Gazprom - Naftogaz Ukrainy Dispute: Business or Politics?
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ICMR HOME | Case Studies Collection
Case Details:
Case Code : BENV003
Case Length : 15 Pages
Period : 1991 - 2006
Pub Date : 2006
Teaching Note :Not Available
Organization : Gazprom, Naftogaz
Industry : Energy
Countries : Europe, Russia
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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"I'll remind you that some European countries, members of
the European Union, cover 90 percent of their gas needs with Russian
hydrocarbons. Ninety percent! And no one's complained so far."1
- Vladimir Putin, President of the Russian Federation at an
EU2 - Russia Summit in October 2005.
"Why does Turkey pay $100 per thousand cubic meters, the
Baltic countries pay $110, the Caucasus pays $100, and Ukraine, which is
Russia's closest neighbor, must pay $230?"3
- Viktor Yushchenko, President of Ukraine, questioning
Gazprom's demand for higher gas prices in December, 2005.
Introduction
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On December 14, 2005, the Open joint-stock company Gazprom (Gazprom), a
state-controlled Russian company with monopoly over gas exports, announced a
stiff hike in its gas prices for 2006 for Naftogaz Ukrainy (Naftogaz),4
the Ukrainian state gas company. Gazprom, which had earlier demanded $160 per
thousand cubic meters (Tcm),5 hiked the
price to $230 per Tcm and threatened to cut off supplies, from January 1, 2006,
if Ukraine did not agree to its new prices. No agreement could be reached with
Naftogaz, which had paid $50 per Tcm of gas in 2005. On January 1, 2006, in the
midst of a harsh winter, and the day on which the Russian Federation (Russia)
assumed the presidency of G8,6 Gazprom
began to reduce the pressure of gas into the pipeline system meant for Europe
that passed through Ukraine.
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The message was clear - it had decided to go ahead with its threat to cut off
gas supplies to Ukraine.
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Within
hours, more than half-a-dozen countries in Europe reported reduction in
the gas supplies received at their terminals (Refer Exhibit I for
Gazprom's gas exports to Western Europe and Exhibit II for Russian gas
exports to Europe transiting through Ukraine and other countries).
By evening, the trading of accusations began. Gazprom claimed that
Ukraine7 was stealing gas meant
for Europe that passed through its territory. Ukraine replied that it
was only taking 15% of the gas that it was legally entitled to take as
transportation charges as well as the gas coming from Turkmenistan
through Gazprom's pipelines.8 |
Gazprom - Naftogaz Ukrainy Dispute: Business or Politics?
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