- The Washington Times - Wednesday, December 14, 2005

MOSCOW — Russia’s state-controlled gas monopoly Gazprom said yesterday it will more than quadruple natural gas prices for Ukraine in a move that industry analysts see as part of a Kremlin drive to use its energy clout to punish former allies seeking closer ties with the West.

Gazprom’s deputy board chairman, Alexander Medvedev, said in televised remarks that the company plans to end long-standing energy subsidies to the former member of the Soviet Union.

As of Jan. 1, Ukraine will be charged full European market prices — now $220 to $230 per 35,000 cubic feet — compared with the existing rate of $50 per 35,000 cubic feet.

The two countries for months have been locked in an increasingly bitter dispute over Russian plans to increase the price. Ukraine balked at Moscow’s initial proposal to set the rate at $160 per 35,000 cubic feet.

Mr. Medvedev said yesterday that market conditions justify the enormous increase.



“Ukraine has missed its chance with its negotiating tactics, and now there can be no talk of $160. The market situation has changed and it’s continuing to change,” he said.

Finance Minister Alexei Kudrin also justified the increase, telling the RIA Novosti news agency that “the time when Russia pursued a policy of semi-subsidizing neighboring economies is gradually coming to an end. We must focus on our interests.”

Analysts say politics are at the root of Russia’s move and that Ukraine is paying the price for overthrowing a pro-Moscow government in last year’s Orange Revolution and boosting relations with NATO and the European Union.

“The way the Russians see it, you can’t have it both ways,” said Chris Weafer, chief analyst at Alfa Bank in Moscow.

Russia has taken a similar position with other former Soviet countries that have moved, or are attempting to move, out of its sphere of influence.

Alexander Ryazanov, deputy chairman of the Gazprom’s managing committee, said at a press conference last month that rates for the Baltic countries of Estonia, Latvia and Lithuania, which have joined the European Union, would rise to a range of $120 to $125 per 35,000 cubic feet next year. Those countries now pay $80.

Georgia and Moldova, which are seeking stronger ties with the West, will see prices double to $110 and $150 to $160 respectively.

Industry and Energy Minister Viktor Khristenko yesterday told the lower house of parliament, the State Duma, that Russia is further reviewing its gas delivery contracts with the Baltic countries, Moldova and Georgia with the long-term goal of eventually charging them full market prices.

At the same time, Gazprom has extended a deal with Belarus, which is seeking to form a union state with Russia, that will price natural gas at $46.68 per 35,000 cubic feet.

“There’s a clear divide between countries like Ukraine and Georgia, who are being put on an arms-length commercial basis, and countries like Belarus and Armenia, who maintain strong ties with Russia,” Mr. Weafer said.

In Washington, State Department spokesman Sean McCormack said yesterday the question of Russia’s control of natural gas markets arose during Secretary of State Condoleezza Rice’s visit to Ukraine last week.

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