VZCZCXRO2605
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHPOD RUEHROV RUEHSR
DE RUEHBS #1945 3571626
ZNR UUUUU ZZH
P 221626Z DEC 08
FM USEU BRUSSELS
TO RHEHNSC/NSC WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY
INFO RUCNMEU/EU INTEREST COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHKV/AMEMBASSY KYIV
RUEHMO/AMEMBASSY MOSCOW
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEKJCS/DOD WASHDC

UNCLAS BRUSSELS 001945 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG EPET EUN RS UP
SUBJECT: JANUARY 1 - "GROUNDHOG DAY" IN UKRAINE? 
 
 ¶1. (SBU) Ambassador Silverberg spoke with Ukraine Ambassador 
to the EU Andri Veselovsky on December 22 to discuss the 
dispute between Russia and Ukraine over the terms of the gas 
supply contract.  Veselovsky said the Russians claim $2 
billion is due on the contract and will not enter into a new 
agreement until the funds are paid.  He countered that 
Ukraine owes only $1 billion, of which $800 million has been 
paid.  Veselovsky continued that an additional $1.4 billion 
owed Russia is not due until the end of January 2009.  He 
said Russia has warned the EU that if it has to cut of gas 
supplies to Ukraine, Ukraine will then siphon off gas 
intended for EU customers. Veselovsky refuted this 
allegation, insisting that Ukraine "has sufficient reserves." 
 
¶2. (SBU) Econ officers met earlier in the day with a member 
of Energy Commissioner Piebalgs' cabinet to discuss the 
implications of (another) cutoff of gas supplies to Ukraine 
in January.  Piebalgs met with Naftogaz of Ukraine Chairman 
Oleg Dubina in London this past weekend.  Dubina told 
Piebalgs that there are two main issues - the future price of 
gas and outstanding payments.  According to our contact, 
Gazprom officials recently advised Piebalgs that Ukraine had 
agreed to a new gas contract with a price phase-in which 
would eventually double the current price.  On the issue of 
payments, Dubina, like Veselovsky, claimed payment is not due 
until the of January 2009, rather than the end of December as 
the Russians insist.  Dubina also told Piebalgs that under 
the existing agreement, Ukraine is only obligated to pay for 
"'gas consumed, rather than gas delivered.'"  Dubina believes 
the impasse can be resolved "'through negotiations,'" adding 
that Ukraine has "'enough storage reserves.'"  He thus told 
Piebalgs that EU intervention is not necessary at this point. 
 
¶3. (SBU) As far as the Commission is concerned, there are 
three possible scenarios: 
 
(A) Russia cuts off gas supplies to Ukraine, and there is an 
impact on EU supplies; 
(B) Russia cuts off gas supplies to Ukraine, but there is no 
impact on EU supplies; or 
(C) Russia and Ukraine come to an agreement, and there is no 
gas shutoff. 
 
The Commission believes the first two scenarios are the most 
likely but is not concerned about the potential impact on EU 
supplies as demand is down due to warm weather this winter 
and the EU has high gas stocks (85%-95% full).  (See 
http://transparency.gie.eu.com/history.php?y= 2008&page=1.) 
As such, the Commission believes it will be able to manage 
any short-term reductions in supply via Ukraine.  How the EU 
would react to  allegations of gas siphoning by Ukraine or 
shorting supply by Russia is not clear.  In any event, 
Commissioner Piebalgs is ready to travel to Moscow or Kyiv 
should the situation warrant. 
.