RUSSIA-EU GAS UPDATE -- UKRAINE TO "DETACH"

UNCLAS SECTION 01 OF 02 MOSCOW 000036 C O R R E C T E D C O P Y (SENSITIVE ADDED) SENSITIVE SIPDIS DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT EUR/CARC, SCA (GALLAGHER, SUMAR) DOE FOR HEGBURG, EKIMOFF DOC FOR JBROUGHER E.O. 12958: N/A TAGS: EPET ENRG ECON PREL RS UK SUBJECT: RUSSIA-EU GAS UPDATE -- UKRAINE TO "DETACH" DECLARATION, AGREEMENT TO BE SIGNED AGAIN, GAS TO BEGIN FLOWING "SHORTLY" REF: A. MOSCOW 28 ¶B. KYIV 40 ¶C. BRUSSELS 31 ¶D. 07 MOSCOW 3395 MOSCOW 00000036 001.2 OF 002 -------------- SUMMARY -------------- ¶1. (SBU) The EC Delegation in Moscow and Gazprom told us independently on January 12 that they expect a new trilateral agreement (refs A, B, C),without the supplemental "declaration" attached by Ukraine, to be signed as early as the end of the day. Once signed and once monitors are in place, Russia would immediately resume gas deliveries to the EU. Customers could begin receiving gas as early as approximately 30 hours after Gazprom turns on the taps. The agreement only applies to the Russia-EU gas situation; Russia and Ukraine will need to work out a separate bilateral deal on gas supplies for the Ukrainian domestic system. End summary. -------------- -- UKRAINIANS TO "DETACH" SUPPLEMENTAL DECLARATION -------------- -- ¶2. (SBU) European Commission Delegation Energy Officer Ismo Koskinen told us January 12 that following late night January 11 discussions between EC head Barrosso and Ukrainian PM Tymoshenko, Ukraine had agreed to "detach" the supplemental declaration it had added to the trilateral agreement on the monitoring of gas deliveries from Russia to the EU (refs A, B, C). Koskinen said the Ukrainian supplemental declaration was "unacceptable" to the Russians and a new agreement now needed to be signed by all three parties, with the document needing to be flown to all three capitals for original signatures. Koskinen said that monitors were already largely in place at 18 points along the gas supply route as of the morning of January 12 and could begin their duties as soon as the document is signed, which he hoped would be by the end of the day on January 12. According to Koskinen, Ukraine had not "withdrawn" its declaration, but had agreed to keep it separate from the signed agreement. He suggested this nuance should be acceptable to the Russians as the Ukrainian declaration would be independent of the actual agreement. ¶3. (SBU) Gazprom Director of Foreign Relations, Ivan Zolotov, told us January 12 that Russia had found Ukraine's attached declaration to the agreement "totally unacceptable." He said that through the declaration Ukraine wanted to break with four decades of precedent and charge additional transit fees for so-called "technical gas" -- gas needed to maintain system pressure. Calling the Ukrainians "totally unreliable partners," he claimed that Ukraine also sought in the declaration to "continue stealing" as much as 21 million cubic meters of gas per day (over 7 billion cubic meters per year),but he didn't clarify how. According to Zolotov, Ukraine also included in its declaration a time limit of one month for the tri-lateral monitoring group, in contrast to the agreed text, which he said calls for monitors "as long as required." Zolotov said he had only read in the press about Ukraine's agreement to exclude its declaration, but that Gazprom will only believe it when it sees Ukrainian signatures on the new document. -------------- DELIVERIES TO RESUME VERY SHORTLY -------------- ¶4. (SBU) Koskinen said that once monitors are in place and the document signed, gas deliveries from Russia to the EU through Ukraine -- currently completely halted -- would resume immediately. He noted the EU's understanding that it could take approximately 10-12 hours for enough pressure to build up on the Russian side and another 36 hours for gas to transit to Ukraine. Thus, it could take up to 50 hours for gas to reach all EU customers, once Gazprom resumes supplies. He said it could take less time if Russia takes steps to fill pipelines prior to the conclusion of the placement of monitors and signing of the agreement, or if Ukraine adds gas MOSCOW 00000036 002.2 OF 002 from its storage facilities to help speed the build up of gas in the pipeline system. According to Koskinen, the gas supply situation is currently "critical" in Moldova and Bulgaria, and could become critical in various other Eastern European countries as early as the week of January 19. He said some countries are coping with the gas shortage by rationing gas and by relying on storage and supplies from alternative routes. ¶5. (SBU) Zolotov said that once Russia sees Ukraine's signature on the agreed-upon document, "without any tricks," Gazprom would resume gas deliveries to the EU immediately. He said Gazprom CEO Alexei Miller is in Brussels and that Gazprom expects the document to be signed by all three parties "within hours." Zolotov said Gazprom's technical experts had told him it would only take 6-8 hours for sufficient pressure to build up on the Russian side and that EU customers would begin receiving gas 24 to 36 hours after that. According to Zolotov, Gazprom is eager to resume deliveries as quickly as possible as the company has been forced to shut down 11 gas wells and is losing $100 million per day in gas sales. -------------- --- INDEPENDENT OF BILATERAL RUSSIA-UKRAINE GAS TRADE -------------- --- ¶6. (SBU) Both Zolotov and Koskinen said the tri-lateral Russia-EU-Ukraine agreement and monitoring group only applied to the Russia-EU gas trade and is completely independent of the on-going dispute and negotiations on the Russia-Ukraine gas trade. Zolotov said the Russia-EU gas trade is the priority and that once the situation is resolved, Gazprom would continue discussions with Ukraine on bilateral gas trade issues (ref D). -------------- COMMENT -------------- ¶7. (SBU) Russian officials are aware that this dispute has cost them dearly in terms of both credibility and image, but we are hesitant to declare the impasse at an end until the gas actually starts flowing again. With $100 million per day losses, Gazprom itself would also seem highly motivated to prevent future problems with its best customers, but the company is clearly not making all the decisions in this standoff. BEYRLE