Column : Strong-arm tactics

Font Size

Print

Feedback

Email

Discuss

: The Russia-Ukraine gas supply conflict that flared up last week paralysed heating systems in 20 European countries.

So calamitous was the situation that Romania and Slovakia declared states of national emergency, Bulgaria announced rationing of gas supplies, and affected publics huddled around bonfires and wooden stoves. These dramatic scenes were courtesy a raging pricing dispute between two state-run gas companies—Gazprom of Russia and Naftogaz of Ukraine. Gazprom was keen to make up for its recent world market-induced losses by driving a hard bargain with its Ukrainian counterpart. In late December, it demanded that Naftogaz shell out the international market price for gas ($450 per 1,000 cubic metres) in the New Year, up from the subsidised $179.50 of 2008.

Ukraine insisted on no more than $200 and a raise in transit fees, knowing well that Russia depended on it as the conduit for 80% of its gas exports to the rest of Europe. Subsidiary complaints over Naftogaz’s non-payment of old debts and fines for late payments were also lumped up with the core pricing issue. Russia added to this list the allegation that Ukraine was diverting some of the transiting gas for its own domestic use, a ploy to pit the blame squarely on the latter in the eyes of other European customers. The heat-starved EU was quick to intervene and broker negotiations between the two parties.

When a deal was being attempted late last week, it smacked of déjà vu. In January 2006, Russia had terminated gas supply to Ukraine for three days unless it paid $230 per 1,000 cubic metres instead of the $50 of yore. Intense negotiations led to a modus vivendi, with Ukraine agreeing to pay $95. As on that occasion, the settlement of the latest standoff looks like it is taking a middle path, with Russia not securing its maximal demands but forcing Ukraine to go above its previous upper ceiling.