VZCZCXRO8407
OO RUEHIK RUEHLN RUEHPOD RUEHSK RUEHVK RUEHYG
DE RUEHKV #0001/01 0011702
ZNR UUUUU ZZH
O 011702Z JAN 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6988
INFO RHMFISS/DEPT OF ENERGY WASHINGTON DC IMMEDIATE
RUCNCIS/CIS COLLECTIVE IMMEDIATE
RUEHZG/NATO EU COLLECTIVE IMMEDIATE

UNCLAS SECTION 01 OF 02 KYIV 000001 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/UMB, EB/ESC/IEC - GALLOGLY/WRIGHT 
DOE PLEASE PASS TO LEKIMOFF, CCALIENDO 
 
E.O. 12958: N/A 
TAGS: ENRG EPET ECON PINR PREL RU UP
SUBJECT: RUSSIA CUTS OFF GAS TO UKRAINE 
 
TREAT AS SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET. 
 
¶1.  (SBU) Summary and Comment.  Naftohaz officials confirmed that 
supplies of Russian gas had decreased substantially on January 1. 
The cutoff came despite Ukraine's insistence that it had paid more 
than $2 billion of its gas debt.  In a joint statement, President 
Viktor Yushchenko and Prime Minister Yuliya Tymoshenko said the 
cutoff resulted over the failure of the two sides to agree on a 2009 
gas price and transit fee.  The GOU has claimed that gas transit 
obligations to other European countries will be met at least for 
another week.  Ukrainian officials aim to resume gas negotiations 
with Russia on January 5, if not sooner, despite the cutoff.  The 
cutoff does not have an immediate impact on the domestic gas market 
in Ukraine, as the country claims to have enough gas in storage to 
meet domestic demand "for the foreseeable future."  Nevertheless, 
the GOU is making contingency plans.  The GOU has appealed to the 
USG to support a trilateral Ukraine/EU/Russia dialog to solve the 
dispute, yet initial EU reactions on January 1 indicate a reluctance 
to outwardly support Ukraine. 
 
¶2.  (SBU) Comment:  Whatever commercial differences continue to 
separate the two sides, the cutoff in the middle of winter could 
eventually lead to serious disruptions in Ukraine, and might, if we 
believe GOU officials' statements, begin to affect supplies destined 
for the rest of Europe in a week.  We should denounce the cutoff and 
call on the two sides to return to the bargaining table as quickly 
as possible. End summary and comment. 
 
Ukraine Confirms Gas Reductions 
-------------------------------- 
 
¶3.  (SBU) Gas transport experts from state-owned energy company 
Naftohaz Ukrainy on January 1 told us that significant gas 
reductions occurred at three gas metering and compressor stations at 
11:00am Kyiv time.  Deputy Prime Minister Hryhoriy Nemyria also told 
us that Gazprom had reduced gas supplies by an amount equal to what 
Ukraine imports from Russia on a daily basis.  Russia continued to 
allow 310 mcm of gas to transit Ukraine to the rest of Europe, the 
normal daily volume for other European destinations.  Gazprom Press 
Representative Sergei Kupriyanov on the afternoon of January 1 told 
reporters that all gas supplies earmarked for Ukraine had been cut. 
 
Ukraine Guarantees Supplies to Rest of Europe, for Now 
---------------------------- ------------------------- 
 
¶4.  (SBU) Despite Gazprom's cutoff to Ukraine, Yushchenko on January 
1 publicly pledged that Ukraine would continue to provide 
uninterrupted gas supplies to the rest Europe.  Gazprom sources told 
the media that it would need roughly 36 hours to determine if 
Ukraine is indeed allowing normal daily flows to exit its territory 
toward Central Europe and beyond.  Ukrainian Deputy Fuel and Energy 
Minister Serhiy Pavlusha told EconOff that Ukraine would be able to 
meet its gas transit commitments to other European customers for at 
least one week.  He added, however, that this would require 
additional "technical" gas to maintain Ukraine's gas compressor 
stations, which are needed to keep Ukraine's gas transit 
infrastructure operating.  DPM Nemyria confirmed the same 
information in a phone conversation with the Ambassador on January 
¶1. 
 
¶5.  (SBU) Nemyria also told the Ambassador that the cutoff was also 
disadvantageous for Gazprom because according to Nemyria Gazprom 
will run out of storage capacity for gas supplies that otherwise 
would have been shipped to Ukraine.  Press reports indicate that 
Gazprom on January 1 had diverted 25 mcm per day from pipelines that 
transit Ukraine to Belarusian pipelines.  Gazprom denied that the 
increase in gas shipments through Belarus was connected to the 
cutoff of supplies to Ukraine. 
 
Where Does the Gas Debt Stand? 
------------------------------ 
 
¶6.  (SBU) Naftohaz officials on December 30 claimed that Naftohaz 
had remitted $1.52 billion to gas intermediary RosUkrEnergo (RUE) 
for gas consumed in 2008.  Gazprom and Russian officials for months 
said that Naftohaz's debt was about $2 billion after Naftohaz paid 
down $1 billion of the debt last week.  Naftohaz said that, of the 
total debt, $450 million were late fees and penalties that Ukraine 
refused to pay, and that Naftohaz would take its case to 
international arbitration if necessary.  Ukrainian Presidential 
Advisor for Energy Security Bohdan Sokolovskiy told EconOff that 
Gazprom officials insisted that Naftohaz pay its entire debt.  He 
added, however, that gas negotiations between the two sides did not 
fail because of the dispute over gas debt. 
 
Gas Price, Transit Fee in Dispute 
--------------------------------- 
 
KYIV 00000001  002 OF 002 
 
 
 
¶7.  (SBU) President Yushchenko and PM Tymoshenko (who are often at 
political odds) on January 1 released a joint statement which 
outlined the remaining differences between the sides, at least from 
the Ukrainian point of view.  They acknowledged that Gazprom is 
asking for $250/tcm for 2009.  Ukraine is offering $201/tcm, up from 
$179.5/tcm in 2008.   They refer to the October 2, 2008, MOU 
announced by Tymoshenko and Russian PM Putin which foresees a 
three-year transition to central and western European prices. 
Because of the severe drop in oil prices, a price of $250/tcm would 
mean that Ukraine would already be paying roughly central European 
prices, they argue in their statement. 
 
¶8.  (SBU) In their statement, Yushchenko and Tymoshenko also 
acknowledged remaining differences in the transit price for 2009. 
Ukraine wants at least $2/tcm per 100 km, they wrote, whereas Russia 
wanted $1.7/tcm per 100 km, the rate for 2008.  Such a price would 
not allow Ukraine to maintain the gas transit system in a proper 
technical condition, they argued. 
 
¶9.  (SBU) Later on January 1, however, Naftohaz Chairman Oleh Dubyna 
held a press conference to announce that Naftohaz was ready to pay 
$235/tcm as long as Russia would accept a transit rate of $1.8/tcm 
per 100km. 
 
¶10.  (SBU) In their statement, Yushchenko and Tymoshenko reiterated 
that the October 2 MOU foresaw direct gas relations between Gazprom 
and Naftohaz.  They did not imply that Russia wanted to keep 
intermediaries, and nowhere in public statements on January 1 were 
RUE or other intermediaries mentioned. 
 
Negotiations to Continue? 
------------------------- 
 
¶11.  (SBU) Deputy Fuel and Energy Minister Pavlusha told us he had 
confirmation that gas negotiations would resume in Moscow on Jan. 5, 
if not sooner.  DPM Nemyria confirmed this to the Ambassador as 
well.  However, later on January 1 Naftohaz spokesman Valentin 
Zemlyansky said that a Naftohaz delegation may travel to Moscow that 
evening to resume gas talks with Gazprom officials.  Tymoshenko may 
also go to Moscow within the next few days, he said.  Alexei Gudyma, 
Tymoshenko advisor for energy issues, said that the PM will join 
efforts -- maybe as early as January 2 -- to resolve the gas dispute 
and that an agreement will be reached on or before Orthodox 
Christmas on January 7. 
 
Ukraine Urges USG to Back Ukraine/EU/Russia Negotiations 
-------------------------- ----------------------------- 
 
¶12. (SBU) In a letter to President Bush, Yushchenko asked the USG to 
support trilateral negotiations with participation by Ukraine, the 
EU and Russia to reach an agreement on the gas issue.  The GOU also 
suggested such a trilateral approach to the negotiations in a 
dipnote to the Russian government that the GOU shared with us. 
 
Contingency Plans 
----------------- 
 
¶13. (SBU) The President and Prime Minister also stated that the gas 
cutoff would not affect the Ukrainian population, as Ukraine has 
sufficient gas in storage to cover domestic demand for "an extended 
period". They also said gas transit through Ukraine to other 
European countries was secured for now.  Separately, Nemyria told 
the Ambassador that the Ukrainians have begun to implement 
contingency plans to move industry to mazut (heavy fuel oil) and to 
begin to draw gas reserves. Tymoshenko called EU Commissioner 
Barroso again on December 31 to reassure him that gas will continue 
to flow to Europe. Nemyria said Ukraine could maintain gas supplies 
to the rest of Europe for at least a week. 
 
TAYLOR