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. Last Updated: 07/27/2016

Kiev Caught in Spiraling Gas Dispute

bloombergRussia and Turkmenistan claim that Ukraine owes them hundreds of millions of dollars for natural gas shipments.
Naftogaz Ukrainy, Ukraine's state-owned natural gas company, acknowledged Wednesday that it owed Turkmenistan, its largest supplier of natural gas, for deliveries of the fuel.

Ukraine is caught in a spiraling dispute with both Turkmenistan and Russia over payments for gas.

Earlier this week, Turkmen President Saparmurat Niyazov said that Ukraine owed about $562 million for Turkmen gas from 2004 and the first five months in 2005, news reports said. Niyazov called Ukrainian payments -- half in cash and half in goods -- an "unbelievable scam."

Dmitry Marunich, a spokesman for Naftogaz, confirmed that Ukraine owes payments for the supplies.

He declined to comment on the amount of the debt until a company delegation returns on Friday from a visit to Turkmenistan and Libya.

Russia's Gazprom, which ships about 85 percent of its gas to Europe across Ukraine, earlier this month accused Ukraine of hoarding some of the company's gas and demanded that the country pay for the fuel. The gas giant said it had 7.8 billion cubic meters of the fuel in underground storage tanks in Ukraine.

Russia's Industry and Energy Minister Viktor Khristenko said on Wednesday that the issue remained a tough one to negotiate but that one solution could be to use Ukraine's gas debt to Russia as payment for transit.

Gazprom, which supplies a quarter of Western Europe's gas, will deliver 23 bcm of Russian gas to Ukraine this year as payment for acting as a transit point for supplies moving West. Naftogaz may buy 5 bcm of extra gas supplies this year.

Ukraine has not supplied goods owed to Turkmenistan, Niyazov said earlier this week after a telephone conversation with Ukrainian President Viktor Yushchenko.

Ukraine agreed to supply goods worth more than $600 million for the earlier gas deliveries, the Turkmen statement said, citing the Ukrainian president.

"The agreement was reached to maintain the 2004 price for goods for this year's payments, despite the fact that metal and pipe prices rose," Marunich said, citing Naftogaz chief executive Oleksiy Ivchenko, who was in talks with Niyazov.

Ukraine, which imports about 80 percent of its gas needs, plans to buy 37 bcm of Turkmen gas this year. The company pays for half of its gas in cash and the rest with supplies of metal, steel pipes, gas pumping stations and machinery to Turkmenistan.

Last year Ashgabat succeeded in getting Ukraine's last government, under Prime Minister Viktor Yanukovych, to agree to pay 30 percent more for gas, or $58 per 1,000 cubic meters. Ukraine, which has virtually no gas production of its own, had no alternative.

The new government of Prime Minister Yulia Tymoshenko has tried to persuade Niyazov to renegotiate the price, but failed. Now the Turkmen leader is demanding Ukraine switch to full cash payments next year.

Gazprom, which also buys gas from Turkmenistan, switched to complete cash payments as of May after a similar price feud with Ashgabat.

Turkmenistan completely halted its supplies to Russia in the first four months of the year. Only after a deal was struck with Gazprom CEO Alexei Miller were supplies restored as of May 1, a Gazprom spokesman said Wednesday.

The Turkmen national gas company Turkmengaz entered an agreement with Gazprom to begin supplying 5 bcm in 2004. The amount is to increase gradually to 7 bcm this year and 10 bcm in 2006, eventually reaching between 70 bcm and 80 bcm by 2009.

(Bloomberg, MT)