VZCZCXYZ6612
PP RUEHWEB

DE RUEHKV #0483/01 0650948
ZNR UUUUU ZZH
P 050948Z MAR 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 5123
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZG/NATO EU COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY

UNCLAS KYIV 000483 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/UMB, EB/ESC/IEC - GALLOGLY/WRIGHT 
DOE PLEASE PASS TO LEKIMOFF, CCALIENDO 
USDOC FOR 4321/IEP/OEENIS/NISD/CLUCYK 
 
E.O. 12958: N/A 
TAGS: EPET ECON ENRG PREL UP
SUBJECT: UKRAINE: MARCH 5 UPDATE ON GAS DEVELOPMENTS 
 
REF: A. KYIV 471 
 
     ¶B. KYIV 469 
     ¶C. MOSCOW 605 
 
Sensitive but Unclassified.  Not for Internet. 
 
¶1. (SBU) Summary.  A day after Gazprom reduced gas supplies 
to Ukraine by 35%, Gazprom tacked on an additional 25% 
reduction at 19:00 Kyiv time on March 4.  Before reductions 
began, Ukraine's state gas and oil company, NaftoHaz, 
received 152.7 million cubic meters (mcm) of gas per day, but 
now receives about 69 mcm, representing an overall gas 
reduction of about 54% in two days.  Towns and regions in 
Southern Ukraine have already reported some cut-offs in gas, 
although these may be coincidental actions for previous 
non-payment, rather than a direct result of the Russian 
supply reductions.  Gazprom officials pointed to NaftoHaz's 
unwillingness to send a delegation to Moscow to resume 
negotiations as evidence that Ukraine was balking on 
commitments made by President Yushchenko during his February 
12 meetings with Putin.  Gazprom officials have not ruled out 
future reductions, should the Ukrainians fail to resume 
negotiations.  Although PM Tymoshenko announced Ukraine would 
adhere to its supply commitments to Europe, Gazprom claimed 
that Ukraine had informed it of a 60 mcm cut in gas transit 
to Europe.  There has been no confirmation of this from the 
Ukrainian side, although NaftoHaz officials stated that 
supplies to Europe could not be guaranteed if Ukraine's 
energy security comes under threat--rhetoric that Ukraine has 
avoided in past gas disputes.  End summary. 
 
¶2. (SBU) Shortly after the latest reduction plans were made 
public, Ukrainian concerns that the general population might 
be affected heightened.  Former Minister of Utilities and the 
Housing Economy Alexander Popov claimed that should gas 
reductions continue, those populations with a long history of 
non payment would most likely be the first affected by the 
gas reductions.  Following this logic, Popov suggested that 
those affected by cut-offs first would probably be mostly 
located in southern Ukraine.  The next day, some gas cut-offs 
were reported in Luhansk, Kirovohrad, and Sevastopol regions, 
located in southern Ukraine.  Officials in Luhansk and 
Kirovohrad were quick to attribute the cut-offs to high rates 
of non-payment for gas and not to the on-going dispute.  The 
Ukrainian press agency UNIAN reported that kindergartens, 
schools, clinics, and maternity hospitals were affected in 
Kirovohrad, prompting a request from Tymoshenko for a 
criminal investigation concerning who ordered the cut-offs. 
Kirovohrad's regional gas utility is reportedly controlled by 
RUE part-owner Dmytro Firtash and former Minister of Energy 
Yuriy Boyko.  Sevastopol officials explained that reductions 
of gas in the overall gas system have traditionally resulted 
in shortages for their region, which lies at the end of the 
pipeline. They stated to the press that heat supplies to 
consumers would go interrupted, but Sevastopol residents 
might be left without hot water for some time.  (Comment:  We 
have no evidence that NaftoHaz is actually reacting to the 
supply reductions of the past two days by cutting supplies to 
municipalities.  Instead, we suspect that local officials, 
spurred by recent reports that Ukraine had enough gas to 
maintain current supplies for about two weeks, may be 
preparing for the worst case scenario.  End comment.) 
 
¶3. (SBU) After the latest gas reduction on March 4, President 
Yushchenko called Russian President-Elect Dmitry Medvedev to 
congratulate him on his election victory.  Medvedev urged 
Ukraine to honor its obligations from Putin-Yushchenko 
summit.  President Yushchenko, who has been calling for the 
Tymoshenko-led government to resolve the gas stalemate as 
soon as possible, penned a letter to Prime Minister 
Tymoshenko demanding that she immediately give directives to 
NaftoHaz resulting in the continuation of talks with Gazprom. 
 (Note: Tymoshenko has opposed the portion of the draft gas 
arrangement which would give Gazprom 50% control of the 
Ukrainian gas market, a prize Gazprom has sought for years, 
according to Ukrainian energy experts.  End note.) 
Tymoshenko did not directly respond to Yushchenko's demands, 
but announced that the Cabinet of Ministers would adopt a 
resolution on gas repayment for 2008 arrears, similar to a 
resolution passed on the payment of debts for 
September-December 2007.  The resolution was to allow for 
NaftoHaz to make payments for January and February, even 
though the two sides have not yet agreed on what amounts of 
gas was supplied. 
 
¶4. (U)  Tymoshenko pledged on March 4 that gas supplies to 
Europe would be maintained without change.  However, a 
NaftoHaz source told the press that the company reserved the 
right to make appropriate and symmetrical reductions in gas 
transit, should the energy security of Ukraine be threatened. 
 At mid-day March 5, Gazprom issued a statement that they had 
been informed by NaftoHaz of a reduction of 60 mcm in gas 
exports to Europe.  So far, post has been unable to confirm 
or deny this report from Ukrainian sources. 
 
¶5. (SBU) Comment.  By authorizing payment of the 2008 debt, 
Kyiv has made some steps towards accommodating Gazprom, but 
we will have to see if this leads to any softening of 
Gazprom's attitude.  So far, NaftoHaz has stood its ground 
and has not dispatched anyone to Moscow to continue talks. 
If more reductions are made by Gazprom, it is possible that 
Ukrainians could see the effects of shortages sooner than 
anyone had expected. 
Taylor