09MOSCOW1148, RUSSIA-UKRAINE: “COMPLICATED” ENERGY TALKS

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Reference ID	Created	Released	Classification	Origin
09MOSCOW1148	2009-05-05 13:24	2011-08-30 01:44	CONFIDENTIAL	Embassy Moscow

VZCZCXRO6461
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSR
DE RUEHMO #1148/01 1251324
ZNY CCCCC ZZH
P 051324Z MAY 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 3150
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 001148 
 
SIPDIS 
 
E.O. 12958: DECL: 05/04/2019 
TAGS: PREL PGOV ENRG EFIN RS UP
SUBJECT: RUSSIA-UKRAINE: "COMPLICATED" ENERGY TALKS 
 
Classified By: Pol M/C Alice G. Wells for reasons 1.4(b) and (d) 
 
¶1.  (C) Summary:  In a May 4 meeting, MFA Second CIS Director 
Viktor Sorokin repeatedly described Tymoshenko's April 29 
energy talks with Putin as "complicated."  In one-on-one, 
small group, and the plenary meeting of the Intergovernmental 
Committee on Economic Cooperation, it was decided that 
Gazprom would not fine Ukraine's Naftohaz for taking less gas 
than it had contracted for, while Gazprom and Naftohaz would 
negotiate new gas volumes for 2009.  Like Sorokin, Gazprom's 
Foreign Relations speaker Ivan Zolotov said Russia was 
concerned about Ukraine's ability to pay for the 20 billion 
cubic meter (bcm) gas it planned to purchase for winter 
storage.  Russia rejected Ukraine's request to use the 
possible USD 5 billion loan to pay for the gas, while 
Russia's transit fee payments were insignificant by 
comparison, and Gazprom lacked the funds to prepay them. 
Sorokin said that Tymoshenko had no concrete proposals on how 
Russia could participate in Ukraine's pipeline modernization. 
 The Odessa-Brody pipeline and nuclear cooperation were also 
discussed, while other topics included aircraft, space, and 
road transportation, and Russia's WTO accession bid.  Sorokin 
described Putin's tone in the final press conference as 
"critical," while analysts called Tymoshenko's visit 
"unnecessary" in light of the lack of results.  End Summary. 
 
------------------------------- 
"Complicated" hydrocarbon talks 
------------------------------- 
 
¶2.  (C) MFA Second CIS Director Viktor Sorokin told us May 4 
that Ukraine Prime Minister Tymoshenko's April 29 talks with 
Prime Minister Putin on energy and in the Intergovernmental 
Committee on Economic Cooperation were "complicated." 
Sorokin said the two sides reached "no concrete agreements or 
contracts related to gas."  However, a "political decision" 
was made that Gazprom would not fine Ukraine's Naftohaz for 
taking less gas than it had contracted for, while Gazprom and 
Naftohaz would negotiate new gas purchase volumes for 2009. 
Gazprom's Director of Foreign Relations, Ivan Zolotov, 
confirmed the fine could have been USD 2 billion, as Naftohaz 
had taken less than 50% of the gas for which it had 
contracted.  According to Zolotov, the spirit of negotiations 
between Gazprom and Naftohaz on new volumes was "calm," as 
both sides knew each other well. 
 
¶3.  (C) Noting that DPM and Finance Minister Kudrin, DPM 
Shuvalov, and DPM Sechin all participated in the talks, 
Sorokin said Russia sought inter-governmental "guarantees" 
that Ukraine would pay for the 20 bcm winter gas it intended 
to purchase this summer.  While Russian transit fee payments 
were negligible by comparison with Ukraine's gas bill, 
Gazprom did not have the means to pay transit fees several 
years in advance.  According to Zolotov, transit pre-payment 
on the part of Gazprom was "not really an option," because 
"the financial risks were too high."  Sorokin said that 
Ukraine had alternatively suggested using the USD 5 billion 
loan requested from Russia to pay for its winter gas 
purchases, but again negotiations were "complicated."  The 
IMF would not allow Ukraine to do the same with its loans, as 
a precondition for using IMF monies to that effect would 
likely be the doubling of domestic gas prices, which was 
impossible in the pre-election period.  Sorokin said no 
agreement was reached yet on the loan, with Russia waiting 
for the IMF to finalize the payment of its second loan 
tranche to Ukraine in its May 13 Board of Governors meeting, 
but Russia would carefully consider Ukraine's proposals. 
 
¶4.  (C) Regarding Tymoshenko's comments to the press that 
Ukraine had "invited" Gazprom to participate in the 
modernization of Ukraine's gas infrastructure, Sorokin said 
the issue was "more political than economic."  He said 
neither Putin and Tymoshenko nor Gazprom head Alexey Miller 
and Naftohaz head Oleh Dubyina had substantively discussed 
the issue.  Sorokin noted that while everyone agreed that 
Ukraine's gas infrastructure needed modernization, it was too 
early to discuss Russia's contribution, given the lack of 
concrete details in the plan and the plummeting demand for 
gas both in Europe and in Ukraine.  Zolotov explained that 
Gazprom would necessarily have to be involved in the 
modernization of Ukraine's infrastructure, since Ukraine's 
system was part of the former Soviet Union's Gazprom-run 
system. 
 
¶5.  (C) Sorokin said Putin's call to consider a consortium 
approach to the modernization of Ukraine's gas infrastructure 
 
MOSCOW 00001148  002 OF 003 
 
 
was not discussed, but still on the table.  While repeating 
Russia did not seek ownership over Ukraine's pipeline system, 
Sorokin complained that Ukraine wanted others to pay
for 
modernizing its infrastructure without including them in the 
management, causing the consortium idea to remain "frozen." 
 
¶6.  (C) Sorokin told us no agreement was reached on Ukraine's 
interest in reversing flows along the Odessa-Brody pipeline. 
Ukraine's plans could lead to oil supply problems, as Russia 
might then need to find alternative routes to ship oil to 
Europe. 
 
------------ 
Other topics 
------------ 
 
¶7.  (C) Sorokin said a draft contract on long-term nuclear 
energy cooperation between Russia and Ukraine was to be 
signed by mid-July.  Although the Ukrainian competition was 
intense, Russia had won the tender for construction of two 
units at the Khmelnitsky nuclear power plant due to its 
expertise with Soviet-era technology.  Russia supported 
Ukraine's desire to join the international fuel bank at 
Angarsk, but Kazakhstan currently opposed Ukraine's 
participation.  Sorokin expressed surprise at Nazerbayev's 
actions, but speculated that Kazakh concerns would be 
resolved in the course of bilateral consultations. 
 
¶8.  (C) As an example of positive Russia-Ukraine cooperation, 
Sorokin cited the joint development of the Antonov AN-47 and 
said the AN-70 military transport project was agreed for 
launch.  Given the stiff competition on the world market by 
companies such as Boeing or Airbus, Sorokin said Russia and 
Ukraine needed to "unite" their efforts in order to compete 
globally, noting Ukrainian delays in taking the necessary 
steps in privatizing its aircraft industry.  Sorokin praised 
the large number of joint space projects between Russia and 
Ukraine, highlighting the agreements on cooperation in the 
GLOSSNASS satellite navigation project and IPR protection in 
Ukraine's cooperation with Brazil in the bi-national 
Alcantara Cyclone Space (ACS) company.  Other transportation 
issues touched upon included construction of the Moscow-Kyiv 
and Moscow-Simferopol highways. 
 
¶9.  (C) Sorokin said Ukrainian arms transfers to Georgia were 
not discussed in the meetings, only raised in the press 
conference.  Still, Russia repeatedly addressed the issue 
with Ukraine, which denied it was making any transfers 
outside of a bilateral mil-mil cooperation agreement covering 
defensive weapons.  Russia, however, accused Ukraine of 
transferring offensive weaponry to Georgia, which was 
"dangerous." 
 
------------ 
Atmospherics 
------------ 
 
¶10.  (C) Sorokin told us that Tymoshenko met with Putin in a 
one-on-one meeting followed by a small group session, and 
then co-chaired the Intergovernmental Committee Meetings on 
Economic Cooperation, which Russia had postponed from the 
earlier date of April 8 due out of protest against the 
EU-Ukraine agreement on gas pipeline modernization. 
Reporting on his impressions from the small group and 
Committee talks he had participated in, Sorokin described the 
atmospherics as "well-meaning and professional," but said he 
would "not comment on" Tymoshenko's "self-assurance" when she 
outlined her view of the long-term development of 
Russia-Ukraine relations.  Despite the positive examples of 
cooperation between the countries such as on space, Sorokin 
described Putin's tone in the press conference as "critical" 
in view of the declining bilateral trade. 
 
----------------------------- 
Analysts: "Unnecessary visit" 
----------------------------- 
 
¶11.  (SBU) Picking up on the "inconclusive" results of the 
meetings and failure to close the gap on gas issues, some 
analysts like Svetlana Samoylova on politcom.ru called 
Tymoshenko's visit "unnecessary."  Andrey Kolesnikov in 
Kommersant noted the strained atmospherics as a result of the 
lack of agreement, with the Prime Ministers sitting at a 
distance from one another during the final press conference 
and avoiding looking at each other.  Tymoshenko's offer to 
assist Russia's WTO bid met with laughter from the 
 
MOSCOW 00001148  003 OF 003 
 
 
journalists, who considered the gesture to be of symbolic 
value.  Nezavissimaya Gazeta similarly described the two 
Prime Ministers as "tired of each other." 
 
------- 
Comment 
------- 
 
¶12.  (C) Putin gave Tymoshenko what she primarily came for, 
which is the waived fines and negotiations on lower gas 
volumes Naftohaz will buy from Gazprom this year.  However, 
he provided little assistance in improving her pre-election 
campaign image as a skilled negotiator with Russia. 
BEYRLE

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