EurasiaNet Business & Economics - Ukraine, Turkmenistan Probe Gas Deal

BUSINESS & ECONOMICS

UKRAINE, TURKMENISTAN PROBE GAS DEAL
Igor Torbakov 4/05/05

Energy issues were the central topic of discussion during recent talks between Ukrainian President Viktor Yushchenko and his Turkmen counterpart Saparmurat Niyazov in Ashgabat. The visit ended without an agreement on a gas deal. At the same time, both leaders sent signals that they would like to escape from under Russia’s energy dominance.

During his late March trip to Ashgabat, Yushchenko pressed for a 15-year deal under which resource-rich Turkmenistan would supply Ukraine with nearly all of its gas needs. The Western-oriented Yushchenko administration -- which advocates pro-democracy policies after sweeping to power on the wings of popular protests in Kyiv in late 2004 -- is keen to achieve energy-import diversification so as to decrease its economic dependence on Russia. Doing so would weaken Moscow’s political leverage over Kyiv.

The mercurial Niyazov, who has built a far-reaching personality cult during his nearly 15 years in power of independent Turkmenistan, rejected Yushchenko’s proposal. At the same time, the self-proclaimed Turkmenbashi, or father of all Turkmen, held out the possibility that a deal could be struck down the road. Niyazov’s interest in continuing negotiations with Kyiv seems driven by a desire to open energy export routes that bypass Russia.

Despite the lack of agreement, Yushchenko sounded upbeat at the joint news conference that concluded his Ashgabat visit. "Our countries and our people have good traditions and we maintain unique political and economic relations, which we will raise to a higher level," Yushchenko said during a news conference broadcast by Turkmen state television. "We will act in the most rational way and with success."

Ukrainian political analysts noted that Yushchenko, the leader of Ukraine’s Orange Revolution, and Niyazov, Central Asia’s foremost tyrant, are political opposites and, thus, would seem to make awkward negotiating partners. Energy, however, is responsible for making these political opposites attract.

Though having divergent political systems, Ukraine and Turkmenistan are generally regarded as skeptics within the Commonwealth of Independent States grouping of post-Soviet nations. Accordingly, both have expressed an increasing preference in recent years to pursue their strategic interests through bilateral, rather than multilateral initiatives.

Ukrainian-Turkmen cooperation in the energy sphere is a central element to both nations’ economic policies. Turkmenistan is the second largest exporter of natural gas in the CIS after Russia, and Niyazov is extremely interested in expanding his country’s export possibilities. In its turn, Ukraine, under the terms of gas delivery agreement covering 2002-2006, buys annually 36 billion cubic meters of Turkmen gas. This makes Turkmenistan the largest gas supplier to Ukraine. The rest of the country’s demand is met by Russia’s state-controlled gas giant Gazprom and other Russian suppliers, as well as by limited domestic gas extraction. The trade volume between Ukraine and Turkmenistan is second only to Kyiv’s trade relations with Moscow.

Beginning in January 2007, however, most Turkmen gas will go to Russia’s Gazprom. In April 2003, Russian President Vladimir Putin and Niyazov signed a 25-year energy agreement, under which Russia gained the right to purchase the majority of Turkmenistan’s gas production. [For background see the Eurasia Insight archive]. The deal has the ability to make Ukraine more dependent than ever on Russia for energy supplies. As one commentary published in the Vremya Novostei daily suggested, the long-term Russian-Turkmen contract means that "very soon" Gazprom could become Ukraine’s major supplier of gas � a situation that would carry with it unpleasant geopolitical implications for Kyiv.

Ukraine has developed a three-pronged strategy to prevent this scenario from happening. First, Kyiv seeks to secure the steady supplies of non-Russian gas, namely from Turkmenistan. An indicator of Kyiv’s eagerness to cut a deal with Ashgabat was evident in January, when Niyazov hiked the price of gas deliveries to Ukraine by 32 percent and Ukrainian officials immediately agreed to pay. Gazprom, meanwhile, declined to pay the higher price.

During the Ashgabat talks, Niyazov reportedly assured Yushchenko that "in principle" Turkmenistan could meet its supply obligations to Gazprom -- roughly 60-70 billion cubic meters of gas annually -- and deliver approximately the same amount of energy to Ukraine. To make it happen, Niyazov suggested, a Caspian littoral pipeline needed to be built.

Yushchenko quickly endorsed the concept. But a number of Russian and Ukrainian experts are wary about whether such a plan is feasible. Many believe that Turkmenistan is incapable of making such a dramatic increase in production, noting Turkmenistan’s current extracts amount to around 55 billion cubic meters of gas annually. Given the doubts about Turkmenistan’s future production capacity, Oleksiy Volovych, director of the Odessa branch of Ukraine’s National Institute of Strategic Studies, warned in an interview with the Novye Izvestiya newspaper that "today Ukraine runs the risk of finding itself on the periphery of global struggle between the world giants over the diminishing supply of energy resources."

The second main element of Kyiv’s gas strategy is an attempt to exploit the European Union’s interest in diversifying its energy supplies. Some Brussels strategists argue that the EU is potentially vulnerable to price fluctuations due to an existing overdependence on Russian natural gas supplies. In this area, Yushchenko has managed to score a couple of important points. The Ukrainian government has unveiled a proposal to create a Ukrainian-German-Polish consortium that would sell non-Russian gas to the EU. The group will pursue possible deals involving Turkmen and Kazakh gas, which would then be resold to EU countries. The biggest obstacle in this scheme is the lack of a reliable export route.

An upgraded Caspian littoral pipeline could address the export route shortage. To enhance the prospects of a deal getting done, Yushchenko and Niyazov said that Kazakhstan and Russia should be invited to participate in the project. Its technical and commercial details will reportedly be discussed by Niyazov and the head of Gazprom, Alexei Miller, when the latter visits Ashgabat in mid-April.

The third piece of Ukraine’s energy strategy consists of an effort to expand the number of participants in the consortium that manages Ukraine’s gas transit network. At present, Ukraine and Russia each hold 50 percent stakes in the network. The new head of Ukraine’s oil and gas monopoly Naftohaz Ukrayiny, Oleksiy Ivchenko, recently urged the expansion of the consortium’s membership to include EU members, as well as Turkmenistan and Kazakhstan. "We’re trying to maximally expand the number of participants in the gas transit consortium, taking into account the geopolitics of this project," Ivchenko told the Kyiv-based weekly Zerkalo Tyzhnya.

In general, Ukrainian analysts are cautious on whether a Ukrainian-Turkmen gas deal will ever be reached, and then adhered to. Niyazov, they note, has a history of not honoring contracts. Turkmenistan’s January gas price hike from $44 to $58 per 1,000 cubic meters is but one example of Ashgabat’s capricious behavior. Turkmenistan also has proven a difficult negotiating partner in the five-nation Caspian Sea talks. [For additional information see the Eurasia Insight archive].

Niyazov’s mercurial manner was on display during the joint press conference. International human rights organizations, along with the US government, maintain that Turkmenistan is among the most despotic nations on earth. When asked by a Ukrainian journalist about human rights conditions in Turkmenistan, Niyazov insisted that "there is not a single person held in Turkmen prisons for political motives or ideas."

"Semi-criminals are telling you stories and you start talking about human rights violations," Niyazov told the questioner.

Yushchenko came under some criticism at home for his willingness to engage Niyazov. Political analyst Vitaly Portnikov said Niyazov used Yushchenko as a prop to enhance the Turkmen leader’s personality cult, when the two presidents had a stroll � hand in hand -- amid the posh Ashgabat palaces in front of the TV cameras. "Such a Yushchenko his voters haven’t seen yet," Portnikov wrote in a commentary posted on the Politcom.ru website.

Some Ukrainian analysts believe Niyazov may be trying to use Ukraine in order to get Russia to pay a higher price for Ashgabat’s gas. But even if his desire to work out a deal with Kyiv is genuine, many Ukrainian analysts believe that Russia will work hard to scuttle any possibility of a bargain. Andriy Yermolayev, director of the Kyiv-based Center of Social Research "Sophia," said Russia isn’t interested in Ukraine’s "independent game" in Turkmenistan. That’s why Yushchenko’s attempts at "establishing direct ties with alternative energy sources and bypassing Russia are unlikely to succeed," Yermolayev was quoted as saying by the Novosti-Ukrayina news agency.

Editor�s Note: Igor Torbakov is a freelance journalist and researcher who specializes in CIS political affairs. He holds an MA in History from Moscow State University and a PhD from the Ukrainian Academy of Sciences. He was Research Scholar at the Institute of Russian History, Russian Academy of Sciences, Moscow; a Visiting Scholar at the Kennan Institute, Woodrow Wilson International Center for Scholars, Washington DC; a Fulbright Scholar at Columbia University, New York; and a Visiting Fellow at Harvard University. He is now based in Istanbul, Turkey.

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