GAZPROM SAYS PUTIN-TYMOSHENKO "AGREEMENT" JUST

UNCLAS MOSCOW 002277 SIPDIS SENSITIVE DEPT FOR EUR/RUS, EEB/ESC/IEC GALLOGLY AND WRIGHT, S/EEE MORNINGSTAR DOE FOR HEGBURG, EKIMOFF DOC FOR JBROUGHER NSC FOR MMCFAUL, JELLISON E.O. 12958: N/A TAGS: EPET ENRG ECON PREL RS SUBJECT: GAZPROM SAYS PUTIN-TYMOSHENKO "AGREEMENT" JUST POLITICAL STATEMENT REF: A. MOSCOW 971 ¶B. ASHGABAT 462 Sensitive but unclassified. Please protect accordingly. Not for internet distribution. -------------- NO "AGREEMENT," JUST A STATEMENT -------------- ¶1. (SBU) According to press reports quoting unnamed sources, PM Putin and Ukrainian PM Tymoshenko reached an agreement in their meeting in Poland that Russia would allow Ukraine to buy less gas than it has contracted in exchange for lower transit fees and contracts for Russian nuclear energy companies. Official statements from the GOR, however, were far more vague, with Putin's website only posting Tymoshenko's public statement that "we have resolved all the problems on the issue of gas supplies," along with Putin's even more general statements regarding the importance of the constructive bilateral relationship. ¶2. (SBU) Gazprom's Director of Foreign Relations, Ivan Zolotov, told us September 2 that the reported "agreement" between PM Putin and Ukrainian PM Tymoshenko is "just a verbal political-level statement of support" for a decision that Gazprom had already made. He said there was no formal agreement between the two leaders. Zolotov said Gazprom had already decided long ago that it would not enforce the take-or-pay clause in the January contract with Ukraine's NaftoHaz. He said that although Ukraine has taken far less gas than the volumes for which it had contracted, Gazprom would not impose multi-billion dollar fines to which it is legally entitled. "Given the current economic situation in Ukraine," he explained, "we made this decision to help avert another crisis." As for press reports of lower future transit fees for Gazprom, Zolotov simply said "the issues are, of course, interconnected; there is always give and take in negotiations." He added, however, that this issue is still under negotiation and that the two sides have not yet reached a firm agreement. ¶3. (SBU) Zolotov noted Gazprom's concern that allowing Ukraine to renege on its commitments could threaten Gazprom's take-or-pay contracts with its other customers, with whom, he added, the company is also "in negotiations." He admitted, however, that renegotiating with Ukraine helps Gazprom in its discussions with Turkmenistan. In response to a lack of demand and high prices for Turkmen gas, Gazprom stopped taking gas deliveries from Turkmenistan in April following (or some say causing) an explosion along the pipeline route linking the two countries (reftels). -------------- COMMENT -------------- ¶4. (SBU) Although Gazprom and GOR officials have sometimes referred to the idea that Ukraine would have to pay fines for breach of its take-or-pay contracts, they have also said privately and publicly that they would give Ukraine a pass. Given the collapse of demand for gas as a result of economic crisis and the competition from LNG and other sources, Gazprom, as Zolotov admitted, will have to demonstrate flexibility with its contracts with many of its customers. In this instance, however, the political backdrop of Ukrainian elections is perhaps even more important than the gas trade itself. Avoiding a new gas war with Ukraine and demonstrating goodwill should help shore up Russia's standing and influence among the Ukrainian population. The "agreement" on gas, even if only a "political statement," coupled with the agreeable exchange between Putin and Tymoshenko (in contrast to the recent vitriol between the Presidents),could also appear as a signal of Moscow's tacit support for Tymoshenko. End comment. Beyrle