Gas monopolist raises prices
Ukrainian politicians, as well as energy sector top managers, never turn to the press without a special reason to do so. When former Vice Premier Vitaly Haiduk called a sensational press conference, he must have already known about his forthcoming dismissal. And what did Yury Boiko, Deputy Minister for Fuel and Energy and Naftohaz Ukrayiny (Oil and Gas of Ukraine) head, know on the eve of his lively chat with the media on December 16? What problems of nationwide importance did he try to solve by massively bombarding public opinion? Perhaps he was guided by the reasons diametrically opposed to the ones that guided Haiduk. While Boiko’s star is far from waning in the Ukrainian sky, the coalition government is about to redistribute some portfolios.
To what end did he include some rather risky notes in his outburst of information? Among such notes is, first of all, the claim that the government has already decided to raise gas prices very soon (it has not done so for four years). In his opinion, increased gas prices will not affect the cost-effectiveness of Ukrainian industry (what about the industry’s competitiveness, taking into account that Russian domestic prices are half ours?). At the same time, Mr. Boiko did not say that if these prices jumped by 6% or even 19%, as Interfax-Ukraine reported on December 16 (“but not more than $61” per thousand cubic meters) and affected practically all industrial goods, perhaps including bread and other foodstuffs, this could set off an inflationary spiral. Instead, the unruffled Mr. Boiko tried to pacify the poorest people (who have seen twenty hryvnias added to the minimum wage), saying that higher household gas prices will be offset with a subsidy granted by way of cross financing (gas is also going up in price for public sector organizations a little later).
Yet, it is also possible that the price rhetoric, rather dangerous on the eve of elections, contains a certain share of bluffing aimed at defusing the mine planted in the 2004 budget by the parliamentary Budget Committee and its chairman personally. The problem is in the export duty that Naftohaz will have to pay from the next year on. According to Mr. Boiko, it is owing to exports that the company has been offsetting all its expenses and clearing consumers’ arrears, which leaves almost nothing to invest in the oil and gas industry for drilling operations. Now that the duty is being imposed, Naftohaz Ukrayiny will have to cancel some of its less profitable export contracts and reduce gas exports from 6.5 billion to 4 billion cubic meters, Mr. Boiko predicts.
In general, foreign economic activity seems to be his pet child. Mr. Boiko announced that Ukraine had considered more than seventy and finally chose four lucrative projects in Libya, but it is still unclear what will come next. In any case, it is impossible to carry out these projects without a large foreign investor.
There are good prospects for oil and gas projects in Iraq, where Ukraine will be working in the Polish zone of responsibility, for which purpose a joint Ukrainian-Polish venture is being set up. Yet, we will have to wait until calmer times come and the top-priority projects have been carried out.
Perhaps looking back on Haiduk’s destiny, Boiko was very cautious and reticent about the international gas transit consortium the session of which was postponed from December 16 to 22-24. It is clear now that the German side is not going to take part in it until “the high contracting parties” decide that the consortium might receive a concession to use the Ukrainian gas transit system. Mr. Boiko was rather vague about his own attitude toward the consortium’s dwindling prospects: all he did was quote Russian Vice Premier Khristenko as assuring him that Russia did not link the construction of a new gas pipeline across the Ukrainian territory with the problems of giving the old pipeline in concession.
On the other hand, the Naftohaz president was quite outspoken (for the initiated) about the Odesa-Brody oil pipeline situation. Mr. Boiko evaded answering the question if Naftohaz Ukrayiny was really lobbying the interests of TNK-BP which persistently suggests using the pipeline in the reverse mode. Nor did he confirm the rumors that he was trying to have Ukrtransnafta President Oleksandr Todiychuk dismissed because the office of Ukraine’s special representative for the Eurasian Oil Transportation Corridor is... outside Naftohaz’s competence. He gave a detailed account of how Ukrtransnafta utilized its VAT earnings and ended up saying that... “we are not going to buy any Caspian oil.” It will be recalled that it is up to the government to finally choose the mode of utilizing the Odesa- Brody oil pipeline.
