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UNCLAS SECTION 01 OF 02 KYIV 000314 
 
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TAGS: EPET ENRG ECON PREL RS UP
SUBJECT:  UKRAINE: TYMOSHENKO PROMISES TO PAY GAS DEBT, 
SUPPLY CUT-OFF LESS LIKELY 
 
REF: MOSCOW 367 
 
¶1. (SBU) Summary:  Prime Minister Yulia Tymoshenko took 
Ukraine's gas dispute with Russia (ref A) public on February 
¶11.  She acknowledged that NaftoHaz owed gas intermediaries 
RosUkrEnergo (RUE) and UkrHazEnergo (UHE) $1.07 billion for 
gas deliveries in October-December 2007, and said Ukraine 
would pay off the debt in a timely manner.  She confirmed 
that NaftoHaz reps were in Moscow that same day for 
discussions with Gazprom, but did not say whether Ukraine had 
reached an understanding with Russia to prevent a cut-off of 
gas supplies, which Gazprom had threatened for February 12. 
She said that Ukraine would meet its obligations to transit 
gas to western Europe regardless of what actions Russia would 
take in the short term.  Tymoshenko also indicated that 
Ukraine's current round of troubles with Russia goes deeper 
than simple payment arrears.  RUE and UHE were trying to 
change the rules of the game for gas already delivered, she 
argued.  Tymoshenko said Ukraine would not bow to the demands 
of the intermediaries, but was open to new negotiations on 
gas deliveries beginning in January 2008 if intermediary UHE 
is removed from the picture immediately.  A supply cut-off is 
probably less likely in the short term as a result of 
Tymoshenko's willingness to pay off the gas debt.  Her 
remarks may also signal that intermediary RUE is having 
trouble meeting its 2008 delivery commitment to Ukraine at 
prices agreed in late 2007.  End summary. 
 
Tymoshenko: Debt Exists, and It Will Be Paid 
-------------------------------------------- 
 
¶2. (SBU) In February 11 meetings with the media and with the 
diplomatic corps, Tymoshenko acknowledged that NaftoHaz owned 
$1.07 billion to gas intermediaries RosUkrEnergo and 
UkrHazEnergo for gas delivered between October and December 
¶2007.  NaftoHaz had collected the sum from its Ukrainian 
customers, yet had failed to pass it on to its suppliers, she 
said.  The GOU still did not know what happened to the money, 
she added.  Nonetheless, the GOU was ready to pay the debts 
in full.  (Note: She did not say how the GOU planned to come 
up with the money, but media reports quoted government 
sources as saying that the GOU would borrow the money from 
Deutsche Bank.  End note.) 
 
¶3. (SBU) Tymoshenko did not indicate when Ukraine would pay 
off the arrears, or whether the GOU had reached an 
understanding with Gazprom that would prevent the Russian gas 
company from cutting off supplies to Ukraine.  She confirmed 
that NaftoHaz reps were in Moscow on February 11 for 
discussions with Gazprom.  Her open acknowledgment of the 
debt and the GOU's determination to settle it will probably 
make supply disruptions less likely in the short term, 
however.  Late on February 11 the Ukrainian media reported 
that negotiations in Moscow would continue on February 12. 
 
Intermediaries RUE and UHE at Heart of the Dispute 
--------------------------------------------- ----- 
 
¶4. (SBU) Tymoshenko's statements indicated, however, that the 
dispute with the gas intermediaries goes much deeper than the 
issue of unpaid gas bills.  In her February 11 meeting with 
the diplomatic corps, Tymoshenko claimed that RUE, in its 
yearly supply agreements, only announces what amount of gas 
will be available for sale to Ukraine, and at what price. 
During the course of the year NaftoHaz subsequently concludes 
agreements with the intermediary on a monthly basis. 
Apparently, these agreements are reached after the fact, i.e. 
subsequent to the actual delivery of the gas.  Tymoshenko 
said that Ukraine was probably the only country in the world 
that had to conclude agreements on a monthly basis for the 
delivery of natural gas. 
 
¶5. (SBU) Tymoshenko said NaftoHaz still had no contracts for 
the delivery of gas in the last three months of 2007.  In the 
ongoing negotiations over this period, RUE and UHE were now 
demanding that NaftoHaz pay the 2008 price ($179.5/tcm) for 
gas deliveries in November and December, rather than the 
$130/tcm that had been anchored in the 2007 gas delivery 
agreement with RUE, Tymoshenko claimed.  She did not say how 
the intermediaries were justifying the higher price, but 
insisted that Ukraine had made no provisions to pay the sum 
and would not do so under any circumstances. 
 
¶6. (SBU) RUE was also claiming that an increased portion of 
 
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the gas it supplied to Ukraine in January 2008 came from 
Russia, instead of central Asia.  RUE was demanding that 
NaftoHaz pay $314/tcm for this increased portion of Russian 
gas, Tymoshenko claimed.   Tymoshenko disputed the RUE claim, 
citing customs figures to argue that RUE sold far more 
central Asian gas to Ukraine in January than was actually 
consumed in the country.  Ukraine should only pay $179.5/tcm 
for this gas as per the 2008 delivery agreement, she said, 
and in any case the GOU could not pay more since it had not 
budgeted the money. 
 
¶7. (SBU) Tymoshenko indicated that, for deliveries beginning 
in January, the GOU was prepared to negotiate the delivery 
agreement with the Russian side, presumably Gazprom, but 
Ukraine would insist on removing intermediary UHE 
immediately.  Parallel to the abolishment of UHE the GOU 
would propose beginning negotiations to gradually abolish RUE 
as well, replacing it with direct arrangements with Gazprom 
or its subsidiary Gazexport for the purchase of central Asian 
gas. 
 
Comment 
------- 
 
¶8. (SBU) It appears increasingly unlikely that Gazprom will 
actually cut off supplies on February 12, now that Tymoshenko 
and others in the GOU have openly acknowledged the arrears 
and promised to pay them back in a timely manner. The dispute 
surrounding the purported demands of the intermediaries may 
be more difficult to solve, however.  If Tymoshenko is to be 
believed, the intermediaries may be having trouble meeting 
their commitment to sell gas to Ukraine in 2008 at the 
$179.5/tcm agreed upon in late 2007.  Post will report septel 
on the details of Tymoshenko's claims against the 
intermediaries.  End comment. 
 
Taylor