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Why Ukraine should be looking closer to home to solve its gas-supply crisis

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ukraine_europe_asia_450_380resizeOpinion by James Drew

Gazprom, Russia's largest energy supplier, ceased delivery of natural gas to Ukraine on 1 July, after Ukraine had not paid its advance bill for July. At this level, you pay up front, and there are no gentle reminders.

Rather, Gazprom Chief Executive Alexey B. Miller cuts you off immediately, declaring: “Gazprom will not deliver gas to Ukraine at any price without prepayment.”

Ho-hum. Given the present situation between Ukraine and Russia, the cut-off could probably not have come at a worse time even if, as analysts suggest, the supply cut does not yet have critical implications in the short term in terms of consumption or gas flow to Europe, adding that that Ukraine has sufficient stores of gas to make it through the summer, when consumption is low.

And it isn't the first time, for that matter; Russia briefly cut natural gas supplies to Ukraine in June 2014 during the growing conflict between the Ukrainian Army and pro-Russian separatists in south-eastern Ukraine, and disputes over gas prices between Russia and Ukraine also led to shut-offs in 2006 and 2008.

Given the Ukraine government's present economic failures, it does seem more than a little surprising that it is not looking closer to home concerning meeting its gas and energy needs, specifically to the Group DF (Dmirty Firtash), which has this year, among other things, been instrumental in the launch of the Agency for the Modernization of Ukraine (AMU).

In early March, representatives of France, Germany and the UK endorsed the proposal jointly declared by the Federation of Employers of Ukraine and its trade unions to set up the Agency for the Modernization of Ukraine, which is shortly (200 days after its launch) to present a clear and comprehensive Ukraine modernization action plan, which is set to be drafted by eight renowned European politicians and business people leading various facets of Ukraine’s Euro-integration including health care, finance and taxation, economy, trade, constitutional and legal reform, anti-corruption and law enforcement.

And, given DF's proven track record in supplying reliable, cheap gas to Ukraine and onwards to Europe, it is more than a little startling that, given the government's contrasting performance, it appears unwilling at present to entertain the idea of co-operating with DF, rather than stifling its operations due to petty politics.

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The government should really look to its laurels – with Greece on the verge of default, leaving the eurozone and the EU, Ukraine may very well follow suit. Russia has cut off the country's gas supply, over a renewed pricing/payments dispute that the government is also responsible for; such economic failure is letting the rest of Europe down, as well as providing Russia with ever-more political power with which to blackmail other nations.

As already stated, under DF, gas supply was sustainable, reliable and cheap, so why does the government of Ukraine simply not admit its energy shortcomings and give AMU more credit and, most importantly, try to work with it in order to save the country's economy?

Group DF has declared on a number of occasions its intention to consolidate gas distribution assets in order to increase their management efficiency and provide higher-quality service for end consumers of gas, including businesses, utility providers, government institutions and the Ukrainian people. Group DF's strategy in gas distribution envisages significant investments in the industry in order to build a business capable of transforming the Ukraine gas industry.

Meanwhile, Energy Commissioner Maroš Šefčovič has been on the old Silk Road in search of new gas supply contracts that would break Gazprom’s hold on the European market, and Ukraine Prime Minister Arseniy Yatsenyuk has said that Ukraine should switch to exclusively domestic natural gas extraction by 2025 – frankly, this should be a goal that can be reached far sooner.

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