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Author: loveoldcars Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 158  
Subject: Ukraine/Russia: Gas Wars Date: 1/13/2009 10:17 PM
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...the crooks are at it again...

http://www.russiaprofile.org/page.php?pageid=Business+New+Eu...

3) the real underlying stakes are not about Russia or Ukraine

The leadership of Gazprom has long ago understood that it could not get any money out of official deliveries to Ukraine. It "solved" that problem in a completely different way, by privatising a portion of the gas trade to Ukraine - the portion going to customers able to pay for their gas. These customers used to pay the central Ukrainian gas company, which did not pass on that money to Gazprom; what was put in place was a mechanism whereby these customers would pay less for their gas, but would pay directly another supplier, formally unrelated to either Ukrainian gas authorities or Gazprom.

Of course, only gas coming from Russia could be delivered, and it still needed to use Ukraine's gas infrastructure, so the active cooperation of Gazprom, Russian and Ukrainian senior people was required to put that trade in place (you can't move 30 billion cubic meters of gas per year without the approval of senior management, and cover from senior politicians) - but the very real money generated did not need to go either to Kiev or to Moscow. Thus the top people that enable that trade are able to personally benefit massively from it - and effectively cut out both Kiev and Gazprom.

Now, such juicy business attracts others keen to get in on the action. In Ukraine, political infighting can largely be understood, in my view, by the fight over who will be the Ukrainian counterparty to that trade (it's no coincidence that Yulia Tymoschenko made her fortune in gas trading in the 90s, and that Yanukovich represents some of the largest gas-users from heavy-industry in Eastern Ukraine). In Russia, similarly, one has to go beyond the image of a monolithic Kremlin with its faithful Gazprom arm - both are rife with infighting and coalitions within both centers of power come and go (as an example, just look how the 50% of Gazprom formally owned by the Russian State is split between at least two public bodies controlled by different senior Kremlin insiders).

So while the world is focused on the predictable public brinkmanship between Ukraine and Russia (Russia threatens, Ukraine appears to cave in at the last minute, but really doesn't, Russia cuts gas, Ukraine siphons gas, Russian is indignant, both sides make their case to Europe, Russia restores gas supplies, another meaningless agreement is announced), the real fight over the loot is taking place more discreetly between a few oligarchs in Moscow and Kiev. But nobody is talking about that. Which is the whole purpose of the theater show we are "offered."

Worries about Russia or Gazprom using the "gas weapon" against Europe are misplaced. In their official capacity, both are keenly aware of their absolute dependency on exports to Europe for a huge chunk of the country's income, and on the need for stable, reliable long term relationships to finance the investments needed in gas infrastructure (and they know their clients share that need). They are happy to play power politics with the West's worries as this goes down well with their own domestic audiences, but fundamentally they will not rock the gas boat.

No, what is a lot more worrisome is that the governments in Ukraine and Russia can tolerate - and indeed encourage - such blatant breaches of their authority and such large scale theft of what are effectively public resources. That the highest levels of government in both countries, and major bits of their infrastructure, can be instrumentalised in what are disputes between unknown oligarchs only shows how little rule of law and accountability there is in these countries, and how powerless Putin really is when dealing with competing power factions.


rk
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