VZCZCXRO9036
PP RUEHDBU RUEHSL
DE RUEHKV #1518/01 2471507
ZNY CCCCC ZZH
P 041507Z SEP 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 8361
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZG/NATO EU COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 KYIV 001518 
 
SIPDIS 
 
DEPT FOR S/EEE, EUR/UMB, EB/ESC/IEC 
DOE PASS TO JELKIND, LEKIMOFF, CCALIENDO, CMCGREGOR 
NSC PASS TO KKVIEN 
 
E.O. 12958: DECL: 09/03/2019 
TAGS: ECON ENRG EREL PGOV PREL PINR UA
SUBJECT: UKRAINE: TYMOSHENKO PROMISES A "GAS CHRISTMAS" 
 
REF: A. MOSCOW 2277 
     ¶B. KYIV 1274 
 
Classified By: ECON Counselor Edward Kaska for reasons 1.4 (b,d) 
 
¶1. (SBU) Following talks with Russian Prime Minister Putin in 
Poland on September 1 (Ref A), Prime Minister Tymoshenko 
stated that Ukraine would not experience a gas crisis this 
January. Tymoshenko also stated that the gas transit fee 
charged to Russia's Gazprom would increase in 2010, 
contradicting claims in the Ukrainian and Russian press that 
Ukraine had agreed to lower transit fees in exchange for 
Russia's pledge to waive penalties for lower gas purchases. 
One of Tymoshenko,s advisors also intimated that Russia 
agreed to lower gas volumes in exchange for a promise to 
grant Russia's TVEL the contract to build a nuclear fuel 
assembly plant in Ukraine.  President Yushchenko charged that 
Russia could still decide to levy fines against Ukraine at 
any point without a written amendment to the January 
contract.  If carried out, higher gas transit prices and 
lower volumes would give Naftohaz some relief in 2010 and 
likely strengthen Tymoshenko's campaign efforts. 
 
¶2. (SBU) At a Cabinet of Ministers meeting on September 3, 
Prime Minister Tymoshenko stated that "Both sides -- Russia 
and Ukraine -- agreed that for (Orthodox) Christmas there 
will not be the traditional stunts such as gas crises." 
Tymoshenko previously stated that Russia had agreed to allow 
Ukraine to take only as much gas as it needs, given the 
severe economic downturn.  The Prime Minister has said that 
Ukraine will need to purchase between 27 and 33 billion cubic 
meters (bcm) of gas from Russia in 2010.  The January 2009 
gas supply contract calls for Ukraine to purchase 52 bcm in 
2010, but allows Ukraine, under the take-or-pay provision, to 
purchase only 80 percent, or 41.6 bcm.  The contract also 
allows Ukraine to negotiate reduced annual volumes but states 
negotiations should begin by July 1 of the current year and 
limits any reduction in volumes to not more than 20 percent. 
Taking both these provisions into account, the contract does, 
in theory, allow Ukraine to take only 33.3 bcm in 2010. 
 
¶3. (SBU) Tymoshenko also refuted allegations made by unnamed 
Russian and Ukrainian government sources that transit fees 
for 2010 would remain at the 2009 level.  Tymoshenko 
estimated that under the terms of the existing contract 2010 
transit fees would rise 65 to 70 percent from $1.70 per 
thousand cubic meters (tcm) per 100 kilometers (km) to 
$2.80-2.89/tcm/100 km.  Tymoshenko's estimates are slightly 
more optimistic than state oil and gas company Naftohaz's, 
which previously stated that 2010 transit fees would increase 
by 57 to 60 percent from 2009 levels to $2.67-2.72 per 
tcm/100 km.  The spokesman for Russia's Gazprom stated on 
September 3 that 2010 transit fees would range from 
$2.56-2.70 per tcm/100 km. 
 
¶4. (C) Rada Deputy and energy advisor to Tymoshenko Aleksandr 
Gudyma intimated that Russia's agreement to lower gas volumes 
came in exchange for a promise to grant Russia's TVEL the 
contract to build a nuclear fuel assembly plant in Ukraine. 
Gudyma was quoted as saying that Ukraine was considering 
proposals from both TVEL and America's Westinghouse, and 
while a decision had not yet been made, he expected the 
contract to be awarded to TVEL in the nearest future.  At a 
meeting with Westinghouse vice presidents in July, Prime 
Minister Tymoshenko stated that Ukraine could not take a 
decision now and explained that Russia could raise gas and 
nuclear fuel prices for Ukraine if Westinghouse were awarded 
the contract. Tymoshenko recognized Westinghouse's efforts to 
bolster Ukraine's energy diversification when she met with 
Vice President Biden in July (Ref B). 
 
¶5. (C) President Yushchenko welcomed the announcement that 
Russia would waive penalties against Ukraine for taking lower 
gas volumes but warned that without a formal, written 
agreement, Russia could still levy over $5 billion in fines 
against Ukraine for under purchasing gas in 2009. 
Yushchenko's International Energy Security Representative, 
Bogdan Sokolovsky, characterized the Tymoshenko-Putin 
agreement as a "PR step" for Tymoshenko.  He told us that 
both Naftohaz and Gazprom management were prepared to make 
changes in the January 2009 contract to reflect the agreement 
reached between Tymoshenko and Putin but had not been 
instructed by their respective governments to do so. 
 
KYIV 00001518  002 OF 002 
 
 
Sokolovsky also charged that Tymoshenko was thinking 
tactically about the presidential elections and was not 
concerned if she happened to undermine Ukraine's long-term 
energy security in the process. 
 
¶6. (SBU) Comment.  Politicians will continue to point 
fingers, but Tymoshenko appears to come out on top, for now, 
with this agreement.  However, Naftohaz will still face 
financial problems next year.  If reports of the 
Putin-Tymoshenko talks are accurate, Russia's decision to let 
Ukraine purchase only what it needs in gas will ease 
Naftohaz's growing financial burden and could bolster 
Tymoshenko's presidential campaign by showing she was able to 
avoid conflict with Russia.  Nonetheless, the contracted 
price of gas under the January 2009 agreement jumps by 20 
percent at the beginning of 2010, meaning Naftohaz will still 
have difficulty making its gas payments - even with the lower 
volumes to be purchased.  But that will only become clear to 
most after the January presidential elections.  For his part, 
President Yushchenko will likely continue to criticize 
Tymoshenko for the 2009 contract, while Party of Regions' 
Viktor Yanukovych's argument that he would be able to secure 
more favorable terms for Ukraine's gas purchases might seem 
less convincing. 
PETTIT