Ashgabat's decision to hike gas price for Gazprom won't hurt Russia...
The Turkmen president's decision to increase the price of gas for Gazprom will not hurt Russia. It can even help.
Saparmurat Turkmenbashi followed in Nursultan Nazarbayev's steps who secured a higher price on Kazakh gas from last year's US $ 47-50 to US $ 138-140 per 1000 cubic meters at the talks with Vladimir Putin in May. Turkmenistan raised the price from US $ 65 to "quite normal" US $ 100 per 1000 cubic meters. Russia buys some 8 bln cubic meters of gas from Kazakhstan per annum. Turkmenistan is to supply 30 bln cubic meters this year. There is also Uzbekistan. This January, Uzbekistan agreed to sell Gazprom 9 bln cubic meters of gas at US $ 60 per 1000 cubic meters (against US $ 47 last year).
Gazprom's representatives stated yesterday that the gas price hike would not affect consumers of gas in Russia. However, it will affect Ukrainian customers. According to Gazprom's specialists, all Central Asian gas flows to Ukraine (mixed with more expensive Russian gas). Today, Ukraine buys this composition at US $ 95 per 1000 cubic meters. The price, however, will only go up. The January price increase has slowed down the Ukrainian GDP growth rate, and the rapid growth in prices to the European average price may lead to collapse on the whole. The Ukrainian economy is extremely power-consuming. It consumes 0,62 tons of oil equivalent per US $ 1000 of GDP (according to data released by the world bank in 2002) which is equal to Russia's economy power-consumption but three-times higher the EU indicators. The implementation of energy saving programmes needs time, as minimum. That is why the "conspiracy" version of the plot against Yuliya Timoshenko should be viewed through this prism. If she becomes a prime-minister now, she could be easily fired for poor performance.
Without this conspiracy version, it is unclear as to why Turkmen gas price hike was a surprise to Gasprom as Turkmenbashi had literally copied the moves of his Russian colleagues. He raises the price to the "normal market" price and threatens to reroute gas exports to China, a partner in gas pipeline project.
Of course, the decision by the leadership of Turkmenistan will not result in upheavals similar to those caused by Gazprom's moves in relation to its CIS partners. The volumes of exports are incommensurable. On the other hand, Asian gas is very important for Gazprom as it helps Gazprom increase its export capacities and profitability.
There is, however, the other side of the coin. Bringing all prices to the level that is more close to the market one will make it possible to solve serious institutional problems in the Russian gas sector. First of all, it will strengthen competitiveness and Gazprom will have extra incentives to increase extraction and export Russian, not foreign gas. Besides, unification of prices will help eliminate at least part of shadow schemes. The vast gap in gas prices feeds the growth of middlemen who make profits exceptionally by virtue of margin and their informal agreements. All these measures will have a positive impact on the Russian economy, both at the expense of improving the investment climate in the gas sphere and potential increase of Russian gas exports.
Central Asian friends have grown increasingly pragmatic as Russia adopted a blocking approach toward them in its Asian foreign policy. Russian policy makers have started, slowly but surely, realizing this fact, and it gives hope for modernization of old inertia foreign policy.