GAS DISPUTE WITH UKRAINE RESOLVED, FOR NOW

1. (C) Gazprom restored full gas shipments to Ukraine March 6
in the wake of an agreement brokered by Presidents Putin and
Yushchenko. However, all sides to the dispute as well as
industry watchers believe that a long-term solution will
prove elusive and more disputes may follow.



--------------------------


GAS FLOWS RESUME


--------------------------





2. (SBU) Gazprom announced March 5 that CEO Alexey Miller and
NaftoHaz Ukrainy Chairman Dubyina had reached "an agreement
by telephone" solving the gas "crisis situation" (refs A and
B). Miller and Dubyina reached agreement following a
telephone call between Presidents Putin and Yushchenko. The
Gazprom announcement notes that NaftoHaz will pay for 2008
gas deliveries, that gas flows to Ukraine have been restored,
and that the transit of Russian gas to EU consumers remained
unaffected. Press reports revealed few other details.



3. (C) Ukrainian Embassy First Secretary Yaroslav Dubovich
told us March 6 that President Yushchenko has committed
Ukraine to paying all debts and that all debts will be paid.
He said he had no details of the agreement but noted that a
joint Gazprom-NaftoHaz statement was expected to be released
soon that would provide greater clarity.



4. (C) Gazprom International Affairs Director Ivan Zolotov
told us March 6 that Gazprom has received a "satisfactory
promise of prompt payment of all debts," which he calculated
as $600 million plus accrued arrears since the dispute began.
He said NaftoHaz had also agreed to a "speedy" conclusion on
the 2008 price contracts. Zolotov said the price and tariff
agreements were concluded in December (ref C), but contracts
have yet to be signed.



--------------------------


BUT WIDESPREAD EXPECTATION OF FUTURE DISPUTES


--------------------------





5. (C) Asked whether this was the end of the dispute for this
year, Dubovich responded that "it might be just the
beginning." Press reports and the analysts with whom we've
spoken seem to agree with Dubovich's assessment. Most
commentators here believe the key unresolved issue is how
deeply Gazprom will succeed in penetrating the Ukrainian
market. This would imply that the most important
negotiation, as we have suspected, is the one going on behind
closed doors over the restructuring of the intermediaries in
the Russia-Ukraine gas trade.



6. (C) Zoltov said that a NaftoHaz team was expected soon in
Moscow to continue the negotiations. He reiterated (ref B)
that Gazprom is open to "any offers" for a long-term
solution, but needs assurances of payments. Zolotov closed
by expressing skepticism about NaftoHaz's promises to pay and
sign contracts.
BURNS