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Russia Seeks to Maintain 'Energy Bridge' to the West

Official acknowledges politics played a role in the natural gas dispute with Ukraine. He argues that Moscow's motives are 'market-based.'

January 07, 2006|Kim Murphy | Times Staff Writer

MOSCOW — Russia denied Friday that its temporary cutoff of natural gas to Ukraine last week in a pricing dispute raised doubts about its ability to act as a responsible energy supplier to Europe. But a Foreign Ministry official acknowledged that there were "certainly ... political factors" in Moscow's aim to maintain a strategic route for transporting gas to Western Europe.

"In areas where economic interests coincide with objective national interests, certainly the issue of politics comes into play," Alexei Sazonov, a Foreign Ministry spokesman, said in an interview. "Those who know Russia's current economy understand that without this energy bridge [through Ukraine to Europe], Russia will not be able to fuel the further growth and development of its economy."

As Russia assumed the presidency of the Group of 8 industrialized nations this month, U.S. Secretary of State Condoleezza Rice on Thursday accused Moscow of acting "with an obviously political motive" when it sought to sharply increase the price Ukraine pays for its natural gas.

"That kind of behavior is going to continue to draw comment about the distance between Russia's behavior on something like this and what would be expected by a leader of the G-8," she said.

In an official statement, the Russian Foreign Ministry said it was "surprised," and "completely unclear" on what Rice was basing her statements. Russia "consistently declared that whatever happened, it would carry out its full obligations for European gas deliveries," the statement said.

It said Russia was attempting to end an old "opaque" barter system of gas supply "that created numerous opportunities for abuse."

Moscow had demanded a fourfold increase in the cost of gas from Ukraine -- $230 per 1,000 cubic meters, comparable to what many countries in Europe pay.

Many in Ukraine say Russia sought the increase in an attempt to undermine Ukraine's newly pro-Western government on the eve of crucial parliamentary elections.

But Sazonov said Russia's real political interests involved Moscow's ambition to move to a market-based, commercially viable relationship with its energy clients and assure that its products have an uninterrupted supply line to the West.

"The biggest amounts of money in this country are involved in the energy sector. Entire regions depend on it in terms of their future development. And our policy is to give this sector an impulse for further growth, including with the use of ... international relations," Sazonov said.

"For many years, Russia sold gas [to its former Soviet neighbors] below the market price," he added. "Was it politics or not? I would say it was political."

But the conflict with Ukraine also pointed up Russia's move to gain control of the pipelines that carry fuel supplies to foreign markets.

The $47 per 1,000 cubic meters Belarus still pays for Russian gas -- about half of the $95 Ukraine will now end up paying -- is thanks not only to President Alexander G. Lukashenko's friendly relations with Moscow, but also to the fact that Russia has 100% ownership of the pipeline that transports Russian gas through the country to Western Europe.

Russia also holds stakes in gas distributors in Estonia, Latvia and Lithuania, and significantly, it gave those nations more time to transition to full Western European level prices than it originally offered Ukraine. These Baltic nations now pay about $120 to $125 per 1,000 cubic meters.

"One of the most active offers from the Russian side was keeping the price at $60 per 1,000 cubic meters, but Ukraine would give Russia 50% of the rights to manage the gas piping system," Volodymyr Horbulin, senior counselor to the Ukrainian president, said in an interview this week in Kiev.

Russian President Vladimir V. Putin "is offering an energy initiative in which Russia becomes not only the main supplier of oil and gas, but also owns all the oil and gas transportation systems," he said. "In other words, Russia becomes No. 1 -- an absolute monopolist in the supply of gas and oil, at least for Europe."

But Sazonov, the Foreign Ministry spokesman, maintained that Russia's arguments for pipeline control were "rational and market-based."

He said Russia had proposed a "civilized approach" in which Ukraine would join a consortium with Russia and Germany for ownership and modernization of its pipelines.

"Russia has gas, the pipelines go through Ukraine, and Germany is the consumer," he said. "Knowing that Ukraine is short on things it can bring to the table, like money, we offered that it could participate using its pipelines. I would challenge anyone to find anything political about that."

As part of the deal finally signed this week, Ukraine will nearly double the amount it is paying for natural gas, which will consist of a mix of Russian and Central Asian gas purchased through RosUkrEnergo, a little-known company that is half-owned by the Russian energy giant Gazprom.

Critics in Ukraine said the fine print made it clear that Russia would collect more for its gas than it appeared. They said a provision for Ukraine's national gas company to bring "other assets" into its new joint venture with RosUkrEnergo could allow Russia to get its hands on some or all of the pipeline system.

"This part of the agreement means that part of the gas transit system of Ukraine, our strategic asset that provides us with an important geopolitical position," is threatened, said former Prime Minister Yulia Tymoshenko, who has announced plans to challenge the pact in court.

"This agreement betrays the national interests of Ukraine.... Only a person with a huge New Year's hangover can call it a success."

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