Being located in a land-locked region, Turkmenistan has searched for a market for its huge gas reserves ever since independence. Ukraine constitutes a major trade partner for Turkmenistan’s energy sector. As a part of a bilateral agreement on gas supplies signed in May 2001 in Kiev, Turkmenistan has been supplying Ukraine with over than 30 billion cbm of gas annually at the price of US$44 per 1,000 cbm. According to the terms of the contract, Ukraine has been making 50% of payments in cash and the rest in goods and services to different sectors of the Turkmen economy. The first Deputy Prime Minister of Ukraine, Anatolii Kinach, was earlier reported saying that Turkmenistan is “a very important factor of Ukraine’s energy safety, and cooperation with Ukraine will enable Turkmenistan to earn about 30% of its state budget.” However, this cooperation cooled down in January of 2005 when the Turkmen side unilaterally turned down the spigot of gas pipes to Ukraine.

The Turkmen side stated that Ukraine fell short of providing goods and services timely as indicated in contract. Moreover, Ukraine reportedly was overcharging for goods delivered to Turkmenistan as a part of the barter deal. Mainly because of this, the gas price of $44 per 1,000 cbm was raised to $58 and this situation has ever since created a gridlock for the Ukrainian side as well. Ukraine tried a series of negotiations to keep the gas price unchanged. After coming to power with the so-called “Orange Revolution” in Ukraine, President Yushenko made his first two-day state visit to Turkmenistan in March of this year. But no real consensus had been achieved after the presidential meetings either. However, this time, President Niyazov helped to find a common ground over the price deals.

At last week’s meeting in Ashgabat, the Turkmen and Ukrainian sides discussed the issue in detail and came to an agreement that Turkmenistan starts exporting the blue fuel starting from July 1, 2005 again. According to the contract signed at the meeting, Ukraine will make all the payments in cash, hence the barter deal has been completely cancelled. However, “Naftogaz” of Ukraine is obliged to deliver all the goods, worth $600 million, previously owed as a part of barter deals, by December 31, 2005. The total amount of gas supplies for the rest of 2005 and the year of 2006 is expected to amount up to $2 billion 134 million.

Aleksei Grigoryevich assured Mr. Niyazov that Ukraine will gradually pay off all its debt for previously supplied gas until the end of this year. Upon this, Mr. Niyazov agreed that the previous price of $44 US per 1,000 cbm would remain unchanged for a while. However, it was also noted that the prices for gas might rise again. “Keep in mind that we will have to increase the price up to $60 US in 2006” said Niyazov after signing the bilateral agreement. “We had historically important negotiations with the president” said Aleksei Grigoryevich after the meeting with the President. He also noted that Ukraine is ready to make every effort to build robust relations with Turkmenistan. Not long ago, prior to the 13th anniversary of Mr. Niyazov’s presidency, Viktor Maiko, ambassador of Ukraine to Turkmenistan also presented the translation of Ruhnama (volume II) in the Ukrainian language.

In addition to deal on gas supplies, the Ukrainian side also asked for an extension of their investment projects in Turkmenistan. Mr. Niyazov invited the group to the construction of a highway from the capital city Ashgabat to Mary, roughly 300 km away. Moreover, it was also mentioned at the talks that “Naftogaz” would also be invited for the reconstruction of Seidi oil refinery as well.

Thus, a new contract signed this time between the Ukrainian giant “Naftogaz” and President Niyazov is expected to bring an utmost transparency in gas supplies to Ukraine. If the deal works out as stipulated in the bilateral agreement, Mr. Niyazov and Mr. Yushchenko are expected to sign an agreement on long-term partnership in energy sector at a meeting in September in Ukraine.