Business & Economics:
RUSSIA OUTMANEUVERS UKRAINE FOR TURKMEN GAS – FOR NOW
Sergei Blagov: 4/21/05

The Russian conglomerate Gazprom has seemingly outmaneuvered Ukrainian competitors, securing access to Turkmenistan’s vast reserves of natural gas – at least for now. During a recent visit to Ashgabat, Gazprom chairman Alexei Miller and Turkmen leader Saparmurat Niyazov resolved a pricing dispute, clearing the way for the resumption of gas exports to Russia. While Russia would seem to have the upper hand in the struggle over Turkmen energy, Niyazov’s fickle nature virtually ensures that the geo-economic maneuvering will continue.

On April 15, Russian media reported that Turkmen gas would once again flow to Russia, after Miller agreed to pay for the energy solely with hard currency and abandon all barter arrangements. In January, Turkmenistan raised its gas export price hike from $44 to $58 per 1,000 cubic meters. Ukraine agreed to pay the new price, but Gazprom, Russia’s energy behemoth, declined, prompting Niyazov to shut off pipeline deliveries. In announcing the resumption of gas exports to Russia, Miller noted that the two sides had “agreed to leave the gas price the same as under the long-term contract.”

The price dispute reportedly caused "minimal losses" for both sides, Russia's Vremya daily commented on April 18. The pledge to make all-cash payments could cost Gazprom an estimated $100 million in 2005-2006.

The framework for the compromise was reportedly established during a March 30 telephone talk between Niyazov, the self-proclaimed Turkmenbashi, or father of all Turkmen, and Russian President Vladimir Putin. The Kremlin’s keen interest in the deal underscored the high strategic stakes involved in the issue. In 2003, Russia and Turkmenistan negotiated a 25-year export deal granting Russia the right to obtain the bulk of Turkmenistan’s natural gas production. [For background see the Eurasia Insight archive].

Russia and Ukraine, before the start of dispute, were paying $44 per 1,000 cubic meters of Turkmen gas. Half of it was payable in cash and half in goods, such as pipes, compressors and other supplies for gas sector. It has been estimated that Ashgabat in fact received $36-37 per 1,000 cubic meters after factoring-in market prices of Russian barter supplies to Turkmenistan.

Miller traveled twice to Ashgabat in February, but a bilateral gas deal remained elusive. On February 11, the Russian Foreign Ministry had to dismiss media allegations that Turkmenistan had declared a “gas war” on Russia. In March, Ukrainian President Viktor Yushchenko’s visit to Ashgabat raised the possibility that Ukraine might break Russia’s pending monopoly on Turkmen gas imports. [For background see the Eurasia Insight archive].

http://www.eurasianet.org/departments/business/articles/eav040505.shtml

It now appears that Niyazov’s dalliance with Yushchenko may have been part of a bluff to get Russia to pay the higher gas price. If so, Niyazov and other Turkmen officials seem to have had a poor understanding of Russia’s bargaining position. Russian officials and experts do not conceal the fact that Russia’s energy industry needs broad access Turkmenistan gas fields. As an April 14 commentary in the Russian daily Nezavisimaya Gazeta put it: “This country [Turkmenistan] is almost irreplaceable for Russia as a source of natural resources.” At the same time, Russian officials felt they could wait Niyazov out because of Turkmenistan’s dependency on Russian pipelines to export natural gas.

Turkmen officials, in cutting off supplies in January at the height of demand, evidently hoped to coerce Russia and Ukraine into paying higher prices. But in the end, it was Turkmenistan that had to give in to Moscow after Russian suppliers, especially Gazprom, made it through the winter season without Turkmen gas.

Gas disputes have been a constant feature of Russian-Turkmen relations in recent years. In 1997, for example, Turkmenistan suspended deliveries to Russia in a price dispute, insisting that $32 per 1,000 cubic meters was too low.

Under the original terms of the 25-year Russian-Turkmen gas deal, Russia agreed to pay Turkmenistan $44 per 1,000 cubic meters of gas with 50 percent of the payment in cash and 50 percent in barter good. The pact called for Gazprom to purchase between 6-to-10 billion cubic meters of Turkmen gas from 2004 through 2006. Starting in 2007, export levels were expected to skyrocket to 60-70 billion cubic meters. From 2009-28 the deal calls for Russia to import 80 billion cubic meters per year.

Turkmenistan has the world's fifth largest natural gas reserves - 22.5 trillion cubic meters, according to Niyazov - but current exports are almost exclusively directed at former Soviet states supplied via pipelines owned by Russia. In 2004, Turkmenistan pumped 58.6 billion cubic meters of gas: exports reached 42 billion cubic meters, while the rest was consumed domestically. In January-March 2005, Turkmenistan produced nearly 18.5 billion cubic meters -- a 2.2 percent drop over the same period the previous year. During the first quarter, Turkmenistan exported 10.8 billion cubic meters to Ukraine and 2.1 billion cubic meters to neighboring Iran, according to official statistics.

Recent Turkmen production figures have raised question about whether the country can fulfill the commitments established under the 25-year gas pact. Even overlooking the capacity issue, though, Russian officials are quietly cautious about the future of the deal. The cautious attitude is linked to Niyazov’s well-established record for erratic behavior, including zig-zagging negotiation style. Niyazov’s past practices are seen by many Russian observers as a guarantee that uncertainty will continue to cloud the future of the 25-year gas pact.

Niyazov’s mercurial manner has been on full display in recent days. Since the collapse of the Soviet Union in 1991, Niyazov has worked doggedly to build a vast cult of personality, establishing himself as president-for-life. [For background see the Eurasia Insight archive]. But of late, Niyazov has mulled the idea of staging a presidential election in 2009. And on April 20, during a Ashgabat meeting with OSCE Chairman-in-Office Dimitrij Rupel, Niyazov went so far as to indicate that he would not run for re-election, the Interfax news agency reported.

Virtually no one believes that Niyazov has undergone a democratic conversion. However, some Russian media outlets have speculated that health concerns are prompting Niyazov to consider the country’s political life after Turkmenbashi. Given that Turkmenistan ranks among the world’s most repressive countries, in which the government maintains an iron grip on mass media, accurate news about Niyazov’s health is impossible to obtain.

In an April 12 analysis, political commentator Viktoriya Panfilova suggested in Nezavisimaya Gazeta that Niyazov could be seriously ill. In late February, German doctors were flown into Ashgabat to perform five hours of surgery on Niyazov’s eyes, according to official reports.

“One reason for Saparmurat Niyazov’s rejection of the status of president for life is seen in his state of health. German doctors treating the Turkmenbashi have virtually taken up residence in Ashgabat,” Panfilova wrote in her commentary. “On the official level the doctors are issuing only good reports on Turkmenbashi’s state of health. These reports are not really believable, however. How often do you have to examine a healthy man?”

Editor’s Note: Sergei Blagov is a Moscow-based specialist in CIS political affairs.