Page last updated at 15:27 GMT, Friday, 6 January 2006

Could another gas deal give Russia control?

By Jeremy Scott-Joynt
BBC News business reporter

The deal struck to end the stand-off over natural gas between Russia and Ukraine rests on one company.

Gazprom's Moscow headquarters
Do all roads lead to Gazprom?

Rosukrenergo, as the firm is known, is a joint venture between state-owned Russian gas giant Gazprom and an Austrian investment firm, Centragas.

Centragas, in turn, is the nominee shareholder representing a number of unnamed Ukrainian investors.

The agreement leaves Rosukrenergo with a near-monopoly over Ukraine's gas imports, vital to keep its huge steel industry running.

And it could also leave Russia in control of Ukraine's energy supplies - thanks to a 2003 deal giving Gazprom first refusal over most of Turkmenistan's output.

Pay up

Under the agreement between Moscow and Kiev, Gazprom's demand for a 400% price rise will be tempered by mingling its supply with much cheaper gas coming from Turkmenistan in Central Asia.

Ukraine currently pays $58 per 1000cm for Turkmen gas and - until 31 December - was paying $50 for Russian supplies.

Europe's gas pipeline network

Gazprom will sell its supply to Rosukrenergo at the price it wanted all along, $230. Ukraine, in turn, will buy the mingled supply from Rosukrenergo for $95 - a rise, but one which preserves face for Ukraine's Naftogaz state gas firm.

But the result will be Rosukrenergo becoming the sole conduit for all supplies from both countries.

Controlling the tap

And Gazprom, in turn, looks set effectively to control the whole supply - leaving it in charge of Ukraine's energy future, whatever the terms of the deal that Moscow and Kiev have just signed.

Ukraine's Oleksiy Ivchenko and Gazprom chief Alexei Miller
Ukraine and Russia both needed to save face

Until now, Ukraine has bought its own Turkmen gas direct from the supplier - although its deal with Rosukrenergo left it reselling it to Rosukrenergo at the Turkmen-Russian border, and buying it back when it arrived in Ukraine.

Gazprom has its own deal signed in 2003 with Turkmenistan, under which a significant slice of Turkmen gas exports has been earmarked for the Russian firm.

But from 2007 onwards, Gazprom's deal means it has first refusal over almost all the Central Asian country's export output - currently some 60 billion cubic metres a year.

It will then sell on the gas to Rosukrenergo at a small mark-up.

That leaves Gazprom with what amounts to a near-monopoly over supply to Ukraine - while Rosukrenergo, its part-owned subsidiary, has a monopoly over delivery.


The involvement of Rosukrenergo has exacerbated anger among some in Ukrainian politics at the terms of the Russia-Ukraine deal.

The company was formed in 2004, to manage the flow of gas from Turkmenistan to Ukraine via Russia through Gazprom's pipelines. It has no facilities of its own.

In payment, it is allowed to keep 37.5% of the supply to resell - some to Poland and Hungary, but most to Gazprom subsidiary Gazexport.

But opposition figures in Ukraine accuse Rosukrenergo of being little more than a paper institution.

Ukraine gas plant
The gas requirements of Ukraine's heavy industry are huge

Former Prime Minister Yulia Tymoshenko has suggested that its Ukrainian investors are associates of ex-President Vladimir Yanukovich.

Mr Yanukovich, a Moscow favourite who lost a bitterly-contested election in December 2004, denies the allegation.

During 2005, Rosukrenergo came under scrutiny from Ukraine's State Security Service, which alleged that it was linked to Russian organised crime - an allegation Centragas has denied.

Aleksandr Turchinov, the head of the service and an ally of Ms Tymoshenko, was sacked in late 2005 following a vocal campaign against Rosukrenergo.

The deal, he told reporters on Wednesday, was "a betrayal of Ukraine's national interest".

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