GAS DISPUTE WITH UKRAINE RESOLVED, FOR NOW

C O N F I D E N T I A L MOSCOW 000637 SIPDIS SIPDIS DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT EUR/CARC, SCA (GALLAGHER, SUMAR) DOE FOR HARBERT, HEGBORG, EKIMOFF DOC FOR 4231/IEP/EUR/JBROUGHER E.O. 12958: DECL: 03/06/2018 TAGS: EPET ENRG ECON PREL RS SUBJECT: GAS DISPUTE WITH UKRAINE RESOLVED, FOR NOW REF: A. KYIV 491 ¶B. MOSCOW 623 ¶C. 07 MOSCOW 5717 Classified By: Ambassador William J. Burns for Reasons 1.4 (b/d) -------------- SUMMARY -------------- ¶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