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


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SUMMARY
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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.

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UKRAINIANS TO "DETACH" SUPPLEMENTAL DECLARATION
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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not "withdrawn" its declaration, but had agreed to keep it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.

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DELIVERIES TO RESUME VERY SHORTLY
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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.

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INDEPENDENT OF BILATERAL RUSSIA-UKRAINE GAS TRADE
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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).

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COMMENT
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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