Gazprom and the Russiangovernment adopted two critical tactics to deal with the Ukrainian trade, Inthe late 1990s.
Firstly, it encouraged Turkmenistan, the second-largestCommonwealth of Independent States producer, to sell gas to Ukraine and allowRussian volumes for Europe. Secondly, it utilized a series of negotiation fortrading companies “Itera from 1998, Eural Trans Gas from 2003,Rosukrenergo (RUE) from 2005” to transport, as well as sometimes tosupply, the gas to Ukraine. Rosukrenergo, which is owned fifty (50) percent byGazprom heretofore by Gazprombank, 45 percent by Dmitry Firtash the Ukrainianbusinessman as well as 5 percent by Ivan Fursin, proceeded as the shipper ofgas to Ukraine just before the end of 2008 (Pirani, S, 2009).The utilization ofnegotiation was long condemned in European government circles as well as bycorporate governance bodies where there was responsibility about their murkiness,and by different Ukrainian politicians who criticize the excessive profits aswell as corporate power confer on the intermediary owners (Witness, G.
2006).NEGOTIATIONS ANDCOMMENTARY BETWEEN RUSSO-UKRAINEFrom its first days inpower, the new Ukrainian government called on Russia to make a freshrenegotiation in gas relations and, in specific, to begin the agreement onprice reduction. Ukraine determination proclaimed by a number of noteworthytalks in Moscow in March and April.
While it is realized that Ukraine longingfor decrease import prices to $250-260/mcm, it is not certain whether it wasrequesting rectification of the formula, or for a transition amid during whichit would receive a reduction in cost from the contractual cost. In our view Ukrainecould have been soliciting for: reduction from the base price which, eventhough widely anticipated as too high, is still within the scope of prices paidby European nations which would consequently bring about lower costs during theentire term of the agreement until 2020, or potentially a gas price discountdetermined on the premise of the existing formula for a transitional span aswas the case with Belarus and Moldova when the two nations secured a transitionperiod of four years until 2011 (Stern, J. 2010).In spite of the flurry ofnegotiating activity, progress originally remained restricted. Nevertheless,toward the beginning of April, Russian president Putin consentedin principle to the bargaining of a price reduction. In the meantime, hefocused on that Gazprom was happy with the 2009 contracts, and consequently,these were to remain the main reason for Russia-Ukraine gas relations, as wellas if any concessions were to be made on value, Ukraine would need to concoct(compensatory) offers worthy to Russia and Gazprom. Thusly, Gazprom CEO AlekseiMiller focused on that a price reduction would be subject on the volumes havetaken by Ukraine, while taking note of that, Ukraine had officially taken lessgas in 1Q 2010 than was imagined by the agreement. Ukrainian prime ministerAzarov reacted that Ukraine will take only as much gas as it needs (Stern, J.
2010). Nevertheless, Gazprom andNaftogaz on 9 April agreed that Naftogaz will buy 36.5 bcm in 2010 rather than33.7 bcm as beforehand envisaged in the agreement, however, Gazprom agreedNaftogaz offstage in the beginning of a quarter was in fact, in accordance withthe deal. Even though no official articulation was made by either side,however, on 16 April it was stated that Gazprom agreed to lessen import costsfor Ukraine in return for the utilization of several of Naftogaz?s storagefacilities. It was also announced that an offer had been made to rent the storagefacilities to Gazprom, which would have been a noteworthy business concessionby Naftogaz.
Neither the size of discount offered in return and not any detailsof the storage plans were uncovered by the parties to the discussions (Stern,J. 2010). Besides, on the following day, Russian deputyprime minister Sechin noted that the problem with the price decrease was stillbeing discussed. It later becomes known that negotiations continued in Putin’sresidence late into the evening of 20 April 2010. The following day, inKharkov, the intergovernmental accord between presidents Yanukovich as well asMedvedev on the 25-year prolongation of the Black Sea Fleet rent, and also, thecontractual appendix providing for the 30% price decrease were signed (Stern,J. 2010).