Gas-Transit Deal Shows Cost to Russia of Bypassing Ukraine

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Russia’s plan to bypass the Ukrainian gas-transit network by 2020 may cost OAO Gazprom hundreds of millions of euros in fees committed to Slovakia.

Gazprom has a “ship-or-pay” transit contract with Eustream SA until 2028, Vahram Chuguryan, a spokesman for the Slovak gas pipeline operator, said in a telephone interview on Thursday. That obliges the Russian gas producer to pay transit fees for a minimum of 50 billion cubic meters a year whether the commodity is shipped or not, he said.

Slovakia, a nation of 5.4 million people that shares a border with Ukraine, is a major point of entry for Russian gas into the European Union and southeastern Europe. Its role as a transit country will be diminished if Russia builds a planned link to southeastern Europe through Turkey.

“We have not received any official information from the Russian side that gas transit will be stopped after 2020,” Chuguryan said. “The contract is clear. It’s not something we would need to negotiate.”

Gazprom’s press service declined to comment.

Russia, the EU’s largest provider of natural gas, has been looking for ways to avoid the Ukrainian pipeline network because of disputes over prices and allegations of unpaid debt. The loss of transit revenue would be an enormous blow to the Ukrainian economy, kept afloat by a bailout from the International Monetary Fund.

Gazprom scrapped the $45 billion South Stream pipeline last year as the EU’s relationship with Russia sank to a post-Cold War low over the conflict in Ukraine. The planned link to Turkey could extend to southeastern Europe via Greece.

Eustream is suggesting an alternative interconnector that would boost transit from Slovakia to southeastern Europe via Romania, securing the transport of as much as 21 billion cubic meters of gas. The project, with a working name Eastring, could be connected to the Turkish link via Bulgaria, Slovak Prime Minister Robert Fico said on Tuesday during a visit to Russia.

Fico said in January Slovakia’s gas transit contract is worth hundreds of million of euros.

For more, read this QuickTake: Putin's Pipeline Politics

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