GAZPROM OFFICIAL SEES NO END SOON TO NEGOTIATIONS

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 000976

SIPDIS

SIPDIS

DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT
EUR/CARC, SCA (GALLAGHER, SUMAR)
DOE FOR FREDRIKSEN, HEGBORG, EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER

E.O. 12958: DECL: 03/14/2018
TAGS: EPET ENRG ECON PREL RS
SUBJECT: GAZPROM OFFICIAL SEES NO END SOON TO NEGOTIATIONS
WITH UKRAINE

REF: A. KYIV 607


B. MOSCOW 715

C. MOSCOW 394

Classified By: CDA Daniel A. Russell for Reasons 1.4 (b/d)

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SUMMARY
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1. (C) Gazprom's International Affairs Director Ivan Zolotov
believes an agreement with Ukraine on 2009 gas prices is
unlikely before December and complained about its refusal to
agree to the long-term contract Gazprom seeks. He claimed
Gazprom is flexible on all provisions, including the
elimination of intermediaries, but that Ukraine must accept a
rise to "market prices" by 2011. He did not expect a
long-term agreement on the gas trade "until the Ukrainians
sort out their internal politics." Zolotov admitted that
Gazprom is as dependent on Ukraine for transit as Ukraine is
on Russia for gas. End summary.

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"NO HIDDEN AGENDA", BUT MAYBE FREE LUNCH
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2. (C) Insisting that Gazprom has "no hidden agenda," Ivan
Zolotov, the company's international affairs director, told
us on April 7th that gas trade negotiations with Ukraine
continue with no end in sight. Ukrainian negotiators are
"ever-present" at Gazprom headquarters, according to Zolotov,
who semi-jokingly objected to the Ukrainians' growing
cafeteria tab, which he signs. Zolotov said the agreement on
2008 prices and terms should prevent any further disruptions
to supplies this year, but predicted that an agreement on
2009 prices and terms is unlikely before December. He
complained that Ukraine keeps trying to renegotiate the 2008
agreement signed in March (reftels) and that Gazprom is
worried about Ukraine's ability to adhere to its agreements.
Gazprom Deputy CEO Aleksandr Medvedev was recently quoted in
the press expressing the same concern, and our Gazprom
contacts have regularly complained that Ukraine is an
unreliable commercial partner.


3. (C) Zolotov repeated his mantra that for Gazprom, it's all
about the bottom line -- a rise to market prices for gas by
2011, prompt payment for deliveries, and, preferably, a
long-term contract "like we have with nearly all 28 countries
to which we sell gas." Zolotov claimed Gazprom was flexible
on virtually all other aspects, including the removal of
intermediary RosUkrEnergo (RUE). He said the hold-up on 2009
and long-term contracts was caused by Ukrainian politics,
with Prime Minister Tymoshenko and President Yushchenko
unable to harmonize their positions, and Gazprom and NaftoHaz
caught in the middle. "We told Tymoshenko during her
six-hour visit to Gazprom that we were open to suggestions;
come up with a plan," Zolotov said.

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"SELL US SOMETHING"
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4. (C) Despite his claim that Gazprom has no hidden agenda,
Zolotov may have inadvertently revealed one. He said that in
negotiations prior to the February 12th Putin-Yushchenko
agreement on the gas trade (ref C),Ukraine's response to
Gazprom's demands for market prices was simply that it cannot
afford it. Gazprom negotiators retorted "then sell us
something," Zolotov added, implying that Gazprom's entry into
the domestic Ukrainian market could have paved the way for
continued low prices. He repeated Gazprom's company line
that it cannot continue to subsidize the Ukrainian economy
just because Ukraine is a transit country.

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MUTUAL DEPENDENCE
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5. (C) Zolotov conceded that Ukraine's position as the
transit country for 80% of Gazprom's sales to Europe provides
some leverage in negotiations and allows some leeway on

MOSCOW 00000976 002 OF 002


transit tariffs. He said Gazprom is amenable to paying a
"reasonable" tariff for transit and to helping maintain the
pipeline system. He complained, however, that Ukraine wants
to charge more than 10 times the Western European rate for
transit tariffs.


6. (C) In conclusion, Zolotov said the two sides are "back to
the drawing board" on a long-term agreement, but that both
understand the relationship is one of mutual dependency. He
said the gas trade is likely to continue on the basis of
one-year agreements until Ukraine's political leadership is
able to speak with one voice.
RUSSELL