Identifier
Created
Classification
Origin
09KYIV196
2009-01-29 13:19:00
CONFIDENTIAL
Embassy Kyiv
Cable title:
PARTY OF REGIONS REACTS TO GAS DEAL
how-toVZCZCXYZ0000 PP RUEHWEB DE RUEHKV #0196/01 0291319 ZNY CCCCC ZZH P 291319Z JAN 09 FM AMEMBASSY KYIV TO RUEHC/SECSTATE WASHDC PRIORITY 7158 INFO RUCNCIS/CIS COLLECTIVE RUEHZG/NATO EU COLLECTIVE
C O N F I D E N T I A L KYIV 000196
SIPDIS
E.O. 12958: DECL: 02/03/2019
TAGS: EPET PGOV PREL UP
SUBJECT: PARTY OF REGIONS REACTS TO GAS DEAL
Classified By: Ambassador William Taylor for reasons 1.4 (b,d).
SUMMARY
-------
C O N F I D E N T I A L KYIV 000196
SIPDIS
E.O. 12958: DECL: 02/03/2019
TAGS: EPET PGOV PREL UP
SUBJECT: PARTY OF REGIONS REACTS TO GAS DEAL
Classified By: Ambassador William Taylor for reasons 1.4 (b,d).
SUMMARY
--------------
1. (C) Party of Regions shadow Fuel and Energy Minister Yuriy
Boyko publicly called the recent gas deal between Ukraine and
Russia "a betrayal of national interests." Regions MPs
believe the economics of the deal favor Russia and will be a
blow to Ukrainian industry. They dismissed the removal of
shadowy gas intermediary RosUkrEnergo (RUE) as a public
relations move designed to help Prime Minister Tymoshenko in
the upcoming presidential election. The exclusion of RUE
from the deal may diminish the influence of RUE head Firtash
as a financier of Regions, helping some factions in the party
which were at odds with him, and diminishing RUE's influence
on decision making. END SUMMARY.
"SHAMEFUL DEFEAT"
--------------
2. (SBU) The Party of Regions publicly condemned Prime
Minister Tymoshenko's January 19 gas deal with Russia.
Regions shadow Fuel and Energy Minister Yuriy Boyko called
the deal "a betrayal of national interests." In an official
announcement, the party said that Ukraine suffered a
"shameful defeat" in gas negotiations with Russia and that
the new ten-year contract would bring Ukraine "poverty,
starvation, cold, and lost hopes." The statement also
alleges that Prime Minister Tymoshenko will benefit
personally under the new contract.
ECONOMICS DON'T MAKE SENSE
--------------
3. (C) Party of Regions MP and shadow Economics Minister
Irina Akimova outlined to us Regions' three major criticisms
of the gas deal. First, the "European" 450 USD price per
thousand cubic meters (tcm),from which a twenty percent
discount for 2009 is calculated, was not based on true
current European gas prices. She claimed that if you remove
transit costs paid by Western European countries, the true
price for gas is closer to 320 to 350 USD per tcm.
4. (C) Second, Prime Minister Tymoshenko failed to raise the
transit price for Russian gas exported across Ukraine until
2010. If Ukraine is going to pay European gas prices with a
twenty percent discount for 2009, then Gazprom should pay
European transit prices calculated with a similar discount.
Third, the payment conditions for Ukraine under the new
contract are very unfavorable. Akimova claimed that if at
any time Ukraine pays Gazprom late, then the contract shifts
to 100 percent prepayment prior to gas delivery. She said
that no other Gazprom customer has such draconian payment
requirements and it was inevitable that Ukraine would be
forced into prepayment.
5. (C) Regions MP and deputy faction leader Volodomyr
Makeienko told us that sharply higher gas prices will be a
serious blow to industry across Ukraine, especially the gas
intensive metals and chemical sectors, who are already
grappling with sharply lower demand and falling world prices.
He said that because of higher gas prices, a number of
enterprises will be closed that might otherwise have
weathered the current economic downturn.
RUE REMOVAL IS A HOLLOW VICTORY
--------------
6. (C) Akimova dismissed the removal of shadowy gas
intermediary RosUkrEnergo (RUE) as more a public relations
stunt than a blow to corruption in Ukraine. Now Tymoshenko
can claim that she is serious about fighting corruption
without truly addressing its root causes. Akimova said that
Regions was more interested in the price of gas for industry
and the population than how it was delivered. Akimova said
that given Ukraine's endemic corruption it is foolish to
think that removing RUE will have a major impact on
corruption in the energy sphere. She said that major steps
need to be taken to reduce corruption in Ukraine, but if
removing RUE meant an almost doubling of the gas price for
Ukraine, then it came at too high a price.
ONLY EUROPE WON IN THE GAS WAR
--------------
7. (C) MP Makeienko told us that the gas cutoff to Europe
will end up costing Ukraine more than Russia. He said that
both countries unprofessional actions reinforced media
stereotypes about instability and corruption in Ukraine and
Russia. However, Ukraine will struggle more than Russia to
over come investor concerns in the near-term, because it
lacks the size and important natural resources that make
Russia impossible to ignore.
8. (C) Russia and Ukraine both lost the gas war, according to
Akimova. She said that Europe shrugged off the 2006 gas
dispute as an anomaly, but now they know that Russia is not a
reliable supplier and Ukraine is not a reliable transit
state. Akimova said her contacts in Europe did not believe
that the current ten-year contract would last and that repeat
gas cutoffs were inevitable. She said that both Ukraine and
Russia acted irrationally and let emotions stand in the way
of business.
9. (C) Akimova said that in the long-term only Europe wins
from the gas war. There will be a turn away from reliance on
Russian gas pipelines and a renewed effort to build liquefied
natural gas terminals. Akimova speculated that alternative
pipeline projects from the Caspian bypassing both Russia and
Ukraine, or from North Africa would also gain new interest.
Finally, the gas shutoff strengthened European supporters of
renewable and nuclear energy.
FIRTASH'S INFLUENCE IN THE PARTY MAY WANE
--------------
10. (C) Regions MP Nestor Shufrych, personally close to
Tymoshenko, welcomed RUE's exclusion from the most recent gas
agreement and told us that without revenue from RUE,
Ukrainian businessman Dmitro Firtash's influence in the Party
of Regions would fade. Makeienko, who describes himself as a
part of former Prime Minister and party head Viktor
Yanukovych's faction within Regions, said that Firtash had
alienated many Regions MPs as he tried to buy their loyalty.
He said that Firtash's influence is an irritant in the party
because Firtash's interests often conflict with the more
traditional business oriented faction under Ukrainian
oligarch Rinat Akhmetov. Akimova, the former head of
Akhmetov's think-tank, the Bureau for Economic and Social
Technologies, said that she would welcome Firtash's
marginalization within the party. She said Firtash's
long-term commitment to the party is unclear and that Regions
did not need people who allied with the party just for
tactical advantages.
COMMENT
--------------
11. (C) Regions is not a monolith. The blow to Firtash and
RUE is clearly welcome to some in the party. Others, such as
Yanukovych, will need to find new sponsorship if Firtash
pulls back financial support. On one thing they can all
agree: the shift to market pricing for gas will put further
pressure on already beleaguered heavy industry in Regions'
key constituencies in Eastern and Southern Ukraine.
TAYLOR
SIPDIS
E.O. 12958: DECL: 02/03/2019
TAGS: EPET PGOV PREL UP
SUBJECT: PARTY OF REGIONS REACTS TO GAS DEAL
Classified By: Ambassador William Taylor for reasons 1.4 (b,d).
SUMMARY
--------------
1. (C) Party of Regions shadow Fuel and Energy Minister Yuriy
Boyko publicly called the recent gas deal between Ukraine and
Russia "a betrayal of national interests." Regions MPs
believe the economics of the deal favor Russia and will be a
blow to Ukrainian industry. They dismissed the removal of
shadowy gas intermediary RosUkrEnergo (RUE) as a public
relations move designed to help Prime Minister Tymoshenko in
the upcoming presidential election. The exclusion of RUE
from the deal may diminish the influence of RUE head Firtash
as a financier of Regions, helping some factions in the party
which were at odds with him, and diminishing RUE's influence
on decision making. END SUMMARY.
"SHAMEFUL DEFEAT"
--------------
2. (SBU) The Party of Regions publicly condemned Prime
Minister Tymoshenko's January 19 gas deal with Russia.
Regions shadow Fuel and Energy Minister Yuriy Boyko called
the deal "a betrayal of national interests." In an official
announcement, the party said that Ukraine suffered a
"shameful defeat" in gas negotiations with Russia and that
the new ten-year contract would bring Ukraine "poverty,
starvation, cold, and lost hopes." The statement also
alleges that Prime Minister Tymoshenko will benefit
personally under the new contract.
ECONOMICS DON'T MAKE SENSE
--------------
3. (C) Party of Regions MP and shadow Economics Minister
Irina Akimova outlined to us Regions' three major criticisms
of the gas deal. First, the "European" 450 USD price per
thousand cubic meters (tcm),from which a twenty percent
discount for 2009 is calculated, was not based on true
current European gas prices. She claimed that if you remove
transit costs paid by Western European countries, the true
price for gas is closer to 320 to 350 USD per tcm.
4. (C) Second, Prime Minister Tymoshenko failed to raise the
transit price for Russian gas exported across Ukraine until
2010. If Ukraine is going to pay European gas prices with a
twenty percent discount for 2009, then Gazprom should pay
European transit prices calculated with a similar discount.
Third, the payment conditions for Ukraine under the new
contract are very unfavorable. Akimova claimed that if at
any time Ukraine pays Gazprom late, then the contract shifts
to 100 percent prepayment prior to gas delivery. She said
that no other Gazprom customer has such draconian payment
requirements and it was inevitable that Ukraine would be
forced into prepayment.
5. (C) Regions MP and deputy faction leader Volodomyr
Makeienko told us that sharply higher gas prices will be a
serious blow to industry across Ukraine, especially the gas
intensive metals and chemical sectors, who are already
grappling with sharply lower demand and falling world prices.
He said that because of higher gas prices, a number of
enterprises will be closed that might otherwise have
weathered the current economic downturn.
RUE REMOVAL IS A HOLLOW VICTORY
--------------
6. (C) Akimova dismissed the removal of shadowy gas
intermediary RosUkrEnergo (RUE) as more a public relations
stunt than a blow to corruption in Ukraine. Now Tymoshenko
can claim that she is serious about fighting corruption
without truly addressing its root causes. Akimova said that
Regions was more interested in the price of gas for industry
and the population than how it was delivered. Akimova said
that given Ukraine's endemic corruption it is foolish to
think that removing RUE will have a major impact on
corruption in the energy sphere. She said that major steps
need to be taken to reduce corruption in Ukraine, but if
removing RUE meant an almost doubling of the gas price for
Ukraine, then it came at too high a price.
ONLY EUROPE WON IN THE GAS WAR
--------------
7. (C) MP Makeienko told us that the gas cutoff to Europe
will end up costing Ukraine more than Russia. He said that
both countries unprofessional actions reinforced media
stereotypes about instability and corruption in Ukraine and
Russia. However, Ukraine will struggle more than Russia to
over come investor concerns in the near-term, because it
lacks the size and important natural resources that make
Russia impossible to ignore.
8. (C) Russia and Ukraine both lost the gas war, according to
Akimova. She said that Europe shrugged off the 2006 gas
dispute as an anomaly, but now they know that Russia is not a
reliable supplier and Ukraine is not a reliable transit
state. Akimova said her contacts in Europe did not believe
that the current ten-year contract would last and that repeat
gas cutoffs were inevitable. She said that both Ukraine and
Russia acted irrationally and let emotions stand in the way
of business.
9. (C) Akimova said that in the long-term only Europe wins
from the gas war. There will be a turn away from reliance on
Russian gas pipelines and a renewed effort to build liquefied
natural gas terminals. Akimova speculated that alternative
pipeline projects from the Caspian bypassing both Russia and
Ukraine, or from North Africa would also gain new interest.
Finally, the gas shutoff strengthened European supporters of
renewable and nuclear energy.
FIRTASH'S INFLUENCE IN THE PARTY MAY WANE
--------------
10. (C) Regions MP Nestor Shufrych, personally close to
Tymoshenko, welcomed RUE's exclusion from the most recent gas
agreement and told us that without revenue from RUE,
Ukrainian businessman Dmitro Firtash's influence in the Party
of Regions would fade. Makeienko, who describes himself as a
part of former Prime Minister and party head Viktor
Yanukovych's faction within Regions, said that Firtash had
alienated many Regions MPs as he tried to buy their loyalty.
He said that Firtash's influence is an irritant in the party
because Firtash's interests often conflict with the more
traditional business oriented faction under Ukrainian
oligarch Rinat Akhmetov. Akimova, the former head of
Akhmetov's think-tank, the Bureau for Economic and Social
Technologies, said that she would welcome Firtash's
marginalization within the party. She said Firtash's
long-term commitment to the party is unclear and that Regions
did not need people who allied with the party just for
tactical advantages.
COMMENT
--------------
11. (C) Regions is not a monolith. The blow to Firtash and
RUE is clearly welcome to some in the party. Others, such as
Yanukovych, will need to find new sponsorship if Firtash
pulls back financial support. On one thing they can all
agree: the shift to market pricing for gas will put further
pressure on already beleaguered heavy industry in Regions'
key constituencies in Eastern and Southern Ukraine.
TAYLOR