Posted on 01/08/2006 11:22:37 AM PST by jb6
WASHINGTON, DC, United States (UPI) -- There has been a lot of coverage about how Russian natural gas giant, Gazprom, has recently sought to raise the price it charges Ukraine from a below-market $50 per 1,000 cubic meters to $230 --just below the $250 per cubic meter average paid by Western European nations for Russian gas. Gazprom has been portrayed as the bully in this affair, but the truth of the matter is that it should be paid a market price for the gas it sells. Indeed, it was neither in Gazprom`s nor Russia`s interest to sell gas to Ukraine at below market. Nor is it in their interest for Gazprom to continue selling gas to Belarus for a mere $46.88 per 1,000 cubic meters.
Russian President Putin said that continuing the subsidy to Ukraine would cost $3.6 billion in 2006 -- an amount that does not include the subsidy to Belarus and other customers that buy gas from Gazprom at below market rates.
The dispute over how much Ukraine should pay for Russian gas only came about, though, because of the Orange Revolution that brought a pro-Western, more democratic government to power in Kiev at the end of 2004. If Ukraine had retained a government that Putin perceived as being subservient to Moscow, he would have been prepared to have Gazprom continue subsidizing Ukraine, just as he continues to do with Belarus.
There are two problems with this. First, it shows that Putin sees the continuation of economically unreformed, politically authoritarian regimes in the former Soviet Union as more in Russian interests than their replacement by governments that try to reform both economically and politically. But an economically unreformed country is likely to be poor, and hence unstable. And outside powers that support authoritarian regimes in their efforts to suppress demands for democratization become as unpopular as those regimes with the citizens suffering under them. Neither of these two developments is good for Russia in the long run -- and maybe even in the short run.
Second, forcing Gazprom to accept significantly below market prices from certain customers not only deprives Gazprom of profits it could use either to invest in its business or pass on to its shareholders, but also deprives the Russian government of the tax revenue it would earn on these profits. Russia would surely be better off if this money were available to address its many internal problems (including public health, pensions, and infrastructure) than lost in subsidizing unstable 'pro-Russian' regimes ruling over resentful populations. The former scenario would be a better investment for Russia if something akin to an 'Orange Revolution' is likely to occur as a result of the latter scenario.
While Gazprom`s desire to obtain full market price for gas exports to Ukraine is a reasonable one, it appeared as a bully when it tried to force Ukrainian compliance by cutting back on gas shipments. The result, of course, was that not all the Russian gas sent through the Ukrainian pipelines to Europe reached its destination, thus resulting in the EU complaining about Russian -- and not Ukrainian -- behavior. The fact that so much Russian gas bound for Europe must traverse Ukraine, obviously gave Ukraine tremendous leverage in dealing with this gas crisis.
The 'compromise solution' that emerged is a murky one: Gazprom will sell gas intended for Ukraine at $230 per 1,000 cubic meters to a mysterious firm called RosUkrEnergo. Ukraine, though, will only pay $95 per 1,000 cubic meters to this firm for gas from a mix of sources, including Russia`s Gazprom, Kazakhstan, Turkmenistan, and Uzbekistan. Ukraine, then, will pay almost double what it had been paying for gas, but still well below market rate.
The question, then, is how -- and how long -- can RosUkrEnergo pay $230 per 1,000 cubic meters to Gazprom for its gas sales to Ukraine while only charging Ukraine $95 per 1,000 cubic meters? Does it intend to pay less than $95 per 1,000 cubic meters for gas from Kazakhstan, Uzbekistan, and Turkmenistan? If so, how long will these governments willingly put up with this? And if Moscow somehow forces them to put up with it unwilling, what will be the long run cost to Moscow in terms of the resentment it will lead to? Eventually, these regimes (or their replacements) will seek to export their gas through other countries if they can earn more by doing so. Indeed, Russia is providing China, Iran, and a combination of Afghanistan and Pakistan with both incentive and opportunity to do just this.
Or is the Russian government (i.e., the Russian taxpayer) now going to subsidize gas sales to Ukraine instead of Gazprom? This would make Gazprom`s profits look a lot better, but it is obviously not in Russia`s interests. Nor is it in Europe`s, or even Ukraine`s.
Many Europeans seem willing to let Ukraine continue buying gas at below market (whether it is subsidized by Russia or by Central Asia) so long as EU countries get their share. But this is shortsighted. So long as the Ukraine continues to import gas at subsidized prices (albeit somewhat less so), the longer it can avoid making the painful but necessary economic adjustments that Eastern European states such as Poland have already made. The sooner Ukraine makes these adjustments, not only will it become better off itself but will also be a better economic partner for Europe -- and for Russia too.
The same, of course, can be said for Belarus, but Moscow is not likely to recognize this so long as a pro-Russian dictator, no matter how economically incompetent, remains in power there. In this case, the Kremlin will continue to force Gazprom to subsidize an 'ally' who will either fall (thus vitiating the value of Gazprom`s subsidy) or will eventually require much greater Russian efforts to keep in power -- at even greater cost, of course, to Moscow.
Allowing Gazprom to maximize its export profits would better serve Russian interests than subsidizing unreformed 'allies.' Unfortunately for Russia, however, the Kremlin has not yet recognized this.
Mark N. Katz is a professor of government and politics at George Mason University.
Copyright 2006 by United Press International
Hmmm. If I don't pay my gas bill, I get cut off. Who would have thought? Seems at least part of the problem is the socialist attitude that cheap energy is somehow an entitlement.
Unlucky you aren't sitting on a gas pipeline, because then you could steal from it and have the EU socialists and the neocons here come and defend you as a victim of the gas company.
No where does this article advise that Ukraine still has contracts with Gaszprom and Turkman for gas at $50 - the former is in effect until 2009 and the latter until 2010.
Ukraine was ripped off and Germany should renegotiate the contract Schroeder signed before he became Puties lapdog
Good analysis Gavrila. I prefer not translate it on russian. You deprive spanalot, Mazepa, Kozak and some poles from thier "triumphal victory":)).
Haven't read REGNUM in a while (what's to expect from Russian chauvinists).==
You limit yourself off the vision through the eyes of opponents. I did never to exclude urknazi sites and matherials. It is funny sometime to read that Jesus was ukranian. Or that ancient Troy lie in ancient Ukarine and was populated by ancient "ukr"s.
Both Ukrainian AND Russian politicians claimed triumphal victory. For the record- I'm adamant about the deal. And it's a temporary measure- it'll start all over again either in July (when $95 is no longer fixed) or 2007 when deal with Turkmenistan will run out.
is funny sometime to read that Jesus was ukranian
I thought it was Buddha.:)
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