Official website of the President of Russia

Transcripts   /

President Vladimir Putin: I would like to draw the Russian Government’s attention to the fact that the negotiating process on energy supplies between the different economic actors should not in any way affect the development of relations between Russia and Ukraine. This is the most important thing. But the Russian and Ukrainian public, of course, should be informed about the events taking place in this sector. These events are really quite straightforward. The talks on introducing market forms of payment for Russian gas supplies to Ukraine and for the transit of Russian gas to western Europe did not just begin out of the blue yesterday or the day before, but got underway back in March. Our Ukrainian partners were active in supporting this process and even initiated it, to a large extent, which I think was absolutely the right thing to do.

I would like to point out that Ukraine’s own gas production comes to approximately 18 billion cubic metres of gas, and this fully covers its household consumption needs, that is, the demand from Ukrainian citizens who use natural gas in their homes. This aspect is therefore completely unrelated to Russian gas supplies to Ukraine. With respect to this gas, of course, our Ukrainian colleagues can set whatever price they wish. This is their sovereign right. If they see this as a way of helping to resolve social issues, as an economically viable option for their country, then why not?

Regarding industrial consumers, however, regarding measures to support and subsidise certain sectors of the economy, this is something that in any normal economy is done in a transparent manner through budget policy, that is, in such a way that the public knows who is getting money from the state, how much and for what purpose. This is standard world practice. Ultimately, this is also not our issue to decide, but we must not put our Ukrainian colleagues in a difficult situation and we should base our position on the reality of the situation. This is what I particularly wanted to emphasise.

And what is the reality of the situation? The reality today is that, despite the noticeable slowdown in economic growth compared to recent years, the Ukrainian economy is still growing at a similar rate to the Russian economy. Furthermore, the Ukrainian economy has received considerable revenue from privatisation and from loans from Western financial institutions for energy projects – all to a total of billions of dollars. This is quite sufficient to allow Ukraine to purchase the gas it needs from Russia at market prices.

I would also like to draw your attention to the fact that as from the first quarter of 2006, our western European consumers will be receiving Russian gas at a cost of $255 per 1,000 cubic metres. If we consider that Ukraine pays just $50 at the moment, the difference is clear. Even taking into account the fact that there are lower transport costs involved in getting our gas to Ukraine, we still have a difference of around $180 per 1,000 cubic metres of gas.

I also want to make another point: along with the money received from international financial institutions and the possibilities offered by its own budget resources, Ukraine has another source of revenue that we should not overlook and that concerns us directly. At the beginning of this year Russia introduced a system of tax payments for natural gas and gas condensate in the destination country with regard to Ukraine. Taking into account the current gas prices, this means that we are directly pumping from the Russian budget to the Ukrainian budget around $1 billion. I say that we are ‘directly pumping’ this money because there is no flow of similar goods coming the other way into Russia. Essentially, this amounts to Russian budget support for our Ukrainian friends.

Gazprom’s potential losses from the difference between world prices and the current sale price come to $3.6 billion a year, plus the $1 billion that goes from our budget to the Ukrainian budget. This makes for a total of around $4.6 billion. This is a burden on the Russian economy that is difficult to justify. We have enough of a load of our own to carry without taking on an additional burden.

Quite aside from anything else, household consumers in Ukraine pay less for their gas today than do household consumers here in Russia. We still have 25 million people living below the poverty line and we also have big plans, still in the development stage, to connect all different parts of the country to the gas network. All this means that we need to be looking for solutions that are acceptable both to our partners and to the Russian economy.

I hope that the Russian Government will help and support our energy sector companies during this negotiating process, taking into account, of course, all the circumstances that I have just outlined.