Gazprom questions legality of Ukrainian gas imports from Europe

By bne IntelliNews April 25, 2013

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Ukrainian purchases of pipeline gas from Europe may violate the country's contracts with Gazprom, the Russian gas giant said on April 24, as it announced it is to study the legality of Kyiv's growing imports via Hungary and Poland.

The latest step in the long-winded standoff between Moscow and Kyiv, Gazprom CEO Alexei Miller said the company plans to study the process in concert with independent experts, and warned that it could hold Ukraine accountable. "Physically reversing the direction of gas flow [to import gas] from Europe is impossible. There is no separate gas pipeline," Miller said, cited by Interfax-Ukraine.

Kyiv claims that the reverse flow scheme has become possible due to technological upgrades of its pipeline network on routes headed to Europe. It says the technology allows Ukraine to continue pumping Russian export gas westwards, while in parallel accepting European imports. A chunk of those imports are likely to consist of Russian gas, sold to European customers at lower prices than offered by Moscow to Ukraine.

However, Gazprom claims to suspect Ukraine is simply taking the gas from the transit pipeline network directly, rather than carrying it to third countries and then re-importing. "These can only be some kind of 'paper' opaque operations, whose legality needs to be investigated. If the 'virtual reverse' uses our transit gas, that is a direct violation for which there must be an accounting," Miller said.

"These things are being checked and are verifiable," the Gazprom CEO continued. "We have previous experience of hiring independent monitoring companies to monitor the operations with our gas in Ukraine. We are confident that no serious European companies would participate in dubious gas deals with Ukraine that rely on Gazprom gas that doesn't belong to [Ukrainian oil and gas company] Naftogaz."

Ukraine announced in late March that it had begun importing gas via Hungarian pipeline connections under a contract with Germany's RWE. Kyiv says that the cost of the European gas is just under $400 per 1,000 cubic metres, significantly below the price Gazprom demands under its long term contract. Ukranian officials have said total imports from Europe could reach more than 10bn cubic meters in 2013.

Moscow has been pushing for control of Ukraine's pipeline network - which carries the majority of Russian exports to Europe - for years. It also wants Kyiv to join its Customs Union alongside Kazakhstan and Belarus, which would derail any efforts by Ukraine towards EU membership.

With the Ukrainian economy on the edge of crisis - and blocked from an IMF bailout unless it raises domestic gas tariffs - the price of Russian gas imports is the leading edge of the Kremlin's campaign. That has seen Kyiv pushing to reduce imports from Russia.

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