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01/05/2006 | Stefan Seitz
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THE ACTION UKRAINE REPORT - AUR
An International Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary

Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World

THE ACTION UKRAINE REPORT - AUR - Number 635
Mr. E. Morgan Williams, Publisher and Editor
Washington, D.C., THURSDAY, JANUARY 5, 2006

--------INDEX OF ARTICLES--------
Clicking on the title of any article takes you directly to the article.
Return to the Index by clicking on Return to Index at the end of each article

1. RUSSIAN-UKRAINIAN GAS WAR: MONUMENTAL RUSSIAN MISTAKE
ANALYSIS & COMMENTARY: By Anders slund
Senior Fellow, Institute for International Economics (IIE)
Published by The Action Ukraine Report (AUR), #635, Article 3
Washington, D.C., Thursday, January 5, 2006

2. RUSSIA AND UKRAINE REACH COMPLEX, MURKY DEAL
Benefits are obscured behind the secrecy surrounding the intermediary,
RosUkrEnergo, and vague promises by Ukrainian officials that this
company would be reformed in the months ahead.
By Andrew E. Kramer, The New York Times
Published in International Herald Tribune (IHT)
Neuilly Cedex, France, Wednesday, January 4, 2006

3. RUSSIAN GAS ACCORD DOESN'T CALM EUROPE'S JITTERS
Swiss-registered company called RosUkrEnergo involved
By Gregory L. White in Moscow and Chip Cummins in London
The Wall Street Journal, New York, NY, Thursday, January 5, 2006

4. RUSSIA'S REPUTATION SUFFERS IN GAS ROW
Gazprom has granted a key role in this deal to Rosukrenergo
Such an obscure company, with undisclosed ultimate owners,
should have no place in a high-profile international deal
LEAD EDITORIAL COMMENT: Financial Times
London, United Kingdom, Thursday, January 5 2006

5. SERIOUS QUESTIONS RAISED ABOUT RUSSIA/UKRAINE
GAS DEAL INTERMEDIARY ROSUKRENERGO
FPM Yuliya Tymoshenko calls RosUkrEnergo, a "criminal enterprise."
ANALYSIS: By Roman Kupchinsky
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Wednesday, January 4, 2006

6. PACT HELPS SECRETIVE GROUP TIGHTEN GRIPOVER UKRAINE
Meteoric rise of RosUkrEnergo, created with help from Leonid Kuchma
Its dominance of Ukraine's gas imports is likely to be an
embarrassment for Kiev's pro-western President Viktor
Yushchenko, when he fights elections in March.
By Tom Warner in Kiev, Financial Times
London, United Kingdom, Thursday, January 5 2006

7. NEW JV OF NAFTOGAZ UKRAINY AND ROSUKRENERGO
TO SUPPLY NATURAL GAS TO MOLDOVA
[Controversial RosUkrEnergo involved with Ukraine in another new deal]
Interfax-Ukraine, Kyiv, Ukraine, Wednesday, January 4, 2006

8. UKRAINE'S GAS DEAL WITH RUSSIA DRAWS CRITICISM OVER
ROLE OF INTERMEDIARY TRADING COMPANY ROSUKRENERGO
By Aleksandar Vasovic and Yuras Karmanau
AP Worldstream, Kiev, Ukraine, Thursday, Jan 05, 2006

9. FORMER SECURITY SERVICE HEAD AND YULIYA TYMOSHENKO
BLOC LEADER CONDEMNS UKRAINE-RUSSIA GAS DEAL
RusUkrEnergo suspected of global speculation and corruption
Interfax-Ukraine news agency, Kiev, in Russian 1336 gmt 4 Jan 06
BBC Monitoring Service, UK, in English, Wed, Jan 04, 2006

10. ROSUKRENERGO PREPARING FOR IPO WITHIN 18 MONTHS
Reportedly half owned by unidentified Russian and Ukrainian shareholders
RosUkrEnergo chosen to facilitate gas deliveries to Ukraine
By Greg Walters, Dow Jones Newswires
Moscow, Russia, Wednesday, January 4, 2006

11. EXPERTS CANNOT UNDERSTAND THE AGREEMENT BETWEEN
RUSSIA AND UKRAINE. WHAT IS 'ROSUKRENERGO' FOR?
OSTROV, Research Center of Donbass Social Perspectives
Donetsk, Ukraine, Wednesday, January 4, 2006

12. RUSSIA-UKRAINE GAS-PRICE DEAL MAY NOT END
PRESSURE FROM RUSSIA'S PUTIN
RosUkrEnergo exclusive distributor for gas imports to Ukraine
Andreas Cremer in Berlin and Reed V. Landberg in London
Bloomberg, Berlin & London, Thursday, January 5, 2006

13. TANGLED RUSSIAN-UKRAINIAN GAS DEALS PROVIDE
OPPORTUNITIES FOR CORRUPTION, INFLUENCE
Corruption has been especially prevalent in two Russian-Ukrainian
consortiums (Eural TransGas and RosUkrEnergo) created to
facilitate the delivery of Turkmen gas to Ukraine and Europe.
ANALYSIS & COMMENTARY: By Taras Kuzio
Eurasia Daily Monitor (EDM), Vol. 2, No. 163
The Jamestown Foundation, Washington, D.C., Fri, August 19, 2005

14. UKRAINE LOSES CREDIBILITY IN GAS ROW, RUSSIAN EXPERTS
Pres Yushchenko is a weak politician and running the country badly
This will leave a dark stain on the country's reputation
RTR Russia TV, Moscow, in Russian 1700 gmt 4 Jan 06
BBC Monitoring Service, UK, in English, Wed, Jan 04, 2006

15. GAS AGREEMENT GREAT VICTORY FOR RUSSIA AND NOW
UKRAINE MUST CHOOSE BETWEEN THE WEST AND RUSSIA
RIA Novosti, Moscow, in Russian 1649 gmt 4 Jan 06
BBC Monitoring Service, UK, in English, Wed, Jan 04, 2006

16. RUSSIAN LAWMAKERS, OFFICIALS SAY GAS CONFLICT
EXPOSES INTERNAL POLITICAL CRISIS IN UKRAINE
Itar-Tass, Moscow, Russia, Tuesday, January 3, 2006

17. PUTIN'S GAS LOGIC IS IN SHORT SUPPLY
Perhaps he let himself be carried away by the special situation of Ukraine.
COMMENT & ANALYSIS: By Columnist Quentin Peel
International Affairs Editor of the Financial Times
Financial Times, London, United Kingdom, Wed, Jan 4, 2006

18. POTEMKIN COMPROMISE
Four-day skirmish leaves Russia's image badly bruised
In standing up to the Russians, Ukraine's inexperienced democrats
passed a major test. The rest of Europe got a useful wake-up call.
REVIEW AND OUTLOOK: The Wall Street Journal
New York, New York, Thursday, January 5, 2006

19. GAS PRESSURE: WHY PUTIN IS SQUANDERING WORLD
PRESTIGE IN HIS SQUABBLE WITH KIEV
By Neil Buckley and Thomas Catan, Financial Times
London, United Kingdom, Wednesday, January 4, 2006

20. OBNOXIOUS, BUT GAS WAR IS NOT PUTIN'S WORST CRIME
It was stupid of President Putin to turn off the gas to Ukraine
FOREIGN EDITOR'S BRIEFING: By Bronwen Maddox
The Times, London, United Kingdom, Wednesday, January 4, 2006

21. EU RELIEF AS KIEV AND MOSCOW REACH GAS DEAL
Russia appeared stung by criticism that it had tarnished its
reputation as a reliable energy supplier at a time when it has
assumed the presidency of the Group of Eight industrialised nations.
Reporting by Thomas Catan in London, Tom Warner in Kiev, Neil Buckley
in Moscow, Sarah Laitner in Brussels and Bertrand Benoit in Berlin
FINANCIAL TIMES, London, United Kingdom, Thursday, Jan 5 2006

22. ACTING ACCORDING TO TYPE IN PUTIN'S OIL PLOY
COMMENTARY: By Jim Hoagland, The Washington Post
The Wall Street Journal, NY, NY, Thursday, January 5, 2006
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  • 2006.01.05 | Stefan Seitz

    1. RUSSIAN-UKRAINIAN GAS WAR: MONUMENTAL RUSSIAN MISTAKE

    1. RUSSIAN-UKRAINIAN GAS WAR: MONUMENTAL RUSSIAN MISTAKE

    ANALYSIS & COMMENTARY: By Anders slund
    Senior Fellow, Institute for International Economics (IIE)
    Published by The Action Ukraine Report (AUR), #635, Article 1
    Washington, D.C., Thursday, January 5, 2006

    Early on January 4, Gazprom and Ukrainian gas officials reached an
    agreement on gas deliveries to Ukraine in Moscow. This was in many
    ways an excellent agreement, but most of all so for Ukraine.

    First, it is a five-year agreement lasting till the end of 2009, which means
    that stable conditions for gas deliveries should have been accomplished.
    Amazingly, Russia is offering Ukraine five years of stable natural gas
    prices at a time of rising gas prices and increased gas scarcity, while most
    countries face annual price revisions.

    Second, a consortium is being set up that involves gas deliveries from four
    producers, Russia and Turkmenistan, but also Kazakhstan (whose production
    of associate gas is rising fast) and Uzbekistan (a marginal exporter), and at
    least one consumer, Ukraine. To Ukraine, this means that it obtains access
    to gas also from Kazakhstan and Uzbekistan. It appears as if Russia is
    reinforcing its control over gas deliveries from Central Asia. The formation
    of such a consortium, though not concluded, should stabilize gas trade
    relations.

    Third, the price agreed - $95 per 1,000 cubic meters (mcm) seems perfectly
    sensible. It is almost twice what Ukraine paid last year, but less than the
    $110 per mcm that Georgia and Armenia are to pay, and the Baltics are
    supposed to pay slightly more, and far from the 230 per mcm that Gazprom
    originally demanded. The Russian claim that Gazprom would be paid $230
    per mcm seems nothing but a face-saving devise. Possibly, the portion of
    Russian gas delivered to Ukraine will decline so much that this becomes
    true.

    Fourth, the transit fee situation is improving considerably. Ukraine will
    now be paid its transit fee in cash from Gazprom rather than through barter.
    The transit fee through Ukraine rises from $1.09 per 1 mcm and 100 km to
    $1.60, which is a more reasonable though somewhat low price.

    In addition, Ukraine will buy all gas from Russia and Central Asia at the
    Russian-Ukrainian border, while it previously bought gas on the
    Russian-Turkmenistan border being compelled to haggle over the transit
    fee with Gazprom. Therefore, Ukraine is not likely to actually pay more
    for the Central Asian gas than the $44 per mcm it paid last year, though
    it is said to pay $65 per mcm this year.

    The only really disturbing element is that the enterprise Rosukrenergo will
    be in charge of the gas deliveries to Ukraine. It is a joint venture between
    Gazprom and a legal entity under the auspices of Raiffeisen Bank, which
    took over two years ago from Euraltransgaz, which took over in 2001
    from Itera.

    These companies appear to have been created only to skim off profits
    from Gazprom. Hermitage Fund assesses that the unjustified profit of
    the Raiffeisen entity is $500 million a year.

    The US government alleges that the partners of this entity are the organized
    criminal Semen Mogilevich (Ukrainian Jew who lives in Moscow), former
    Naftohaz Ukraina chairman Boiko and top people in the Kremlin. Prime
    Minister Yekhanurov emphasized that Russia insisted on Rosukrenergo's
    involvement and that the Ukrainian government was not involved in it.

    The economic outcome is relatively easy to calculate. If Ukraine will import
    60 bcm of natural gas this year, it would have to pay $5.7 bn to compare
    with $2.9 bn for 62 bcm last year, that is, an increase of $2.8 bn. However,
    from this we need to deduct an increase transit income of Ukraine of $500
    million and decreased transit costs for Turkmen gas of about $800 million,
    which leaves us with a net increase of $1.5 bn or barely 2 percent of
    Ukraine's GDP. Given how energy prices have risen around the world, this
    appears a very good deal indeed for Ukraine, and the question arises whether
    Russia will really stick to this settlement.

    Two industries in Ukraine will be hit by the higher gas prices, the chemical
    industry (especially mineral fertilizers) and the steel industry, which are
    very dependent on gas and in direct competition with Russian industries
    that only pay $35 per mcm for gas.

    For Russia, the whole gas conflict appears a monumental mistake for
    at least six different reasons.

    First, market economic arguments, but the massive price discrimination
    ranging from $47 per mcm for Belarus to $250 per mcm for Western
    Europe makes clear that the conflict is really political.

    Second, for long the Kremlin has made clear that its main objective has
    been to influence the Ukrainian parliamentary elections on March 26 to the
    benefit of Yanukovich's party the Regions. This is bound to backfire to the
    benefit of Yushchenko and Yekhanurov. Once again, the Kremlin is running
    Yushchenko's election campaign for him.

    Third, Russia does not appear to have realized that it has a very weak
    position in gas negotiations with Ukraine. Much of Russia's export gas is
    virtually worthless without Ukraine's gas pipeline, which is the only road
    to the outside world for most of the gas until 2009, when the St. Petersburg
    LBG plant and the North European pipeline to Germany are supposed to
    come on line. Gazprom is under the heel of Ukraine's transportation
    monopoly. Russia was cheated by Ukraine persistently from 1992 to 1999
    but does not appear to have learned to appreciate its weakness.

    Fourth, legally Russia was bound by a five-year agreement concluded with
    Yanukovich in 2004, guaranteeing Ukraine the price of $50 per mcm. Ukraine
    could have taken Russia to international arbitration in Stockholm and would
    no doubt have won.

    Fifth, by taking immediate and drastic action, reducing gas supplies to
    much of Europe, Russia has severely damaged its reputation as a reliable
    supplier of gas that it has nurtured for the last four decades. Two days of
    minor disruption are evidence enough. At a time when much of Europe is
    considering the choice between Russian gas through pipelines or LNG
    from anywhere this can potentially be highly damaging, as energy decisions
    tend to be more political and emotional than rational. Especially considering
    that this happens at the very time that Russia becomes chairman of G-8,
    the damage to Russia's international reputation is likely to be palpable.

    Sixth, the Kremlin's insistence on using the non-transparent vehicle
    Rosukrenergo is likely to increasingly discredit it as people realize what
    it actually is.

    In short, Russia could hardly have done worse until the agreement today.
    It has appeared aggressive, uninformed, reckless and foolhardy.

    For Gazprom, however, this does not look all too bad. It has shown that
    it is really interested in raising prices to a reasonable level to boost its
    profits. It has reached a sensible agreement pretty fast, even if it could
    have left the prices to be renegotiated each year or raised by some formula,
    which Ukraine accepted. The big question is how seriously two days of
    minor supply disruption will be taken by potential European customers.
    ---------------------------------------------------------------------------------------------------
    NOTE: Dr. Anders slund is a Senior Fellow at the Institute for
    International Economics in Washington, D.C., E-mail: aaslund@iie.com
    ---------------------------------------------------------------------------------------------
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  • 2006.01.05 | Stefan Seitz

    2. RUSSIA AND UKRAINE REACH COMPLEX, MURKY DEAL

    2. RUSSIA AND UKRAINE REACH COMPLEX, MURKY DEAL
    Benefits are obscured behind the secrecy surrounding the intermediary,
    RosUkrEnergo, and vague promises by Ukrainian officials that this
    company would be reformed in the months ahead

    By Andrew E. Kramer, The New York Times
    Published in International Herald Tribune (IHT)
    Neuilly Cedex, France, Wednesday, January 4, 2006

    KIEV - Russia and Ukraine settled their price dispute over natural gas on
    Wednesday when national energy companies in both countries surrendered
    control over all of the gas supply to Ukraine to a middleman company of
    uncertain ownership.

    The murky solution allowed both nations to claim victory, though Russia
    emerged with its reputation on world energy markets bruised after disrupting
    natural gas supplies to Europe in the middle of winter. Ukraine's gas
    utility bill will about double.

    Under the deal, Russia will sell natural gas to the intermediary company at
    the price it had demanded from Ukraine, $230 per 1,000 cubic meters, while
    Ukraine will buy gas from that company as it comes into the country for $95.

    Ukraine has been paying at a rate of $50 to Russia.

    The company will balance out the price at $95 by selling Ukraine less of the
    expensive Russian natural gas and more lower-priced gas from Central Asia.
    The gas from the Central Asian nations of Turkmenistan and Kazakhstan will
    sell for only $50 and $60 per 1,000 cubic meters.

    At the center of the complex deal is an offshore energy trading company that
    has for a decade, under various names, shipped natural gas to Ukraine from
    the Central Asian country of Turkmenistan, a business exploiting the price
    differentials in former Soviet markets.

    Exactly who walked away from the negotiating table with what benefits was
    obscured behind the secrecy surrounding the intermediary, RosUkrEnergo,
    and vague promises by Ukrainian officials that this company would be
    reformed in the months ahead to fulfill its new role.

    Ukraine's national security adviser, Anatoly Kinakh, said in an interview
    that the deal would increase the importance of Central Asian natural gas in
    Ukraine's fuel mix, moving away from Russian supplies.

    That dovetailed with Ukraine's efforts to diversify its sources of fuel, he
    said - though Russia still controls the pipelines leading to Ukraine, and,
    according to analysts, a majority interest in RosUkrEnergo through
    unidentified proxy owners.

    "We have reached an agreement that is mutually beneficial and therefore
    mutually acceptable," Aleksei Ivchinko, the director of Ukraine's national
    gas company, Naftogaz, said in Moscow after signing the agreement.

    The deal, Ivchinko said, would guarantee Ukraine's domestic supply as well
    as the transshipment of Russian gas to other European countries - something
    that had Europe and world energy markets jittery in the opening days of this
    year. Crude oil prices dipped slightly on the latest news.

    The companies also reached agreement on the price that Ukraine will charge
    Russia for shipping gas across its territory to Europe.

    Gazprom, Russia's natural gas monopoly, will pay $1.60 to ship 1,000 cubic
    meters for 100 kilometers, up from the current price of $1.09, according to
    Ivchinko.

    The higher price that Ukraine will pay for natural gas may prove a Pyrrhic
    victory for Russia, as Western European countries that are Moscow's
    primary natural gas customers said Wednesday they will seek to diversify
    their sources of energy.

    The disruption in the natural gas flow from fields in the Siberian Arctic
    and Central Asia was the first ever, according to Martin Bartenstein, the
    economy minister of Austria, which holds the rotating presidency of the
    European Union. The Soviet Union began exporting natural gas to Western
    Europe in 1968.

    Russian gas supplies will remain "the backbone of European energy supplies,
    but certainly we will have to learn the lesson of what has happened in the
    last few days," Bartenstein said, according to Reuters.

    President Vladimir Putin of Russia, speaking at his dacha outside Moscow,
    called the settlement reached Wednesday a guarantee of energy supplies to
    Europe. "I think undoubtedly this success will have a positive effect on the
    whole sphere of Russian-Ukrainian relations," Putin said. "We can work not
    just with each other but also together in the market of third countries."

    Ukraine's prime minister, Yuriy Yekhanurov, said that the higher prices
    would impel Ukrainian industry to become more energy efficient, perhaps in
    the longer-term forcing the pace of modernization at mammoth Soviet-era
    factories, but added that the immediate consequences of higher prices could
    be bankruptcies at some chemical and metallurgical plants. These two
    energy-intensive sectors form the core of Ukraine's exports.

    "I will not say who won or who lost," Yekhanurov said. "The people of
    Ukraine and Russia won. Europe won because it will calmly receive gas.
    Common sense won."

    Behind the announcements lies a company with a troubling history in Ukraine,
    one that in the 1990s carved the most lucrative bits of Ukraine's gas market
    for itself and won exclusive, and profitable, rights to transship gas over
    Gazprom's domestic pipeline system.

    The company first conducting this business was known as Itera, one of the
    many subsidiaries, daughter companies and joint ventures that tapped into
    the vast and then poorly audited revenue flows of Gazprom, according to
    analysts who follow Gazprom. When Putin brought new management to
    Gazprom, many such schemes dried up. But the Ukrainian middlemen
    stayed in business.

    Former executives at Gazprom and Naftogaz had interests in the deal,
    according to Jrme Guillet, a Paris-based banker and authority on
    Gazprom's business practices. "The names change every year, but it's
    always been the same mechanism," he said in a telephone interview.

    "The Ukrainians that were previously part of the deal are being kicked out,"
    after the change of leadership in Ukraine after the Orange Revolution, he
    said. "The new leaders are trying to put their people in. You have a huge
    trade with hundreds of millions of dollars being captured by a small number
    of people."

    Until officials specify how the company will operate in its new role, he
    said, the significance of Wednesday's settlement remain murky.

    Some Ukrainian officials appeared almost giddy Wednesday after staring
    down Russia in the dispute, even though the country will now pay higher
    gas tariffs. "The price of freedom just went up a little bit," said one
    official, who said he did not want to further aggravate relations with
    Russia by speaking publicly of victory.

    Yet the elevated role of RosUkrEnergo troubled others in Ukraine's
    turbulent political class.

    "The point was to eliminate a suspicious intermediary," Grigory Nemurya,
    an adviser to Yulia Tymoshenko, the former prime minister and leader of
    the Orange Revolution who this autumn fell out with President Viktor
    Yushchenko of Ukraine. "Now Ukraine depends on this company even
    more.It's another time bomb that could explode later, further down the
    road." -30-
    ---------------------------------------------------------------------------------------------
    LINK: http://www.iht.com/articles/2006/01/04/news/gazprom.php
    ---------------------------------------------------------------------------------------------
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  • 2006.01.05 | Stefan Seitz

    3. RUSSIAN GAS ACCORD DOESN'T CALM EUROPE'S JITTERS

    3. RUSSIAN GAS ACCORD DOESN'T CALM EUROPE'S JITTERS
    Swiss-registered company called RosUkrEnergo involved

    By Gregory L. White in Moscow and Chip Cummins in London
    The Wall Street Journal, New York, NY, Thursday, January 5, 2006

    Russia and Ukraine reached a face-saving compromise in a dispute over
    natural-gas prices that they said would secure Russian exports to Europe.
    But the pact did little to calm newly revived fears in Europe about the
    continent's dependence on its eastern neighbor for fuel.

    "Russian gas supplies will remain...the backbone of European energy
    supplies, but certainly we will have to learn the lesson of what has
    happened in the last few days," said Martin Bartenstein, the economy
    minister of current European Union president Austria.

    After Russia briefly cut off supplies to Ukraine on Sunday and European
    customers reported a drop in supplies of Russian gas shipped via Ukraine,
    politicians across Europe called for seeking alternative gas suppliers and
    energy sources, including nuclear power, which has long been taboo.

    German Prime Minister Angela Merkel said she plans to raise the gas issue
    in a meeting with Russian President Vladimir Putin in Moscow later this
    month.

    Officials in the U.S. and Europe accused the Kremlin of using energy as a
    political weapon against Ukraine's pro-Western government in the crisis.
    Because Russia is such a huge and close source of energy supply for Europe,
    countries like Germany, Italy and Poland will be hard-pressed to find viable
    alternatives.

    Russia provides a quarter of Europe's gas, and hopes to boost that share.
    Major gas fields elsewhere in the region are in decline and demand for the
    clean-burning fuel is rising. Major European energy companies and utilities
    have lined up to make deals with Russian state-controlled gas monopoly
    OAO Gazprom, which sits on the world's largest reserves of the fuel.

    Russian officials yesterday defended their decision to cut off supplies to
    Ukraine and said this week's crisis underlined the need for routes to bring
    Russian gas to Europe. "This situation has rather clearly shown for all
    where the risks are," said Industry Minister Viktor Khristenko. "It's a very
    good stimulus for our European partners to understand the need for
    diversifying the routes of Russian supplies."

    About 80% of Russia's gas exports to Europe are carried in Soviet-era
    pipelines across Ukraine. Several times in the 1990s Kiev siphoned off fuel
    meant for export amid price disputes with Moscow. Gazprom made up the
    missing gas to export customers from its own supplies. And in the early
    1990s, Russia cut gas shipments to former satellites, affecting European
    supplies and prompting a similar outcry in Western Europe.

    Last year, Russia and Germany agreed to build a pipeline along the bottom
    of the Baltic Sea to carry Russian gas directly to Germany. Moscow also is
    considering expanding a pipeline to Turkey to carry gas as far as Italy.

    Well before the Ukraine shock, European governments had backed a host
    of projects that will start to diversify supply from Russia, including
    pipelines from North Africa. Poland is looking at sources, including
    building a terminal to accept liquefied-natural-gas tankers, which would
    reduce its vulnerability to shocks from Russia. Such projects will be years
    in the building.

    European officials welcomed yesterday's deal between Russia and
    Ukraine. Under the five-year agreement, which replaces a series of murky
    barter-and-discount arrangements, Russia will pay market prices in cash
    to Ukraine for the transit of its exports to Europe.

    Kiev in turn agreed to Russia's demand that it pay prices tied to
    world-market levels for the Russian gas it buys. That would bring its
    current price to about $230 per thousand cubic meters instead of the $50
    it paid in past years. Gazprom said it would get about $3.5 billion in
    additional revenue from the deal this year.

    For Ukraine, the economic blow of the price increase will be partially
    offset by reduced purchases of Russian gas and increased supplies from
    Turkmenistan, Uzbekistan and Kazakhstan, at rates of about $50 to $65
    per thousand cubic meters, according to Gazprom, which carries those
    shipments to Ukraine.

    As a result of the complex deal, Ukraine will pay $95 for its gas this year,
    up nearly 50% from 2005. Ukrainian Prime Minister Yuri Yekhanurov
    vowed an immediate campaign of conservation.
    [Swiss-registered company called RosUkrEnergo]
    While Russian officials hailed the new deal's transparency, it turns all of
    Ukraine's gas imports over to a Swiss-registered company called
    RosUkrEnergo. The company is half-owned by Gazprom and half by a
    unit of Austria's Raiffeisen Bank, which officials say is a nominee for
    several unnamed Ukrainian investors.

    It wasn't clear which side sought the company's participation, but Gazprom
    officials have said in the past they would have preferred to eliminate the
    intermediary. Ukrainian authorities last year investigated the company on
    suspicion of ties to organized crime, but no charges were filed and
    Raiffeisen officials deny any criminal links.

    The new agreements are retroactive to Jan. 1, and Gazprom officials said
    they won't pursue their allegations that Ukraine was stealing gas during the
    period of the cutoff. Ukrainian officials denied they stole gas, insisting
    they were contractually entitled to the volumes they used. (David Crawford
    in Berlin contributed to this article.) -30-
    ----------------------------------------------------------------------------------------------
    Write to Gregory L. White at greg.white@wsj.com and Chip
    Cummins at chip.cummins@wsj.com
    --------------------------------------------------------------------------------------------
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  • 2006.01.05 | Stefan Seitz

    4. RUSSIA'S REPUTATION SUFFERS IN GAS ROW

    4. RUSSIA'S REPUTATION SUFFERS IN GAS ROW
    Gazprom has granted a key role in this deal to Rosukrenergo
    Such an obscure company, with undisclosed ultimate owners,
    should have no place in a high-profile international deal

    LEAD EDITORIAL COMMENT: Financial Times
    London, United Kingdom, Thursday, January 5 2006

    Russia and Ukraine have seen sense in bringing their bitter gas dispute to
    a speedy end and lifting the threat of a Europe-wide energy crisis.

    Although some of the settlement's details are unclear, it seems Moscow has
    given up more than Kiev. Gazprom, the Russian gas giant, says Ukraine will
    pay $230 per 1,000 cubic metres for Russian gas - exactly as Gazprom
    demanded and a huge increase on the current $50. Ukraine argues that its
    average price will be only $95 per 1,000 cubic metres because expensive
    Russian gas will account for only about one-quarter of supplies. Gazprom
    will pipe the rest from central Asia at just $50 per 1,000 cubic metres.

    This settlement cleverly gives both sides scope to claim commercial victory.
    But in political terms, Moscow has been left with egg on its face. It was
    Russia that raised the stakes during the row, for example televising live
    the moment when Gazprom cut Ukraine's supply. Russian president Vladimir
    Putin clearly intended to humiliate Kiev - and punish Ukrainian president
    Viktor Yushchenko for the Orange revolution.

    In the event, Kiev has escaped humiliation and Moscow has been left in the
    awkward position of explaining its actions to the world. Its reputation as a
    reliable energy supplier has been called into question. Ukraine bears some
    of the blame for extracting gas for its own use from supplies destined for
    Gazprom's European Union customers. But, to Mr Putin's embarrassment,
    international concern has rightly focused not on Kiev, but Moscow.

    Russia has also failed in its long-term aim of securing a stake in Ukraine's
    export pipeline. In Georgia and Belarus it has recently struck deals
    swapping cheap gas for a say in pipeline management. Not for the first time,
    Kiev has escaped Moscow's clutches.

    However, Ukraine must now adapt to rising gas prices. Increased energy
    efficiency will bring political as well as economic benefits. The sooner
    Kiev acts, the quicker it will reduce the scope for Russian political
    leverage.

    The deal highlights the vital role of pipelines. Gazprom has, in effect,
    protected its commercial interests, and satisfied Ukraine's, by squeezing
    Kazakhstan and Turkmenistan. No wonder the central Asian states are
    considering new Gazprom-free export routes. It is unclear if they have
    enough gas to justify the huge costs. But the US and the EU must monitor
    these ideas. If they become commercially viable, they could merit political
    support.

    Finally, despite Gazprom's recent efforts to improve transparency, the group
    has granted a key role in this deal to Rosukrenergo, an obscure joint
    venture which was investigated last year by the Ukrainian authorities for
    alleged links to organised crime.

    Rosukrenergo denies wrongdoing. But such a company, with undisclosed
    ultimate owners, should have no place in a high-profile international deal.
    --------------------------------------------------------------------------------------------
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    ========================================================
  • 2006.01.05 |

    Int. Herald Tribune: The West's Ukraine illusion

    http://www.iht.com/articles/2006/01/05/opinion/edlieven.php

    The West's Ukraine illusion
    Anatol Lieven International Herald Tribune

    THURSDAY, JANUARY 5, 2006

    WASHINGTON With the Russian-Ukrainian gas dispute now settled, in a murky but apparently satisfactory fashion, it is time to reflect on what the affair says about the West's relations with Russia and, still more important, the West's relations with Ukraine.

    The reason a serious debate is necessary is that the West's strategy toward Ukraine has been founded on a bizarre illusion: that Ukraine would leave Russia's orbit and "join the West," and that Russia would pay for this process.

    Consider the figures: Until the latest price hike for gas, Russia was supplying Ukraine with a de facto annual energy subsidy estimated by independent experts at somewhere between $3 billion and $5 billion a year. That is more than the whole of the European Union's aid in the 14 years since Ukrainian independence.

    As for U.S. aid, last year it stood at a mere $174 million - and this after all the talk of U.S. admiration and support for Ukraine's Orange Revolution. Even after the latest price rise, Ukraine will remain greatly favored by international standards, though now more at the ultimate expense of Turkmenistan than Russia.

    Equally important for the Ukrainian economy have been the remittances sent back annually by the millions of Ukrainians working legally in Russia. Once again, contrast Western approaches to this question: It remains extremely difficult for Ukrainians to gain permits to work legally in Western countries. When the last German foreign minister, Joschka Fischer, tried to relax the terms for entry into Germany, the result was an outburst of chauvinist hysteria about a supposed flood of Ukrainian criminals and prostitutes.

    Recent days have seen a great deal of moralizing in the U.S. and European news media about Russia using energy as a political tool. It would be better if the Americans and French in particular turned the question round and asked themselves whether there would be the slightest possibility of their countries giving aid on this scale without expecting concrete geopolitical and economic returns.

    The underlying thinking in Brussels and Washington concerning Ukraine is rather different, with Europeans holding the prize for cynicism and Americans for recklessness.

    Under all the talk about Ukraine's European path, a majority of West European governments and EU officials privately hope that any real prospect of Ukrainian membership in the European Union can be postponed virtually indefinitely - or at least until after Turkish membership, which may come to the same thing. They are certainly not going to ask their voters to come up with anything like the massive aid that Ukraine needs in order to reform its economy along Western lines.

    Nor of course is the United States going to take up this burden. Instead, a growing number of U.S. officials and politicians seem to see early NATO membership for Ukraine as a cheap alternative, with little economic cost to the United States, and that little offset by benefits to U.S. arms manufacturers.

    This, however, would mean taking into what remains in effect an anti-Russian alliance a country which is still deeply entwined with Russia economically, demographically and culturally; where in the last round of the presidential elections, 44 percent of the population voted against a Western path and in favor of alliance with Russia, and where, according to opinion polls, an overwhelming majority of the population is opposed to NATO membership.

    In addition, as events since the Orange Revolution have demonstrated, Ukraine remains a volatile and unconsolidated democracy, whose political and business elites remain deeply ambivalent about real economic reform. And a future world economic crisis, especially one consequent on international energy sources, could completely redraw both the political and geopolitical maps of Ukraine.

    Meanwhile, unless Russia can somehow also be integrated into the West, Ukraine's successful move out of the Russian orbit would face Russia with another set of terrible economic, cultural and geopolitical defeats, including in the long term the loss of Ukrainian markets for Russian goods. That does not make Russia's opposition to this process correct, but certainly understandable, especially to France and America.

    (Anatol Lieven is a senior research fellow at the New America Foundation in Washington.)

    WASHINGTON With the Russian-Ukrainian gas dispute now settled, in a murky but apparently satisfactory fashion, it is time to reflect on what the affair says about the West's relations with Russia and, still more important, the West's relations with Ukraine.

    The reason a serious debate is necessary is that the West's strategy toward Ukraine has been founded on a bizarre illusion: that Ukraine would leave Russia's orbit and "join the West," and that Russia would pay for this process.

    Consider the figures: Until the latest price hike for gas, Russia was supplying Ukraine with a de facto annual energy subsidy estimated by independent experts at somewhere between $3 billion and $5 billion a year. That is more than the whole of the European Union's aid in the 14 years since Ukrainian independence.

    As for U.S. aid, last year it stood at a mere $174 million - and this after all the talk of U.S. admiration and support for Ukraine's Orange Revolution. Even after the latest price rise, Ukraine will remain greatly favored by international standards, though now more at the ultimate expense of Turkmenistan than Russia.

    Equally important for the Ukrainian economy have been the remittances sent back annually by the millions of Ukrainians working legally in Russia. Once again, contrast Western approaches to this question: It remains extremely difficult for Ukrainians to gain permits to work legally in Western countries. When the last German foreign minister, Joschka Fischer, tried to relax the terms for entry into Germany, the result was an outburst of chauvinist hysteria about a supposed flood of Ukrainian criminals and prostitutes.

    Recent days have seen a great deal of moralizing in the U.S. and European news media about Russia using energy as a political tool. It would be better if the Americans and French in particular turned the question round and asked themselves whether there would be the slightest possibility of their countries giving aid on this scale without expecting concrete geopolitical and economic returns.

    The underlying thinking in Brussels and Washington concerning Ukraine is rather different, with Europeans holding the prize for cynicism and Americans for recklessness.

    Under all the talk about Ukraine's European path, a majority of West European governments and EU officials privately hope that any real prospect of Ukrainian membership in the European Union can be postponed virtually indefinitely - or at least until after Turkish membership, which may come to the same thing. They are certainly not going to ask their voters to come up with anything like the massive aid that Ukraine needs in order to reform its economy along Western lines.

    Nor of course is the United States going to take up this burden. Instead, a growing number of U.S. officials and politicians seem to see early NATO membership for Ukraine as a cheap alternative, with little economic cost to the United States, and that little offset by benefits to U.S. arms manufacturers.

    This, however, would mean taking into what remains in effect an anti-Russian alliance a country which is still deeply entwined with Russia economically, demographically and culturally; where in the last round of the presidential elections, 44 percent of the population voted against a Western path and in favor of alliance with Russia, and where, according to opinion polls, an overwhelming majority of the population is opposed to NATO membership.

    In addition, as events since the Orange Revolution have demonstrated, Ukraine remains a volatile and unconsolidated democracy, whose political and business elites remain deeply ambivalent about real economic reform. And a future world economic crisis, especially one consequent on international energy sources, could completely redraw both the political and geopolitical maps of Ukraine.

    Meanwhile, unless Russia can somehow also be integrated into the West, Ukraine's successful move out of the Russian orbit would face Russia with another set of terrible economic, cultural and geopolitical defeats, including in the long term the loss of Ukrainian markets for Russian goods. That does not make Russia's opposition to this process correct, but certainly understandable, especially to France and America.

    (Anatol Lieven is a senior research fellow at the New America Foundation in Washington.)

    WASHINGTON With the Russian-Ukrainian gas dispute now settled, in a murky but apparently satisfactory fashion, it is time to reflect on what the affair says about the West's relations with Russia and, still more important, the West's relations with Ukraine.

    The reason a serious debate is necessary is that the West's strategy toward Ukraine has been founded on a bizarre illusion: that Ukraine would leave Russia's orbit and "join the West," and that Russia would pay for this process.

    Consider the figures: Until the latest price hike for gas, Russia was supplying Ukraine with a de facto annual energy subsidy estimated by independent experts at somewhere between $3 billion and $5 billion a year. That is more than the whole of the European Union's aid in the 14 years since Ukrainian independence.

    As for U.S. aid, last year it stood at a mere $174 million - and this after all the talk of U.S. admiration and support for Ukraine's Orange Revolution. Even after the latest price rise, Ukraine will remain greatly favored by international standards, though now more at the ultimate expense of Turkmenistan than Russia.

    Equally important for the Ukrainian economy have been the remittances sent back annually by the millions of Ukrainians working legally in Russia. Once again, contrast Western approaches to this question: It remains extremely difficult for Ukrainians to gain permits to work legally in Western countries. When the last German foreign minister, Joschka Fischer, tried to relax the terms for entry into Germany, the result was an outburst of chauvinist hysteria about a supposed flood of Ukrainian criminals and prostitutes.

    Recent days have seen a great deal of moralizing in the U.S. and European news media about Russia using energy as a political tool. It would be better if the Americans and French in particular turned the question round and asked themselves whether there would be the slightest possibility of their countries giving aid on this scale without expecting concrete geopolitical and economic returns.

    The underlying thinking in Brussels and Washington concerning Ukraine is rather different, with Europeans holding the prize for cynicism and Americans for recklessness.

    Under all the talk about Ukraine's European path, a majority of West European governments and EU officials privately hope that any real prospect of Ukrainian membership in the European Union can be postponed virtually indefinitely - or at least until after Turkish membership, which may come to the same thing. They are certainly not going to ask their voters to come up with anything like the massive aid that Ukraine needs in order to reform its economy along Western lines.

    Nor of course is the United States going to take up this burden. Instead, a growing number of U.S. officials and politicians seem to see early NATO membership for Ukraine as a cheap alternative, with little economic cost to the United States, and that little offset by benefits to U.S. arms manufacturers.

    This, however, would mean taking into what remains in effect an anti-Russian alliance a country which is still deeply entwined with Russia economically, demographically and culturally; where in the last round of the presidential elections, 44 percent of the population voted against a Western path and in favor of alliance with Russia, and where, according to opinion polls, an overwhelming majority of the population is opposed to NATO membership.

    In addition, as events since the Orange Revolution have demonstrated, Ukraine remains a volatile and unconsolidated democracy, whose political and business elites remain deeply ambivalent about real economic reform. And a future world economic crisis, especially one consequent on international energy sources, could completely redraw both the political and geopolitical maps of Ukraine.

    Meanwhile, unless Russia can somehow also be integrated into the West, Ukraine's successful move out of the Russian orbit would face Russia with another set of terrible economic, cultural and geopolitical defeats, including in the long term the loss of Ukrainian markets for Russian goods. That does not make Russia's opposition to this process correct, but certainly understandable, especially to France and America.

    (Anatol Lieven is a senior research fellow at the New America Foundation in Washington.)
  • 2006.01.05 | Stefan Seitz

    5. SERIOUS QUESTIONS RAISED ABOUT RUSSIA/UKRAINE

    5. SERIOUS QUESTIONS RAISED ABOUT RUSSIA/UKRAINE
    GAS DEAL INTERMEDIARY ROSUKRENERGO
    FPM Yuliya Tymoshenko calls RosUkrEnergo, a "criminal enterprise."

    ANALYSIS: By Roman Kupchinsky
    Radio Free Europe/Radio Liberty (RFE/RL)
    Prague, Czech Republic, Wednesday, January 4, 2006

    The solution to the ongoing gas conflict reached between Gazprom and
    Naftohaz Ukrayina, the Ukrainian state oil and gas company, announced
    today raises more questions than it does answers.

    Gazprom head Aleksei Miller announced that an offshore company,
    RosUkrEnergo, will be the middleman for gas sales from Russia,
    Turkmenistan, Uzbekistan, and Kazakhstan to Ukraine. The company will
    sell a mixture of gas from these countries to Ukraine at a price of $95 per
    1,000 cubic meters. Gazprom will sell RosUkrEnergo gas at $230 per
    1,000 cubic meters.
    EURAL TRANS GAS
    RosUkrEnergo has previously acted as the intermediary for Turkmen gas
    sales to Ukraine. It took over the role of another offshore company formed
    in December 2001 in Hungary, Eural Trans Gas (ETG).

    In December 2001, ETG signed contracts with Gazprom and Naftohaz
    Ukrayina to act as the intermediary for gas shipments from Turkmenistan to
    Ukraine. As the intermediary, they ensured payment of all transit costs and
    duties. The Ukrainian side paid ETG with 13 billion cubic meters of gas for
    its services. ETG then sold this gas on to Europe at substantially higher
    prices.

    ETG soon came under suspicion in the media of being involved with Russian
    organized-crime figures. In July 2004, during a Ukrainian-Russian business
    forum in Yalta, then Russian and Ukrainian presidents, Vladimir Putin and
    Leonid Kuchma, respectively, announced that ETG would be replaced by a
    new company, RosUkrEnergo.

    RosUkrEnergo was touted as a transparent successor to ETG and was
    registered in Zug, Switzerland on 22 July 2004. It consisted on the Russian
    side of Arosgas Holdings AG, named in the founding documents as a
    company "affiliated with GazpromBank" and GazpromBank itself, a wholly
    owned Gazprom subsidiary.
    JOINT VENTURE
    On the Ukrainian side, RosUkrEnergo is represented by Raiffeisen Investment
    AG, a member of the Raiffeisen central bank group.

    Raiffeisen Investment CEO Wolfgang Putschek stated that his company is not
    a partner in RosUkrEnergo, but merely manages the portfolios of a "number of
    private Ukrainian investors" in RosUkrEnergo, "The Moscow Times" reported
    on 28 July. Putschek refused to name these investors citing Austrian
    confidentiality laws.

    When the new Ukrainian government of Viktor Yushchenko came to power in
    January 2005, one of the first acts of Prime Minister Yuliya Tymoshenko was
    to call for a criminal investigation into RosUkrEnergo, calling it a
    "criminal enterprise."

    Shortly afterwards, Oleksandr Turchinov, the head of the Ukrainian security
    service, the SBU, announced that a criminal case had been launched against
    RosUkrEnergo.

    The investigation abruptly ended in mid-August 2005. Soon after Turchynov's
    removal as head of the SBU, the Ukrainian daily website obozrevatel.com.ua
    reported on 21 September 2005 that the SBU officer in charge of the
    investigation of RosUkrEnergo, Andriy Kozhemyakin, was transferred from
    the case to other duties.

    Gazprom has not come under any official scrutiny in Moscow for its role in
    the RosUkrEnergo or ETG gas schemes.

    How the inclusion of RosUkrEnergo into the settlement of the
    Ukrainian-Russian gas conflict will play out in the West is not yet known,
    but it will raise many eyebrows in Europe and the United States. The U.S.
    FBI has been investigating RosUkrEnergo for some time now and
    European law-enforcement agencies are also aware of the allegations in
    this case. -30-
    ------------------------------------------------------------------------------------------------
    NOTE: Roman Kupchinsky is the organized crime and terrorism analyst
    for RFE/RL Online and the editor of "RFE/RL Organized Crime and
    Terrorism Watch." He graduated from Long Island University in Brooklyn
    with a degree in political science. He was the president of Prolog Research
    and Publishing Corporation in New York prior to joining RFE/RL where
    he was director of the Ukrainian Service for 10 years.
    ------------------------------------------------------------------------------------------------
    http://www.rferl.org/featuresarticle/2006/1/A320B03B-185F-4733-B8DF-E9322D7CCF8F.html
    ----------------------------------------------------------------------------------------------------------------------
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  • 2006.01.05 | Stefan Seitz

    6. PACT WILL HELP SECRETIVE GROUP TIGHTEN GRIPOVER UKRAINE

    6. PACT WILL HELP SECRETIVE GROUP TIGHTEN GRIPOVER UKRAINE
    Meteoric rise of RosUkrEnergo, created with help from Leonid Kuchma
    Its dominance of Ukraine's gas imports is likely to be an
    embarrassment for Kiev's pro-western President Viktor
    Yushchenko, when he fights elections in March.

    By Tom Warner in Kiev, Financial Times
    London, United Kingdom, Thursday, January 5 2006

    Yesterday's deal on natural gas was a landmark in the meteoric rise of
    RosUkrEnergo, the secretive Swiss-registered company formed in 2003
    and which dominates the sale of gas from central Asia.

    Six months ago RosUkrEnergo was threatened by a Ukrainian investigation
    into suspected links between its management and organised crime. But
    yesterday the company boasted a near monopoly of Ukraine's gas imports
    as well as exports from central Asia after emerging as the broker that could
    give Russia and Ukraine an acceptable price for their gas.

    Wolfgang Putschek, an Austrian investment banker who co-manages
    RosUkrEnergo, said the company expected to increase its sales this year to
    77bn cubic meters, nearly double last year's sales of just over 40bn cubic
    metres. That would put RosUkrEnergo among the biggest gas suppliers in
    Europe, rivalling Norway's Statoil, Algeria's Sonatrach and Gasunie of the
    Netherlands.

    It planned to go public, most likely with dual listings in London and
    Vienna, after the company adjusted to its new role, he said.

    Asked if RosUkrEnergo was the main winner from yesterday's agreement,
    Mr Putschek said: "It looks like it. Definitely RosUkrEnergo's role will be
    much bigger than it was."

    Its dominance of Ukraine's gas imports is likely to be an embarrassment
    for Kiev's pro-western President Viktor Yushchenko, when he fights
    elections in March.

    RosUkrEnergo was formed as a result of an agreement between Russia and
    Ukraine's former president, Leonid Kuchma. In 2004-2005 the company
    acted as transit agent for Ukraine's imports of gas from Turkmenistan.

    Kiev had purchased gas at Turkmenistan's northern border, then turned it
    over to RosUkrEnergo which carried the gas to Ukraine's border and paid all
    the pipeline operators along the way, including Gazprom, Russia's gas
    company. Then it sold the gas back to Ukraine, with some also sold to
    Hungary and Poland.

    Half of RosUkrEnergo's shares are controlled by Gazprom through its
    daughter bank, Gazprombank. The other half are owned by Centragas, an
    Austrian-registered company set up by Raiffeisen Zentralbank to represent
    the interests of Russian and Ukrainian individuals who are the beneficial
    owners. The identities of those individuals have not been disclosed.

    Mr Putschek, an employee of Raiffeisen Investment, the Austrian group's
    investment banking arm, is Centragas's chief executive.

    However, RosUkrEnergo is controlled by two Russian directors, Konstantin
    Chuychenko, appointed by Gazprom, and Oleg Palchikov, appointed by
    Centragas's beneficial owners.

    Centragas and its owners came under investigation soon after the 2004
    Orange Revolution brought a new government to power in Kiev.

    Ukraine's SBU security service last year investigated whether RosUkrEnergo's
    managers were acting under the influence of Semyon Mogilevich, a suspected
    organised crime boss who is on the American FBI's most wanted list.

    Ukraine's former prime minister, Yulia Tymoshenko, said she wanted to
    exclude RosUkrEnergo from the gas business and deal with Gazprom directly
    over the Russian gas price. However, after she was sacked in September the
    new government said it was unable to get out of its contract with
    RosUkrEnergo.

    Mr Putschek said Raiffeisen thoroughly screened Centragas's owners and that
    they had "no ties whatsoever" to organised crime or to Mr Mogilevich. He
    said no one from Centragas was ever contacted or questioned by the SBU.

    Viktor Khristenko, Russia's deputy prime minister for energy, said
    RosUkrEnergo was "a reliable partner" that had "shown it is capable of
    dealing with supplies from central Asia". -30-
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  • 2006.01.05 | Stefan Seitz

    7. NEW JV OF NAFTOGAZ UKRAINY AND ROSUKRENERGO

    7. NEW JV OF NAFTOGAZ UKRAINY AND ROSUKRENERGO
    TO SUPPLY NATURAL GAS TO MOLDOVA
    [Controversial RosUkrEnergo involved with Ukraine in another new deal]

    Interfax-Ukraine, Kyiv, Ukraine, Wednesday, January 4, 2006

    The joint enterprise by Naftogaz Ukrainy and RosUkrEnergo A.G. will supply
    natural gas to Moldova, Ukrainian Fuel and energy Minister Ivan Plachkov
    told journalists in Kyiv on Wednesday, on his return from Moscow.

    "The issue of supplies to Moldova was solved today. These will be performed
    by the joint venture," the minister said. The JV will be created on parity
    principles and registered on the territory of Ukraine in January 2006. The
    JV will be headed by a representative of the Ukrainian side, he said.

    Commenting on the agreements signed between Naftogaz and Gazprom on January
    4 in Moscow, the minister said that "the protocol determines the conditions
    of gas supplies to Ukraine and gas transit. The gas supplies are provided in
    full under conditions acceptable to Ukraine. All documents have been signed,
    so we may continue to work together." -30-
    --------------------------------------------------------------------------------------------
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  • 2006.01.05 | Stefan Seitz

    8. UKRAINE'S GAS DEAL WITH RUSSIA DRAWS CRITICISM OVER ROLE OF I

    8. UKRAINE'S GAS DEAL WITH RUSSIA DRAWS CRITICISM OVER
    ROLE OF INTERMEDIARY TRADING COMPANY ROSUKRENERGO

    By Aleksandar Vasovic and Yuras Karmanau
    AP Worldstream, Kiev, Ukraine, Thursday, Jan 05, 2006

    KIEV - The complicated payment plan underlying the Russian-Ukrainian
    gas deal has drawn opposition criticism in Kiev over the involvement of a
    trading company that had been under criminal investigation in Ukraine.

    Oleksandr Turchinov, the former head of the Ukrainian State Security
    agency, described the deal as a "betrayal of (Ukraine's) national interests."

    Turchinov said in a statement Wednesday that the agreement
    "demonstrates the complete and utter inability" of the leaderships of
    Ukraine and its state-run gas provider Naftogaz "to protect the country's
    national interests, its economic sovereignty and independence."

    Oleksandr Zinchenko, an opposition politician and the former head of
    President Viktor Yushchenko's administration, described the deal as a
    "murky and forced solution." "Both Russia and Ukraine painted them-
    selves into a corner and they needed some way out," Zinchenko said.

    Under the deal, Russia's OAO Gazprom will sell gas to a Swiss-registered
    trading company, RosUkrEnergo, for US$230 (A195) per 1,000 cubic
    meters as of Jan. 1, while Ukraine's Naftogaz will buy gas from
    RosUkrEnergo for US$95 (A80).

    Gazprom spokesman Sergei Kupriyanov said that in 2006, "RosUkrEnergo
    will be the exclusive supplier of all imported gas in Ukraine."

    RosUkrEnergo was created in 2004 to replace another gas provider,
    Euraltransgas, with the aim of acting as an intermediary between Gazprom
    and Naftogaz to transit gas from the Central Asian country of Turkmenistan
    through Russia into Ukraine. It can give Ukraine a lower price because it
    factors in cheaper Turkmen gas it receives.

    Gazprom, through its Swiss-registered Arosgas Holding AG, owns 50
    percent of RosUkrEnergo. The remaining half is owned by Centragas
    Holding, an Austrian-registered company 100 percent owned by
    Raiffeisen Invest AG.

    Wolfgang Putschek, a member of the executive board of Raiffeisen
    Invest, said Centragas was acting as custodian for "a group of
    international investors in the gas business."

    Last summer, Ukraine's State Security agency was investigating links
    between Naftogaz, RosUkrEnergo and groups allegedly affiliated with
    Semyon Mogilevich, a Ukrainian-born Russian citizen and reputed
    organized crime figure who is wanted by the FBI.

    The probe was aimed at establishing links between Russian and Ukrainian
    organized criminal groups, the two companies, and exports of Turkmen gas
    to Ukraine, Turchinov said.

    Putschek said "the whole criminal investigation is complete nonsense," and
    he said all claims of wrongdoing were "politically driven" by former Prime
    Minister Yulia Tymoshenko, now a key opposition leader, and her ally
    Turchinov.

    "Not a single dollar has anything to do with illegal activity," Putschek
    said. Mogilevich "definitely has nothing to do with RosUkrEnergo, and
    never has."

    In his earlier statements to Russian media, Mogilevich also denied his
    involvement in gas dealings. He could not be reached for comment
    Wednesday. Putschek said RosUkrEnergo was intending to go public
    in 12-18 months. -30-
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  • 2006.01.05 | Stefan Seitz

    9. FORMER SECURITY SERVICE HEAD AND YULIYA TYMOSHENKO

    9. FORMER SECURITY SERVICE HEAD AND YULIYA TYMOSHENKO
    BLOC LEADER CONDEMNS UKRAINE-RUSSIA GAS DEAL
    RusUkrEnergo suspected of global speculation and corruption

    Interfax-Ukraine news agency, Kiev, in Russian 1336 gmt 4 Jan 06
    BBC Monitoring Service, UK, in English, Wed, Jan 04, 2006

    KIEV - The former head of the Security Service of Ukraine [SBU] and a
    Yuliya Tymoshenko bloc leader, Oleksandr Turchynov, has said that the
    gas agreement signed in Moscow [on 4 January] betrays national interests.

    "The accord signed between Naftohaz Ukrayiny [Ukraine's national gas
    company] and Gazprom on Russian gas supplies to Ukraine at 230 dollars
    per 1,000 cu.m. is a clear betrayal of Ukraine's national interests," Turchynov
    said in statement released by the Yuliya Tymoshenko bloc press service.

    Turchynov said that Naftohaz and the cabinet showed "an absolute and
    clear lack of ability to defend Ukraine's national interests, its economic and
    state sovereignty". "The Ukrainian leadership has easily succumbed to
    blackmail, intimidation and threats from a foreign commercial structure and
    surrendered the interests of their own state," Turchynov said.

    The retention of the Rosukrenergo company, which is suspected of global
    speculation and corruption, in the structure of Ukraine's energy supplies
    shows the state leadership is not prepared to resist corruption threats and
    defend the national interests of Ukraine.

    Moreover, keeping Rosukrenergo, which clearly uses shadow mechanisms,
    as an intermediary shows that the authorities at the highest level are keen to
    retain these mechanisms, the statement said.

    Turchynov said that the price of 95 dollars per 1,000 cu.m. declared by
    Naftohaz is "temporary camouflage and payment for the ruin of Ukraine's
    energy independence".

    He also said that the state of affairs with fuel supplies in Ukraine "is
    clearly dangerous for Ukraine's national interests and requires immediate
    reaction from the president of Ukraine, investigation of high treason by the
    Security Service of Ukraine and the Prosecutor-General's Office, and the
    setting up of a parliament investigating commission". -30-
    -------------------------------------------------------------------------------------------
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  • 2006.01.05 | Stefan Seitz

    10. ROSUKRENERGO PREPARING FOR IPO WITHIN 18 MONTHS

    10. ROSUKRENERGO PREPARING FOR IPO WITHIN 18 MONTHS
    Reportedly half owned by unidentified Russian and Ukrainian shareholders
    RosUkrEnergo chosen to facilitate gas deliveries to Ukraine

    By Greg Walters, Dow Jones Newswires
    Moscow, Russia, Wednesday, January 4, 2006

    MOSCOW -- Swiss-registered gas trader RosUkrEnergo, the company
    chosen to facilitate gas deliveries to Ukraine in a deal with Russia, is
    preparing for an initial public offering within 12 to 18 months, a custodian
    for investors in the company said Wednesday.

    Wolfgang Putschek, a member of Raiffeisen Investment AG's executive
    board, disclosed RosUkrEnergo's IPO plans on the same day that Ukraine
    and Russia agreed to bring the company into a supply deal that alleviated
    concerns about Russian gas supplies to Europe.

    Press reports in July quoted the Ukrainian security service, the SBU,
    raising questions about whether an international organized crime group
    might indirectly control RosUkrEnergo.

    Putschek rejected the questions surrounding RosUkrEnergo investors,
    whom he represents. "Not a single dollar has anything to do with illegal
    activity," Putschek said.

    Russian state-owned gas company OAO Gazprom's (GSPBEX.RS)
    banking arm owns half of RosUkrEnergo.

    Raiffeisen Investment AG, a subsidiary of Austria's Raiffeisen Zentralbank
    AG (RZO.YY), holds the remaining shares, through Austria-based Centragas
    Holding. It acts as custodian for a group of international investors, who
    are the beneficiaries, Putschek said. He declined to name the investors.

    Gazprombank holds its shares in RosUkrEnergo through a company called
    Arosgas Holding, Putschek said.

    Asked Wednesday if he knew the identities of RosUkrEnergo's beneficiary
    owners, Russian Minister Of Industry and Energy Viktor Khristenko said,
    "We know the Russian half." As for the rest of the company, he said,
    "That's a question for the Ukrainian side."

    Minority investors in Gazprom have charged that RosUkrEnergo has been
    able to get cheap central Asian gas through its contracts with Gazprom
    and resell that gas at a considerable markup in Europe.

    Gazprom spokesman Sergei Kupriyanov said RosUkrEnergo also sells
    gas to other European countries but he declined to say to which, or
    how much. Kupriyanov also said Gazprom has no plans to sell its 50%
    share of RosUkrEnergo.

    Under Wednesday's supply deal between Gazprom and Ukrainian state-
    owned gas company Naftogaz, RosUkrEnergo will sell an estimated 55
    billion to 60 billion cubic meters of gas in 2006 to Ukraine at a price of
    $95 per thousand cubic meters.

    Of that gas, 17 billion cubic meters will be Russian gas, which
    RosUkrEnergo will buy at $230 per thousand cubic meters from
    Gazprom, Putschek said.

    RosUkrEnergo will buy the remainder mainly from Turkmenistan but also
    from Kazakhstan and Uzbekistan. The average price RosUkrEnergo will
    pay for that gas will be less than $95 per thousand cubic meters, Putschek
    said.

    "RosUkrEnergo will make a profit in 2006," Putschek said. "The role of
    RosUkrEnergo has changed significantly in the past 24 hours." -30-
    --------------------------------------------------------------------------------------------
    -By Greg Walters, Dow Jones Newswires; (+7 095) 974 8055;
    Greg.Walters@dowjones.com
    ------------------------------------------------------------------------------------------
    [return to index] [The Action Ukraine Report (AUR) Monitoring Service]
    ========================================================
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  • 2006.01.05 | Stefan Seitz

    11. EXPERTS CANNOT UNDERSTAND THE AGREEMENT BETWEEN

    11. EXPERTS CANNOT UNDERSTAND THE AGREEMENT BETWEEN
    RUSSIA AND UKRAINE. WHAT IS 'ROSUKRENERGO FOR?

    OSTROV, Research Center of Donbass Social Perspectives
    Donetsk, Ukraine, Wednesday, January 4, 2006

    DONETSK - Experts cannot understand the agreement between Russia
    and Ukraine. What is 'RosUkrEnergo' for?

    The scheme of gas conflict settlement of Russia and Ukraine is not clear
    for investors-owners of big share holdings of Gazprom. The director on
    corporate researches of the company Hermitage Capital Management,
    Vadim Kleiner, said to the Agency on gas information, 'I don't understand
    why RosUkrEnergo should participate in that situation and why Gazprom
    does not do it itself', according to 'OBKOM'.

    'The same could just as well be done by Gazprom affiliate. It's not clear
    why 50% of its earnings should be given somewhere else,' he said.

    But on the whole V. Kleiner was positive concerning the deal between
    Gazprom and Naftogaz of Ukraine, noting, 'We regard this positively
    based on the fact that the gas price has been increased for Gazprom'.

    Director of Vostok Nafta Investment Ltd. Sergey Glazer noted that despite
    the explanations of the Gazprom representatives, there are still questions
    as to the gas price formation by RosUkrEnergo for selling to Naftogaz of
    Ukraine. He reminded that in 2005, 'Gazprom was selling gas at the cost of
    $50 per 1 thousand of cub. m. and the Asian gas was $90-95 per 1 thousand
    cub. m for Ukraine at the border with Russia.

    'Now we are raising price up to $230 and the average price turns out to be
    $95 per 1 thousand cub. m. 'It's not clear what source is going to cover the
    difference in the price if it is going to exist', he noted.

    At the same time, S. Galzer admitted, 'Practice of Russian-Ukrainian
    relations in the gas sphere during the last 10 years shows that with the
    mediator, whoever he is and however we would criticize his presence, makes
    it better. On the contrary, when Gazprom was starting direct supplies to
    Ukraine, it brought to conflict situation. Everything works normally when
    there is some buffer area between two parties and when it resolves all the
    issues'.

    In his turn, the representative of Vostok Nafta assumed that the agreement
    executed by parties has demonstrated also the intention 'to continue the
    negotiations of critical points that used to be earlier, in particular, of
    the gas transportation consortium'. -30-
    ------------------------------------------------------------------------------------------
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  • 2006.01.05 | Stefan Seitz

    12. RUSSIA-UKRAINE GAS-PRICE DEAL MAY NOT END PRESSURE F

    12. RUSSIA-UKRAINE GAS-PRICE DEAL MAY NOT END
    PRESSURE FROM RUSSIA'S PUTIN
    RosUkrEnergo at heart of accord, exclusive distributor
    for gas imports to Ukraine

    Andreas Cremer in Berlin and Reed V. Landberg in London
    Bloomberg, Berlin & London, Thursday, January 5, 2006

    Ukraine's success in warding off demands from Russian President Vladimir
    Putin for a quadrupling of the price it pays for gas may only win it a
    temporary respite in pressure from its northern neighbor, analysts said.

    Ukrainian President Viktor Yushchenko yesterday won a deal that means the
    former Soviet republic will pay Moscow-based OAO Gazprom, Russia's
    state-owned natural-gas company, an average $95 per 1,000 cubic meters for
    the fuel for five years, less than double the $50 it was previously charged.

    "At first glance, Yushchenko looks like the winner, but Putin knows his
    options and will keep up the pressure,'' Wolfram Schrettl, an economics
    professor at Berlin's Free University, said in a telephone interview.

    The gas-price dispute was just the latest rift in a confrontation between
    Putin and Yushchenko that has simmered since the Russian leader backed
    Yushchenko's opponent in a disputed 2004 presidential election. The year-old
    Ukrainian government is seeking closer links with the west, including NATO
    and European Union membership, and a loosening of relations with Moscow.

    Putin, who took over the chairmanship of the Group of Eight leading
    industrialized countries Jan. 1, only gave way because he didn't anticipate
    "hostile pressure'' from other European countries, said Schrettl.

    Putin and Gazprom backed down from an earlier plan to bring gas fees to
    Ukraine into line with prices of about $250 per 1,000 cubic meters charged
    to Western European customers.

    Gas deliveries to Central and Western Europe were disrupted Jan. 1-2 when
    Russia stopped supplying the fuel to Ukraine and Moldova, the main corridors
    for exports to Europe. Gazprom accused Ukraine of siphoning off gas, a
    charge it denied.
    EXTRA COSTS
    Yesterday's agreement will cost Ukraine about $1.5 billion extra a year,
    said Paul McNamara, who helps invest $800 million in emerging-market debt
    at Julius Baer Investment Management in London. Ukraine imports about 80
    percent of its gas needs.

    Yushchenko's policy of closer integration with the west will mean that Putin
    will continue to push for Ukraine to pay higher gas prices, said James
    Nixey, manager of the Russia-Eurasia program at Chatham House, a
    London-based consultant that counts the U.K. Foreign Office among its
    clients.

    "Russia is trying to test the waters and see what it can get away with in
    the G-8,'' said Nixey. "If Ukraine wants to be a part of the west Russia
    will charge western prices. It's just a question of timing.''
    'SYMPATHY FOR RUSSIA IN EUROPE'
    Nixey said that while Yushchenko has engendered goodwill in the year he's
    been in power,'' there is also "sympathy in Europe for the Russian
    position.'' "European nations are worried with the ease at which Russia
    turned off the gas taps, and they'll be trying to persuade Ukraine to speed
    up the rate at which it increases what it pays for gas,'' Nixey said.

    More immediately, it's unclear how the dispute will affect Yushchenko at
    home as campaigning begins for Ukraine's parliamentary elections in March.
    In most opinion polls, Yushchenko's Our Ukraine party is trailing the
    opposition Regions Party headed by former Prime Minister Viktor
    Yanukovych, whom he defeated in the re-run of the presidential vote.

    Yanukovych, who was declared the winner of a first election that was later
    annulled, campaigned for closer ties with Russia and proposed allowing
    Ukrainians to hold dual Russian and Ukrainian citizenship. Yushchenko
    may be able to gain support because he has spared Ukrainians an energy
    crisis, Schrettl said.
    ROSUKRENERGO NOW EXCLUSIVE DISTRIBUTOR FOR
    GAS IMPORTS TO UKRAINE
    Rainer Lindner, an analyst at the Berlin-based German Institute for
    International Politics and Security, said that the terms of the deal,
    involving a Swiss-based Gazprom joint venture, will ensure that yesterday's
    "accord is nothing but an intermediate solution.''

    Under the agreement, Gazprom will sell gas to RosUkrEnergo AG, its joint
    venture with Austria's Raiffeisen Zentralbank Oesterreich AG, for $230 per
    1,000 cubic meters. RosUkrEnergo will in turn sell the fuel to Ukraine for
    an average $95 per 1,000 cubic meters, Gazprom said.

    RosUkrEnergo will also supply gas to Ukraine from central Asian states,
    including Turkmenistan, Kazakhstan and Uzbekistan, according to Gazprom.
    The joint venture will become the "exclusive distributor'' for gas imports
    to Ukraine, Sergei Kupriyanov, a spokesman for Gazprom, said yesterday
    in Moscow.

    "RosUkrEnergo is at the heart of this accord,'' said Lindner in a telephone
    interview. The company will be seeking ways to bridge the gap between
    the $95 and the $230.'' -30-
    ---------------------------------------------------------------------------------------------
    Contact: Andreas Cremer in Berlin at acremer@bloomberg.net;
    Reed V. Landberg in London at landberg@bloomberg.net.
    http://www.bloomberg.com/apps/news?pid=10000085&sid=am.lD5aM3WEY&refer=europe
    ---------------------------------------------------------------------------------------------
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  • 2006.01.05 | Stefan Seitz

    13. TANGLED RUSSIAN-UKRAINIAN GAS DEALS PROVIDE OPPORTUNITI

    13. TANGLED RUSSIAN-UKRAINIAN GAS DEALS PROVIDE
    OPPORTUNITIES FOR CORRUPTION, INFLUENCE
    Corruption has been especially prevalent in two Russian-Ukrainian
    consortiums (Eural TransGas and RosUkrEnergo) created to
    facilitate the delivery of Turkmen gas to Ukraine and Europe.

    ANALYSIS & COMMENTARY: By Taras Kuzio
    Eurasia Daily Monitor (EDM), Vol. 2, No. 163
    The Jamestown Foundation, Washington, D.C., Fri, August 19, 2005

    Russia plans to triple gas prices ahead of Ukraine's parliamentary election
    and only months before winter begins (International Herald and Tribune,
    August 1). A recent commentary in Ukrayinska pravda (August 8) accused
    the regimes of former president Leonid Kuchma and Russia's President
    Vladimir Putin of being closely tied in energy corruption. "And the entire
    criminal character of these ties is being fully used to apply pressure on
    the Ukrainian state." Russia tried the same tactics in Moldova's 2005
    parliamentary election.

    The increase would raise the prices Russia charges Ukraine to world-market
    levels. Currently Russia charges Ukraine $80 for 1,000 cubic meters of gas,
    nearly three times what Moscow charges Belarus. If gas prices do rise this
    dramatically, "Ukraine will suffer major economic disruptions" (IntelliNews,
    July 4).

    These planned gas price increases could have a negative impact on Ukraine's
    economic growth, which has already declined from 12% last year to 4% in
    the first half of this year. Higher gas prices will increase inflation and
    hurt metallurgical plants, which are the largest consumers of gas.

    Russia's stranglehold over the supply of gas to Ukraine is to some degree
    counter-balanced by Ukraine's control over export outlets for Russia. Some
    90% of Russian gas is exported to Europe through Ukraine, and Kyiv has
    threatened to compensate for any increase by raising transit charges.

    High levels of corruption remain a major problem in the gas industry. The
    presidential campaign of Viktor Yanukovych, Kuchma's heir apparent,
    tapped into hundreds of million of dollars through corruption in Russian-
    Ukrainian energy consortiums.

    Russia has ignored this problem by focusing on Ukraine's alleged
    "unreliability" as a gas transit country. The Yushchenko administration is
    keen to renegotiate the terms of the Russian-Ukrainian-German agreement
    of 2003-2004 that would have led to de facto Russian control over
    Ukraine's transit system (see EDM, July 9).

    Corruption has been especially prevalent in two Russian-Ukrainian
    consortiums (Eural TransGas and RosUkrEnergo) created to facilitate the
    delivery of Turkmen gas to Ukraine and Europe. Ukraine annually obtains 36
    billion cubic meters of gas from Turkmenistan and 24 billion from Russia.

    The Financial Times (July 27) reported that the Ukrainian authorities were
    concerned that these two consortiums were not only linked to Putin and
    Kuchma, but also to organized crime.

    Ukrainian Security Service (SBU) chairman Oleksandr Turchynov has openly
    expressed his fear that international mafia boss Semyon Mogilevich had a
    business stake in RosUkrEnergo or used it to launder money. Mogilevich is
    wanted by the FBI and Interpol for money laundering. Like many former
    Kuchma officials, he is living openly in Moscow and the Russian authorities
    refuse to extradite him (Ukrayinska pravda, August 3).

    Former Naftohaz Ukrainy CEO Ihor Bakay has also been hiding in Russia
    since December 2004. He was given Russian internal and external passports
    earlier this year when he took up Russian citizenship. Ukraine, unlike
    Russia, does not recognize dual citizenship.

    Bakay was released from Naftohaz Ukrainy in 2001 after corruption scandals
    but was brought back in 2003-2004 by Kuchma to head the Directorate on
    State Affairs. Bakay is charged with abuse of office leading to the loss of
    $1 billion. The new Naftohaz Ukrainy CEO, Olexiy Ivchenko, a Yushchenko
    loyalist, has nearly tripled revenues to the state.

    Fearing criminal charges, outgoing Naftohaz Ukrainy CEO Yuriy Boyko
    "purchased" the marginal Republican Party of Ukraine (RPU) as a protective
    political roof. The RPU has no ratings and is not currently being courted as
    an ally by any well-known political party for the 2006 election.

    Outgoing Foreign Minister Konstyantin Hryshchenko agreed to become the
    RPU's foreign affairs spokesman, and on a recent visit to Washington he
    unsuccessfully attempted to convince policymakers that the RPU is a
    Ukrainian equivalent of the U.S. Republican Party (Washington Times, June
    11).

    RosUkrEnergo was created in summer 2004 to replace Eural TransGas. Its
    aim is to act as an intermediary between Gazprom and Naftohaz Ukrainy to
    transit Turkmen gas through Russia into Ukraine. Eual TransGas managers
    moved over to RosUkrEnergo. Gazprom, through its Swiss-registered
    ARosgas Holding A.G., owns 50% of RosUkrEnergo. The remaining half
    is owned by Centragas Holding, an Austrian-registered company 100%
    owned by Raiffeisen Investment A.G.

    Centragas CEO Wolfgang Putschek has denied that RosUkrEnergo has
    any links to Mogilevich (Financial Times, July 27). In a letter to President
    Yushchenko, Raiffeisen director and Centragas CEO Putschek denied
    categorically that Mogilevich or any other organized crime boss had ties
    to RosUkrEnergo. Mogilevich has himself denied he has any links to
    RosUkrEnergo or was using it to launder funds (Ukrayinska pravda,
    August 1).

    Accusations of high-level corruption by the Putin and Kuchma
    administrations and links to organized crime have led to calls by Prime
    Minister Yulia Tymoshenko to end the use of intermediaries to bring
    Turkmen gas to Ukraine. "I am consistently working so that there will be
    no intermediary between Ukraine and Turkmenistan," she revealed
    (Ukrayinska pravda, July 2).

    Tymoshenko has also refused to countenance working with RosUkrEnergo,
    because it was established, she believes, with numerous legal infringements.

    Trade in Turkmen gas should be undertaken directly by Naftohaz Ukrainy
    with Russia and Turkmenistan, she believes, but without the use of an
    intermediary (Ukrayinska pravda, July 13).

    This, however, may be easier said than done. -30-
    ----------------------------------------------------------------------------------------------
    NOTE: Dr. Taras Kuzio, is a Visiting Professor at the Institute for
    European, Russian and Eurasian Studies, George Washington
    University, Washington, DC, tkuzio@gwu.edu
    ----------------------------------------------------------------------------------------------
    LINK: http://jamestown.org/edm/article.php?article_id=2370177
    -------------------------------------------------------------------------------------------
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  • 2006.01.05 | Stefan Seitz

    14. UKRAINE LOSES CREDIBILITY IN GAS ROW- RUSSIAN EXPERTS

    14. UKRAINE LOSES CREDIBILITY IN GAS ROW- RUSSIAN EXPERTS
    Pres Yushchenko is a weak politician and running the country badly
    This will leave a dark stain on the country's reputation

    RTR Russia TV, Moscow, in Russian 1700 gmt 4 Jan 06
    BBC Monitoring Service, UK, in English, Wed, Jan 04, 2006

    MOSCOW - [Presenter] The news that the gas conflict is over produced an
    unequivocally positive reaction in Europe. The EU leadership noted that the
    settlement of the conflict would have a favourable impact on the development
    of relations between Russia and Ukraine and indeed the European Union. Here
    is Maksim Kiselev on how all the interested parties are commenting on
    today's events.

    [Kiselev] The EU did not have to wage protracted battles for Russian gas. An
    emergency session of the coordinating group in Brussels became a mere
    formality even before it opened - there was nothing to discuss as Russia and
    Ukraine had already done a deal. [Passage omitted]

    The EU is reaching its own conclusions: the crisis that managed to hit
    European consumers in the first days of the New Year must not be repeated.
    That is why Europe vests its hopes in the gas pipeline that is currently
    being laid along the bottom of the Baltic Sea. When it comes into operation,
    the EU's energy security won't depend on anyone's whims or unauthorized
    siphoning of gas. [Passage omitted]

    Russian political analysts have been discussing the origin of the crisis
    today. In their view, the economic component of the affair is not so great.
    There is more politics here.

    [1] [Political analyst Sergey Markov] Yushchenko and his team decided to
    drag Ukraine into NATO by deception and asked Gazprom to foot the bill.

    Gazprom refused and proposed that the full price be paid for gas. On the
    other hand, Yushchenko has also attempted to use the gas war to solve his
    own problem of remaining in power. The point is that he is a very weak
    politician. He is running the country badly.

    At the same time, the team of Viktor Yushchenko expected that the Europeans
    would rush to defend Ukraine from imperial pressure from Russia, as they
    call it. It turned out that Europe was most of all concerned by how it will
    get its own supplies.

    Europe is most of all concerned that there shouldn't be any rows and that
    Russia shouldn't quarrel with Ukraine. For good reason, the French foreign
    minister stated bluntly: we must not under any circumstances incite Ukraine
    against Russia.

    [2] [Political scientist Andranik Migranyan] Without any doubt, this will
    leave a dark stain on Ukraine's reputation since Ukraine is seeking entry
    into Europe. At least, that is what the authorities are saying. And Ukraine,
    which is proceeding towards Europe and civilization - at least, that is how
    they have positioned themselves - is beginning this move by stealing gas.

    [Kiselev] Now, as the political analysts believe, it is up to the Ukrainian
    voters to draw their own conclusions. If they assess the causes of the
    conflict properly, the party of power will find it hard going in the
    forthcoming parliamentary election. -30-
    -------------------------------------------------------------------------------------------
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  • 2006.01.05 | Stefan Seitz

    15. GAS AGREEMENT GREAT VICTORY FOR RUSSIA AND NOW UKRAINE MUST

    15. GAS AGREEMENT GREAT VICTORY FOR RUSSIA AND NOW
    UKRAINE MUST CHOOSE BETWEEN THE WEST AND RUSSIA

    RIA Novosti, Moscow, in Russian 1649 gmt 4 Jan 06
    BBC Monitoring Service, UK, in English, Wed, Jan 04, 2006

    MOSCOW - Russian experts view the gas agreements with Ukraine as
    a great victory for Russia and for the path it has chosen.
    [Passage omitted]

    The director of the Institute for Political Research, Sergey Markov, believes
    the citizens of Ukraine were Russia's main ally in the gas dispute with Kiev.
    [Passage omitted]

    Director of the Institute for CIS Countries [MP] Konstantin Zatulin believes
    that the price Ukraine is paying for gas would be much lower if talks with
    Ukraine had been carried out in a more constructive way.

    "Gazprom's fundamental demand that there be a switch to objective market
    prices in gas transactions with Ukraine was met during the talks. Ukraine
    had to agree to the price for gas, which, at the final stage, Gazprom set at
    230 dollars per 1,000 cu. m," Zatulin said in an interview to RIA-Novosti.

    "The result of the talks was that Ukraine's Naftohaz had to agree to the
    price proposed by Gazprom," he said. The political analyst recalled that at
    the beginning of the talks, which lasted several months, Ukraine had been
    offered a different price - 160 dollars per 1,000 cu. m. At the time Turkmen
    gas was being sold to Ukraine for 44 dollars per 1,000 cu. m.

    "Thus, the average price would have been much lower than 95 dollars,"
    Zatulin said. He believes "relations between Russia and Ukraine have
    become more clear as a result of the gas dispute".

    Zatulin says that now Ukraine faces a choice - to strengthen relations with
    the West or with Russia. "Serious debate has now started in Ukraine about
    what choice the country should make. The people of Ukraine have constantly
    been kept away from this question, and told that Ukraine would be in both
    camps. Now the people of Ukraine face this choice," the political analyst
    said. -30-
    -------------------------------------------------------------------------------------------
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    Power Corrupts and Absolute Power Corrupts Absolutely.
    ========================================================
    /
    • 2006.01.05 |

      ?

      ???
      /
      • 2006.01.05 | Stefan Seitz

        . . . (-)

        /
        • 2006.01.05 |

          ? ² ?

          Գ . - . - "", .
  • 2006.01.05 | Stefan Seitz

    16. RUSSIAN LAWMAKERS, OFFICIALS SAY GAS CONFLICTEXPOSES INTE

    16. RUSSIAN LAWMAKERS, OFFICIALS SAY GAS CONFLICT
    EXPOSES INTERNAL POLITICAL CRISIS IN UKRAINE

    Itar-Tass, Moscow, Russia, Tuesday, January 3, 2006

    MOSCOW - Members of Russian parliament, officials and experts
    have come up with consonant opinions on the current Russian-Ukrainian
    conflict over the price of natural gas, saying Kiev's reluctance to accept
    the new terms of gas supplies and siphoning of the fuel from Europe-
    bound transit pipelines exposed internal political problems in Ukraine.

    Ukrainian President Viktor Yushchenko is trying to gain more political
    scores on the gas conflict with Russia just two months ahead of the
    March parliamentary election, Vladimir Kulakov, the governor of Russia's
    Voronezh region said Monday.

    He believes, however, Yushchenko's course is highly unrewarding in that
    sense. "By doing this, Yushchenko sacrifices Russian-Ukrainian friendship
    and the interests of Ukrainian economy," Kulakov said. "That's totally
    inadmissible in top-level politics."

    He recalled that all the republics of the former USSR have changed over
    to market economy principles, and that is why they must pay for natural
    gas at market prices.

    "I was disgusted by reports that the Ukrainians stole 25 million U.S.
    dollars worth of gas from transit pipelines in just a single day," Kulakov
    said. "This amount of gas would be enough for our region to keep itself
    going for several years."

    Russia's European partners have every right to file a lawsuit against
    Ukraine with the International Court of Arbitration over undersupplies
    of Russian natural gas, Dr Andranik Migranian, a well-known Russian
    political scientist and professor of MGIMO diplomatic university said
    Monday.

    "Ukraine is a country closely related to us, but it must be held
    accountable for its actions as a subject of international law," he said in
    a comment on reports that the Ukrainians were siphoning gas from
    transit pipelines on their territory.

    "You either pay for gas and consume it, or you don't pay and don't
    consume it," he indicated. "Ukraine must adopt this elementary principle
    of market economy if it wants to be part of Europe," Migranian said.

    "The critical situation in Russian-Ukrainian relations in the gas sector
    stems from President Yushchenko's willingness to bring victory in the
    forthcoming parliamentary election to his allies and to show Russia off as
    an external enemy, aligning his supporters around himself this way," says
    Igor Igoshin, the deputy chairman of the Duma's committee for the budget.

    Incumbent Ukrainian government has not scored any successes in politics
    or the economy and it is now faced with the task of getting victory in the
    election by any means, he said.

    "Ukraine believes it'll take Russia and the European Union by the throat
    thanks to the pipeline, but this position may push it into further foreign
    debts and the risk of a default," Igoshin said.

    Sergei Baburin, the leader of Rodina (Fatherland) faction in the Duma,
    says Ukraine's actions may spoil its relations with Russia and European
    countries likewise.

    He said he was bewildered by the Ukrainian government's conviction that
    Russia must continue giving credits to their economy by selling cheap gas.
    "They forget somehow that Russia owes nothing to them," Baburin said.
    "If they don't want to buy gas here, let them buy it elsewhere."

    He believes a part of the problem is that decisions in Kiev are taken by
    the people, whom President Yushchenko is obliged to for victory in the
    2004 presidential election, and not by the President himself. Dmitry
    Mezentsev, the deputy speaker of the Federation Council, the upper
    house of parliament, said all blame for that crisis goes beyond doubt
    to Ukrainian leaders.

    "It looks like an escalation of the conflict and its rise to a political
    dimension was part of their initial plan," he said. "The slogans of the
    'orange revolution' and the faith of hundreds of thousands of people in a
    better future are waning today and giving way to a shortage of confidence
    and disillusionment with the new authorities."

    "As the parliamentary election is getting closer, the authorities would
    like to organize a command performance of defense of the Ukrainian
    people's interests, although no one is hurting the latter, in fact,"
    Mezentsev said. Vadim Gustov, the chairman of the Federation
    Council's committee for CIS affairs, sounded much on the same lines.

    "President Yushchenko has become a hostage of his own political game
    and of the forces that brought him to power," he said. "But the majority
    of members of Ukrainian parliament and government are ready to discuss
    things at negotiations," Gustov said.

    "Kiev's stance in this gas dispute testifies to a political crisis in
    Ukraine and to the complete fall of Yushchenko's influence," said
    Vladimir Zhirinovsky, Deputy Speaker of the lower house, the State
    Duma.

    "To save his post, Yushchenko resorts to any tools at hand and tries to
    apportion blame for his country's problems to Russia," he said.

    "Siphoning of Russian natural gas from transit pipelines in Ukraine is
    outrageous, the Deputy Speaker of Russia's State Duma, Secretary
    General of the United Russia party Vyacheslav Volodin said.

    "Ukraine has opted for inadmissible methods of action that complicate
    Russian-Ukrainian relations," he said referring to Monday's reports by
    OAO Gazprom, the exporter of Russian gas, that 95 million cubic meters
    of the fuel had been taken away from transit pipelines during one day.
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  • 2006.01.05 | Stefan Seitz

    17. PUTIN'S GAS LOGIC IS IN SHORT SUPPLY

    17. PUTIN'S GAS LOGIC IS IN SHORT SUPPLY
    Perhaps he let himself be carried away by the special situation of Ukraine.

    COMMENT & ANALYSIS: By Columnist Quentin Peel
    International Affairs Editor of the Financial Times
    Financial Times, London, United Kingdom, Wed, Jan 4, 2006

    Whatever one may think of Vladimir Putin as a Russian leader, stupid
    and short-sighted are not the sort of adjectives that spring to mind. He
    impresses all his interlocutors as someone who is interested in ideas and
    sees the big picture. Although a bureaucrat at heart, with a tendency to
    weigh up every consequence of a decision before coming to any
    conclusion, he is not someone to be distracted by short-term
    considerations from a long-term goal.

    His success in reimposing order on the political and economic chaos left
    behind by his predecessor, Boris Yeltsin, has been remarkable. He has done
    so at the expense of genuine democracy, to be sure, by reasserting the
    authority of the Kremlin and its security services. His reimposition of
    state control over the commanding heights of the Russian economy - the
    energy sector, in particular - has coincided with a boom in oil and gas
    prices, bringing a double bonus to the Russian treasury.

    It is not the blooming democracy and flourishing market economy that
    traditional western observers might have liked to see. The rule of law is
    arbitrary and property rights uncertain. But the Putin system makes sense to
    many Russians who regret the demise of the Soviet Union and hanker for
    Russia to recover its pride and global influence.

    So how can one explain the apparent clumsiness and incompetence of Mr
    Putin and his closest allies in the Kremlin and in Gazprom, the gas giant
    that is the real source of their economic power, in their latest
    confrontation with neighbouring Ukraine over the price and supply of
    Russian gas? It was all so predictable and yet stunningly counter-
    productive.

    For a start, by turning off the gas taps on the Ukrainian pipeline that
    carries 80 per cent of Russian supplies to the central and west European
    market - even if only briefly and simply intended to cut off Ukraine's own
    supplies - Mr Putin has sent tremors across the Continent.

    It has brought home dramatically to members of the European Union,
    especially Germany, the dangers of relying excessively on Russia as the
    primary source of energy supply. It has provided a salutary warning to the
    EU to diversify its sources of gas, to build up alternative energy supplies
    and to integrate its energy market so that it is much easier to manage
    potential shortages.

    The EU ought to be thoroughly grateful to Mr Putin for the lesson in energy
    insecurity. It might galvanise action to create a properly functioning
    internal energy market. But was it in Moscow's interest? The former Soviet
    Union was scrupulous in abiding by its gas supply contracts, even when
    political relations with the west were in disarray. The latest action
    against Ukraine, and the similar episode two years ago when supplies to
    Belarus were reduced in a fit of Kremlin pique, have undermined Moscow's
    reputation for reliability.

    Mr Putin would normally have been sophisticated enough to understand that
    the key to successful energy diplomacy is predictability. It is a policy you
    can treat as a carrot, not a stick. Like a nuclear deterrent, it should
    never be used to punish.

    Perhaps he let himself be carried away by the special situation of Ukraine.
    There are certainly many hawks in his entourage who cannot forgive Viktor
    Yushchenko and his allies in Kiev for their Orange revolution last year.

    They have been talking for months of "punishing" the Ukrainian regime for
    its impertinence in seeking closer relations with Brussels than Moscow.
    Gazprom gave them the opportunity.

    Yet here again, the action seems to have been counter-productive. Perhaps Mr
    Putin's advisers thought they would win votes for pro-Russian candidates in
    the upcoming March parliamentary elections, on the grounds that they would
    win a better gas deal from Moscow. All the evidence points to the opposite:
    that Russia's hard line seems to have revived the popularity of Mr
    Yushchenko, who is seen as standing up for Ukraine against the big bully.

    It is only on the home front that Mr Putin seems to have won any political
    kudos from his action and then only thanks to the one-sided presentation of
    the case on Russian television. There the deal agreed yesterday is seen as a
    triumph for Gazprom in getting the "market" price it wanted for its gas,
    even if it meant ceding most of the market to alternative central Asian
    suppliers at a cheaper price.

    If Mr Putin thought EU members would blame Ukraine for the whole muddle,
    he was ill advised. Although there is real nervousness in Brussels about Mr
    Yushchenko's desire to join the union, there is great sympathy for Kiev's
    determination to be more independent of Moscow.

    There are two possible explanations for Mr Putin's actions. One is that he
    has allowed his broad strategic vision to be blurred by irritation at the
    rebelliousness of a former Soviet republic. That has been the case before
    with Latvia, Lithuania, Estonia, Georgia and Ukraine at the time of its
    regime change 12 months ago. The Kremlin finds it very hard to shed its
    old imperial attitudes about the "near abroad".

    The other explanation is that Mr Putin knew precisely what he was doing and
    wanted to send a very clear warning to western Europe about its dependence
    on Russian energy supplies. He knows the alternatives are relatively few and
    unattractive. Perhaps he does not care about the negative reaction. Is the
    EU capable of proving him wrong? -30-
    --------------------------------------------------------------------------------------------
    NOTE: Quentin Peel is international affairs editor of the Financial Times.
    He is also an associate editor, responsible for leader and feature writing,
    and has a foreign affairs column, which appears every Tuesday.
    E-mail Quentin Peel: quentin.peel@ft.com
    -------------------------------------------------------------------------------------------
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  • 2006.01.05 | Stefan Seitz

    18. POTEMKIN COMPROMISE

    18. POTEMKIN COMPROMISE
    Four-day skirmish leaves Russia's image badly bruised
    In standing up to the Russians, Ukraine's inexperienced democrats
    passed a major test. The rest of Europe got a useful wake-up call.

    REVIEW AND OUTLOOK: The Wall Street Journal
    New York, New York, Thursday, January 5, 2006

    Russia and Ukraine yesterday ended their gas price war with a confusing deal
    that all sides, not least freezing Western Europeans, rushed to declare a
    win-win. But this four-day skirmish leaves Russia's image badly bruised
    while clarifying the rich world's difficulty in securing its future energy
    needs.

    The Kremlin, or its proxies at gas monopolist Gazprom, can't much like the
    cost/benefit analysis. In the plus column, Gazprom secured nearly double the
    current rate from the Ukrainians. Although the Russians initially demanded
    quintuple the agreed price -- $50 per 1,000 cubic meters -- the new contract
    at least moves the Ukrainians slightly closer to West European levels
    (around $250).

    Gazprom has moved to raise rates, less aggressively than in this case, for
    other countries too. But about a third of the new revenue for Russia is
    offset by higher fees owed Ukraine for the use of its gas pipelines to
    Western Europe. Gazprom also failed to gain any control over Ukraine's
    pipeline network, its great dream.

    At the end of the day, Russia will get about $1 billion more a year from the
    Ukrainians. In return, Gazprom and the Kremlin will pay a high cost to
    reputation that's hard to measure in rubles and cents. Gazprom, which
    controls 16% of the world's known natural gas reserves, aspires to join the
    energy big leagues, alongside the likes of Exxon or BP.

    In a step in that direction, Russia last month lifted limits on the foreign
    ownership of its shares, only to see Vladimir Putin brazenly use Gazprom to
    serve his political ends. Both investors and customers are spooked. Who can
    blame them?

    Gazprom's once impeccable reputation for reliability, arguably its most
    valuable asset, was destroyed in a few hours. By turning off the spigots to
    Ukraine on New Year's Day, President Vladimir Putin cut off clients down the
    pipeline in Europe, which gets a quarter of its gas from Russia and is
    suffering a particularly cold winter. Poland, Hungary, Austria, Germany and
    Italy reported reduced supplies, touching off a near panic.

    Ukraine siphoned off some gas for its needs but the reduced pressure in the
    lines also played a role. Not even in the darkest days of the Cold War did
    the Soviet Union resort to energy blackmail. Mr. Putin, once again, broke
    the mold by unilaterally abrogating Gazprom's standing contract with
    Ukraine. If this can happen in Ukraine, who says Germany or France won't be
    treated the same one day.

    Unlike a car-maker or even an oil producer, Gazprom can't deliver its goods
    to market easily. The company depends on pipelines, which in turn makes it
    dependent on Ukraine. In the 1990s, when Ukraine fell behind on payments,
    Gazprom executives used every stick and carrot imaginable but never
    seriously considered shutting off supply.

    Mr. Putin made this mistake for them. After this brief episode, the
    company's prospects for future growth in Europe suddenly look dimmer.
    And as long as Mr. Putin's two closest friends run Gazprom, no outside
    investor will believe that the company will ever act in the interests of
    shareholders as opposed to the Kremlin.

    Mr. Putin tried to bully Ukraine and comes away hurt himself, not for the
    first time. As in the winter of 2004, when the Kremlin wanted its own man
    installed in the presidency in Kiev, the Russian leader figured that
    smaller, weaker Ukraine would bend to his will. The gambit was transparently
    intended to undermine President Viktor Yushchenko and Ukraine's young
    democracy that was born in the 2004 Orange Revolution.

    Instead, Mr. Putin provoked a nationalist backlash in Ukraine that ended up
    strengthening Mr. Yushchenko and brought international rebuke. As Russia
    takes over the helm of the G-8, Mr. Putin reminded everyone that his country
    doesn't really deserve to belong in this Western club.

    In standing up to the Russians, Ukraine's inexperienced democrats passed a
    major test. The new gas deal also offers them an opportunity to kick-start
    economic reforms, which have been a disappointment since the Orange
    Revolution. Artificially low energy prices are one reason.

    The Gazprom contract can in fact strengthen Ukraine's economic
    independence by forcing its inefficient, energy-guzzling industry to
    modernize. The country's oligarchs, not the babushkas in their well-heated
    apartments, benefit most from cheap gas. Russia was heavy-handed with
    its unilateral push for a steep hike, but energy prices need to go up for
    Ukraine to prosper.

    The rest of Europe got a useful wake-up call. The Continent relies too
    heavily on Russia for its energy needs. If the crisis lasted a few weeks
    longer, much of Europe may have found itself short of heat or electricity. A
    serious discussion of energy security is overdue.

    The obvious but so far ignored solution is to diversify supply sources and
    routes. Europe needs new pipelines to tap into North African and Middle
    Eastern gas. Strong environmental lobbies discourage moves toward liquefied
    natural gas, coal and nuclear, all of which would be plausible alternatives
    as well.

    Last year, Mr. Putin made "energy security" the theme of his G-8 presidency.
    How ironically prescient that now seems. The West can take him up on his
    offer. After this week, it enters this dialogue with eyes wide open. "The
    conflict has shown that Russia's energy trade is politically motivated,"
    said Andrei Illarionov, who quit as President Putin's top economic advisor
    to protest his authoritarian policies. "This can make Russia anything but a
    'reliable global energy supplier.'" Or, one might wonder, a reliable partner
    in any other venture? -30-
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  • 2006.01.05 | Stefan Seitz

    19. GAS PRESSURE: WHY PUTIN IS SQUANDERING WORLD PRESTIGE IN

    19. GAS PRESSURE: WHY PUTIN IS SQUANDERING WORLD
    PRESTIGE IN HIS SQUABBLE WITH KIEV

    By Neil Buckley and Thomas Catan, Financial Times
    London, United Kingdom, Wednesday, January 4, 2006

    Just before Christmas, Russian president Vladimir Putin set out more
    explicitly than ever before his vision of how his country would regain the
    international clout it enjoyed as part of the Soviet Union.

    Noting proudly that Russia was the world's biggest exporter of natural gas
    and second-biggest exporter of crude oil, he told a gathering of his most
    trusted ministers and advisers that the country should aim to be the global
    leader in energy. This, rather than the military-industrial complex that
    dominated the Soviet era, would be the engine of Russia's renaissance.

    "Our welfare at present and, to a great degree, in the future directly
    depends on the place we will take in the global energy context," Mr Putin
    told the televised meeting. He also issued an assurance - likely to be much
    repeated during Russia's current presidency of the Group of Eight
    industrialised nations - that "energy security" would be a key theme.

    "Russia treasures its much-deserved reputation of a reliable and
    responsible partner in the market for energy resources," he said.

    Moscow sees its spell at the helm of the G8 as a chance decisively to shift
    its relationship from supplicant - its status when it was invited to join
    in 1998 as a reward for pursuing liberal reforms and accepting Nato's
    eastward expansion - to equal player. But on New Year's Day, as its
    presidency began, the Kremlin's first action called any such "reliable and
    responsible" image into question. Russia cut off natural gas exports to
    Ukraine after Kiev refused to agree to a more than quadrupling of the price
    it pays.

    The decision to turn off supplies was almost certainly made by Mr Putin
    himself. It was he who had issued the final offer to Ukraine, just hours
    before the year-end deadline, and Ukraine's president Viktor Yushchenko
    gave Kiev's negative response. The move prompted a sharp fall in midwinter
    supplies to Europe through a transit pipeline that runs across Ukraine.

    Ignominiously, Russia in effect turned the gas back on little over a day
    later, after a barrage of international criticism. Even if Mr Putin secures
    a deal with Ukraine - and the two sides were returning to the negotiating
    table yesterday - he may have inflicted broader damage on his energy
    ambitions. Russia has shown it is prepared to use drastic measures to force
    a customer to pay higher prices. It has simultaneously drawn uncomfortable
    attention to the full extent of Europe's reliance on its energy - Germany,
    for instance, depends on Russia for about one-third of its natural gas
    supplies.

    That in turn may provoke hard questions from Russia's G8 partners about
    its plans to make political use of its energy wealth - perhaps amplifying
    existing concerns over its commitment to democracy and human rights.
    Michael Glos, economy minister of Germany, said his country would like
    to boost the amount of gas it took from Russia but added: "It can only be
    increased if we know that deliveries from the east are dependable." Mr
    Glos went on: "Russia has the G8 presidency and . . . should naturally
    act responsibly."

    European Union energy ministers will hold an emergency meeting in
    Brussels today to discuss the crisis, which could trigger a broader debate
    about Europe's energy security and its reliance on Russia. Nor are concerns
    limited to Europe. The US State department has also expressed concern
    about Russia using energy as a political tool. It is scarcely the backdrop
    Mr Putin wanted as he rolls out a strategy - several years in the gestation -
    to build Russia's future around energy.

    It is a vision he has cherished since long before acceding to the
    presidency. As a city official in St Petersburg in the 1990s, he studied
    part-time at the city's State Mining Institute and wrote a dissertation
    entitled "Mineral Raw Materials in the Strategy for Development of the
    Russian Economy". In it he argued Russia's rich natural resource base would
    secure not only its economic future but also its international position. He
    laid out a scenario of state-controlled, but in part privately financed,
    "large financial-industrial corporations" in Russia that were able to
    compete with western multinationals.

    In the past two years, he has set about creating those groups. Using
    occasionally questionable methods, he has restored to state control energy
    assets that were privatised cheaply a decade ago. Rosneft, the state-owned
    oil company, in late 2004 bought the main production arm of Yukos, the oil
    company built up by Mikhail Khodorkovsky - now serving a nine-year
    sentence in a Siberian prison for fraud and widely seen as the victim of a
    politically motivated campaign.

    Last autumn, the Russian state increased its stake in Gazprom, the gas
    giant that controls about 20 per cent of the world's natural gas reserves,
    from 38 per cent to 51 per cent, moving from de facto to de jure control.
    Gazprom then bought Sibneft, the oil group controlled by Roman
    Abramovich, the Chelsea Football Club owner, for $13.1bn in Russia's
    biggest merger.

    Finally, Mr Putin has just signed into law measures to lift long-standing
    restrictions on foreigners owning Gazprom's remaining 49 per cent free
    float. Some analysts believe the influx of international investors could
    double Gazprom's market capitalisation to as much as $300bn (172bn,
    ?250bn), putting it among the world's top companies. Rosneft, meanwhile, is
    being prepared for an initial public offering on the London Stock Exchange
    this year that Russian officials have suggested could value it as high as
    $72bn.

    Instituting a new phase, Russia last month started wooing high-profile
    foreigners to take important positions in its energy industry, in an
    apparent effort to boost its international credibility and clout. Gerhard
    Schrder, the former German chancellor, agreed to head a project controlled
    by Gazprom to build a $5bn export pipeline under the Baltic Sea to western
    Europe. Donald Evans, former US commerce secretary and a close friend of
    President George W. Bush, politely declined a personal offer from Mr Putin
    to chair Rosneft, but the Russian president has hinted Russia will continue
    to search for high-profile foreign executives to join the Rosneft board.

    All this leaves Russia with two state-owned energy giants with substantial
    foreign investment - plus several privately owned groups that in the past
    decade have been brought up to international standards. On top of the
    world's biggest hydrocarbon reserves, a location spanning the Eurasian land
    mass, and a state-owned pipeline network enabling it to supply both east
    and west, it makes a powerful package.

    The G8 presidency is Russia's chance to sell that package to the club of
    the world's most powerful industrialised nations. Igor Shuvalov, Russia's
    G8 "sherpa" and a close adviser to Mr Putin, has made clear Russia sees its
    energy clout as its G8 admission ticket - one which, since it is not
    technically among the world's eighth largest economies, is not automatic.

    "We can guarantee the global economy will not lack energy resources," Mr
    Shuvalov said last year. "We will create a mechanism whereby Russia . . .
    will supply [energy] to the global market on such terms as will allow the
    global economy to develop positively and predictably." His remarks implied
    Russia could provide a stable alternative to the conflict-ridden Middle
    East as energy supplier.

    After cutting off supplies to Ukraine - with whom Russia has the biggest
    natural gas trading relationship in the world after that between Canada and
    the US - the claim looks harder to support. "Russia has stained its
    previously unblemished reputation," says Graham Weale, director of the
    European energy service for Global Insight, a consultancy. "If it doesn't
    do it again, it may get away with it. But if it does so even one more time,
    it's going to be hard for it to increase its sales."

    An energy consultant who asked not to be identified because he has Russian
    clients went further yesterday. "They've basically shot themselves in the
    foot," he said. "They think they can cut off Ukraine but they can't - not
    without cutting off their other customers. And of course it's damaging
    Russia's reputation as a reliable supplier."

    Cliff Kupchan, an analyst at the Eurasia Group consultancy and former state
    department official in the Clinton administration, says Russia succumbed to
    the temptation to use its energy power as a stick rather than a carrot.
    "Petro-power is about diplomacy," he says. "Petro-coercion, using energy
    as a weapon of foreign policy, is something totally different again."

    He warns that the row with Ukraine could also mar Russia's efforts to
    attract investors to Gazprom, by demonstrating once again that it is an
    arm of the Russian state.

    Moscow, however, can hardly have been surprised at the international
    reaction. It briefly cut gas to Belarus two years ago, when Russia's
    usually loyal neighbour balked at a demand to double the price it paid.
    That brought protests from Europe and an intervention from Germany's
    Mr Schrder.

    So why is Russia endangering its broader energy ambitions through a messy
    spat with its neighbour? Analysts suggest Russia wants to use the demand
    that Ukraine shifts to market prices for gas as a lever to gain another
    prize - joint control with Ukraine of the export pipeline across that
    country.

    The tactics have worked elsewhere. Russia kept gas prices low to Belarus
    in return for an agreement to take joint control of the export pipeline
    across its territory to Europe. Gazprom also raised prices to Georgia but
    is freezing them for 10 years in return for forming a joint venture to
    develop the country's domestic gas distribution network.

    A bigger goal may be to try to bully the west-leaning Mr Yushchenko, who
    swept to power in Ukraine's Orange revolution, into rebuilding ties with
    Moscow - and to influence Ukrainian parliamentary elections in March in
    the hope they will return a more pro-Russian legislature. One political
    consultant who knows Mr Putin suggests he "hates" Mr Yushchenko and
    is happy to try to undermine him.

    The Russian president may also have an eye on the domestic audience,
    seeking to show that Russia can still wield influence over its former
    Soviet neighbours after the setback of Ukraine's 2004 presidential
    election, in which Mr Putin backed the losing candidate. Whatever the real
    motive, Chris Weafer, chief strategist at the Russian-owned Alfa Bank,
    says Russia's action will force the EU to consider alternative gas
    suppliers, such as Egypt. And if Russia's biggest foreign customers do that,
    smaller customers or potential ones such as the US and Asian countries
    would also be cautious.

    "People in Europe woke up on Monday and were surprised just how
    vulnerable their energy supplies are," says Mr Weafer. "Russia may have
    brought forward by 10 years a big debate in the EU about its own energy
    security." -30-
    --------------------------------------------------------------------------------------------
    Additional reporting by Thomas Catan
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  • 2006.01.05 | Stefan Seitz

    20. OBNOXIOUS, BUT GAS WAR IS NOT PUTIN'S WORST CRIME

    20. OBNOXIOUS, BUT GAS WAR IS NOT PUTIN'S WORST CRIME
    It was stupid of President Putin to turn off the gas to Ukraine

    FOREIGN EDITOR'S BRIEFING: By Bronwen Maddox
    The Times, London, United Kingdom, Wednesday, January 4, 2006

    SHOULD Russia be thrown out of the G8 for firing up the "gas war"
    with Ukraine?

    Yes, if you think the test for membership of the group of leading
    industrialised countries should be economic influence. Russia has shown
    itself in the past week to be a fragile power, unworthy of the G8 badge.
    Oil, gas and nuclear weapons; that's about the sum of its assets.

    But no, there are no grounds for expulsion if the complaint is simply that
    Russia has been "bullying" Ukraine. In these gas wars, Russia has been
    weak, inept, obnoxious and in the right.

    It was stupid of President Putin to turn off the gas to Ukraine but you
    can see why the drama proved irresistible. The threat of turning off the
    lights of another capital must have seemed a uniquely visible
    demonstration of power.

    He was wrong to do it, though, because it advertised Russia's weakness,
    not its strength. One glance at those maps of pipelines spreading over
    Europe should have told him why. Russia needs Ukraine and several
    others to help to deliver its gas. And it needs them all as customers.

    It calls itself an "energy superpower", but that is a contradiction in
    terms; look at Saudi Arabia. If the ability to turn gas taps on and off is
    one of its strongest cards then it holds very few.

    True, the oil price surge has brought Russia unexpected wealth and
    lifted the threat of crippling deficits.

    But in the years since the end of the Soviet Union it has failed to use the
    flood of foreign investment to diversify its industry beyond energy. When
    fashion fades and the wilfully optimistic circulars from brokers finally
    acknowledge the implications of Putin's authoritarian unpredictability for
    investors, Russia's ability to attract foreign capital will wither. This
    week's brutal action has only brought that day closer. Putin's plan to make
    "energy security " the theme of Russia's year-long presidency of the G8
    now looks comic.

    He may well have done so (Russia assumed the rotating presidency on
    Sunday), but others will have heard only one lesson: that supplies from
    Russia are not secure. Putin has given nuclear power in Europe a boost
    beyond its dreams. He may not quite get Germany to go nuclear, but he
    has got the Italian Cabinet talking hard, as Claudio Scajola, its Industry
    Minister, said this week.

    Russia never qualified for the G8 because of the undeveloped state of its
    economy. By rights it should never have been let in. But the decision to
    admit it nonetheless was an expression of romantic hope, back in those
    brief days when Russia seemed to be embracing democracy. If arbitrary
    clubs like the G8 are good for anything, it might as well be for such
    quixotic gestures, which may act as encouragement to those who
    desperately want to be members.

    As it has turned out, the incentive failed. But that does not mean that
    Russia should now be thrown out for overbearing and undemocratic
    behaviour.

    True, many of Putin's actions in the past two years come under that
    heading. He has tightened his grip on the media, on supposedly democratic
    institutions and elections. Europe and the US cannot regard that with
    comfort. But almost all comment this week has portrayed Russia as the
    villain, the giant punishing brave Ukraine for the insult of wanting
    democracy.

    No question, Russia's behaviour has been obnoxious. It is designed,
    presumably, to threaten Ukrainians into voting in March for a Russia-
    loving parliament.

    It is, too, almost impossible to overstate the insult that Russia perceived
    in Ukraine's 2004 "Orange Revolution". For many Russians, Ukraine is the
    key to Russia becoming great again. If it is "lost", that dream becomes
    impossible. But to label Russia the bully and Ukraine the victim is a
    caricature. It ignores the role of Ukraine, down many years, in skimming
    off gas profits.

    It ignores the many levers that Ukraine has over Russia, through the huge
    web of other trade that links them. And it ignores Russia's right to charge
    the market price for its gas. It had given some notice, through price rises
    to other countries, that it was thinking of this, even if the abruptness of
    the demand was a surprise.

    No one much doubts that, in the end, Ukraine will pay the price for gas
    that Russia is asking, and that Russia has a right to ask it. Of all the
    unpleasant things that Putin has done, this is not the worst. -30-
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  • 2006.01.05 | Stefan Seitz

    21. EU RELIEF AS KIEV AND MOSCOW REACH GAS DEAL

    21. EU RELIEF AS KIEV AND MOSCOW REACH GAS DEAL
    Russia appeared stung by criticism that it had tarnished its
    reputation as a reliable energy supplier at a time when it has
    assumed the presidency of the Group of Eight industrialised nations.

    Reporting by Thomas Catan in London, Tom Warner in Kiev, Neil Buckley
    in Moscow, Sarah Laitner in Brussels and Bertrand Benoit in Berlin
    FINANCIAL TIMES, London, United Kingdom, Thursday, Jan 5 2006

    Russia and Ukraine yesterday agreed to a compromise allowing both sides to
    save face in a bitter dispute that had threatened Europe's gas supplies and
    cast doubt on Russia's reliability as an energy supplier.

    The complex five-year deal came after heavy pressure was applied by European
    states that had seen gas supplies fall by up to a third after Russia cut off
    supplies of its gas to Ukraine on Sunday. Russia said the agreement showed
    it could be trusted to supply gas reliably to Europe in the decades ahead.

    Vladimir Putin, Russia's president, said the deal made its relations with
    Ukraine more "market-driven and transparent". "This agreement creates
    absolutely stable conditions for supplies to our European partners for many
    years ahead," he said.

    European nations gave a sigh of relief following news of the deal and
    international oil prices slipped from two-month highs. But there was
    lingering concern in many quarters that the region's gas supply had been
    shown to be so fragile.

    Many in western Europe were taken aback that the supply in countries like
    France, Germany and Italy could have been hostage to a spat between Russia
    and its neighbour. The EU welcomed the agreement but said it would need to
    learn from the crisis.

    "We have got to plan and think about how we are going to deal with these
    things in the future," said Martin Bartenstein, economics minister of the
    Austrian EU presidency.

    Under the deal, Russia will be paid $230 per 1,000 cubic metres for the gas
    it exports to Ukraine - up from the $50 it was paid until now. But, after
    mixing in gas supplies from the central Asian states of Turkmenistan and
    Kazakhstan, Kiev will pay a gas import price of only $95 per 1,000 cubic
    metres.

    Deliveries of both Russian and central Asian gas will now go through an
    intermediary, RosUkrEnergo, a joint venture between the banking arm of
    Gazprom, Russia's natural gas giant, and Raiffeisenbank of Austria.
    Raiffeisenbank holds the stake on behalf of unidentified ultimate owners.

    Russia appeared stung by criticism that it had tarnished its reputation as a
    reliable energy supplier at a time when it has assumed the presidency of the
    Group of Eight industrialised nations.

    A meeting of European energy officials was held in Brussels to discuss the
    gas scare yesterday. Many European officials said that, while Russia would
    remain an important supplier, the region should also develop alternative
    sources of gas.

    "The meeting . . . in Brussels provided a useful forum to start discussing
    the lessons that might be learned," said Malcolm Wicks, Britain's energy
    minister. "There will be further opportunities at the European level to
    consider diversity of sources and routes." Britain is viewed as a key future
    market by Russia.

    Michael Glos, the German economics minister, said the gas dispute would lead
    Germany to review its reliance on Russian oil and gas. "This should be an
    opportunity for a fundamental rethinking about how we may, in the future,
    rely more heavily on energy sources available domestically to cover our
    needs," he said. -30-

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  • 2006.01.05 | Stefan Seitz

    22. ACTING ACCORDING TO TYPE IN PUTIN'S OIL PLOY

    22. ACTING ACCORDING TO TYPE IN PUTIN'S OIL PLOY

    COMMENTARY: By Jim Hoagland, The Washington Post
    The Wall Street Journal, NY, NY, Thursday, January 5, 2006

    WASHINGTON -- National character remains a force in world politics despite
    the prophets of globalization and one-size-fits-all economic integration.
    Humans still see themselves and act as products of shared experiences and
    common territory.

    At least their leaders do. Vote-seeking politicians and decree-issuing
    dictators have to find the political center of gravity in their nations.

    When they make big decisions, George W. Bush, Hu Jintao, Hugo Chavez
    et al. rely on national stereotypes of their average citizen. Leaders cannot for
    very long be other than their understanding of their followers.

    So it was not genetics that compelled leaders in Russia, Ukraine, Germany,
    France and the rest of Europe to respond to a new tempest this week with
    familiar behavior. In starting a small "cold war" in his own neighborhood --
    by cutting natural gas supplies to Ukraine at the height of winter --
    Vladimir Putin was doing what comes naturally.

    That is, he was being overbearing and clumsy in dictating to people he still
    considers Russia's vassals. Like the commissars and czars before him, Mr.
    Putin is more comfortable with force than with persuasion.

    Russia's natural gas and oil reserves have replaced the Soviet Union's
    nuclear weapons as instruments of intimidation or, if Mr. Putin likes you,
    accommodation. This is not just a spat between Russia and a former Soviet
    republic trying to move out of Moscow's sphere of influence.

    Mr. Putin chose to cut gas supplies to enforce draconian price increases on
    Ukraine (despite an existing contract) on the day that Russia became chair
    of the G-8, the self-selected committee of leading nations linking North
    America, Europe, Japan and Russia.

    Inviting Putin's Russia to host the G-8 summit next July was always a
    controversial step. Within the Bush administration it was argued that this
    would help the Russians learn about statecraft: They would experience the
    responsibilities of building consensus and setting agendas with democratic
    partners. The squeezing of Ukraine suggests how steep the learning curve
    remains.

    The Ukrainians -- reflexively portraying themselves as victims reacting to
    the depredations of their powerful neighbor -- appear to have siphoned off
    their normal share of the gas flowing through the pipelines that cross their
    territory into Central and Western Europe.

    The siphoning inflicted the Russian cuts primarily on European Union
    consumers, who get about 25% of their natural gas supplies from Russia.
    Their howls of pain and outrage on Monday forced Mr. Putin to reconsider
    what he seems not to have considered at all -- the likelihood that
    inflicting economic punishment could backfire on him. He has promised to
    restore full supply.

    But old reflexes were already at work. German politicians muttered about the
    threat from the east to their stability and the need to do something before
    the country exhausts its 75-day gas reserve. Austrians were equally
    concerned, but asked others to do something. In Brussels, EU officials held
    nonstop telephone conversations and meetings, emphasizing they would not
    take sides between Kiev and Moscow.

    In Paris, Le Monde editorialized that "the first war of the 21st century has
    been declared" by Mr. Putin, but joined to that Gallic cry of alarm official
    reassurances that France would not suffer in any event: It has already
    struck separate emergency deals with Norway, Algeria and other suppliers.
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  • 2006.01.06 | catko

    - ?(-)

    /
    • 2006.01.06 | Stefan Seitz

      . . . (-)



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