion.

Direct loss of a non-signing of gas supply contract on conditions, proposed by Russia in December, is $3.877 billion (if the price-2009 is $320 per tcm). Even if the price will be different – higher or lower – Ukraine will lose from 3 to 4 billion dollars of budget money. The extra losses of January gas conflict: the cut of budget revenues due to the stoppage of work of more than 20 biggest plants and factories, further gas price raise on the internal market, and a dramatic damage of image of Ukraine as a business partner and predictable democratic country. And how can we call this if not the betrayal of the State interests?

It will be possible to smooth over the budget damage if Ukraine have the permission to perform re-export of gas to Europe (at European prices): financial crisis decreased the gas consumption, Ukraine also has significant amounts of gas in storages, and it can just sell the excesses. But there is no information, if Gazprom will give to Naftogaz Ukraine the re-export permission.

The agreement on gas supply to Ukraine in 2009-2010 is supposed to be signed on 19 December.