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Meeting with Chairman of Gazprom's Management Committee Alexei Miller

January 9, 2009

Sochi

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PRESIDENT OF RUSSIA DMITRY MEDVEDEV: Alexei Borisovich, you were in Brussels yesterday where you participated in difficult negotiations with Gazprom's colleagues from the EU and Ukraine. What were the results of these negotiations?

CHAIRMAN OF GAZPROM'S MANAGEMENT COMMITTEE ALEXEI MILLER: All day yesterday we held consultations on the establishment of an independent mechanism to oversee the transit of Russian gas through Ukrainian territory. Gazprom sent a letter of invitation to European companies that  buy Russian gas in Europe, and ten companies have already confirmed their support for such an independent international committee. Today this protocol will be signed.

For its part the European Commission has understood the need to establish such a mechanism. The main obstacle, and the reason which the European Commission did not sign the protocol on the establishment of an international committee yesterday, is its lack of a mandate from EU member countries to do so. We believe that very soon, perhaps even today, such a mandate will be given. And in light of the fact that the situation regarding the supply of Russian gas to several European countries is critical, we are confident that an independent monitoring mechanism could be established within a few hours. At yesterday's meeting the Ukrainian party adopted a destructive position and refused to sign a protocol on establishing an international committee; in practice they missed a real chance to renew the transit of Russian gas to European countries yesterday.

DMITRY MEDVEDEV: The day before yesterday I spoke with the Ukrainian President and set out the six conditions under which Russia and Gazprom, a major company, would be willing to work with Ukraine. These include the creation of the monitoring mechanism you referred to. This idea was supported by European leaders and individuals. I would now like to see how ready Ukrainian contractors are to establish such a monitoring system and determine who should participate in it. I believe that it cannot contain only representatives from Russia and Ukraine. There should also be representatives from companies that use Russian gas. There must be competent and qualified observers from the European Union. Not just bystanders who came to Ukraine in order to sit around a good table, but rather those who will work with real equipment and who will have access to all the technological aspects of this situation. Including the underground storage of gas. Otherwise we will never be able to make this situation public. And this is our goal: to show who is actually involved in stealing gas. What is the position of the Ukrainian party on this issue?

ALEXEI MILLER: To put it mildly, it seems that the Ukrainian side is afraid of such a mechanism. Because we are well aware that the theft of Russian gas did not begin yesterday; the practice has been ongoing for many years now and our Ukrainian colleagues have benefited from this. I think that if such a mechanism is set up then our Ukrainian colleagues will have to work honestly and transparently. It seems that they are not very willing to do so.

The committee will include representatives of countries and companies that are consumers of Russian gas. Members include Gazprom, of course, as a supplier of gas, the Ministry of Energy of Russia, the Ministry of Energy of Ukraine, and National Joint Stock Company Naftogaz of Ukraine, as well as experts from the European Commission. In addition, and as you said Dmitry Anatolyevich, it will include international legal companies which will ensure and support the interests of Gazprom and Naftogaz of Ukraine in this dispute.

DMITRY MEDVEDEV: This must be closely monitored, bearing in mind that this type of theft cannot but have consequences. And in the future I think that we should use this as a base for a series of compensation claims for losses incurred both by Russia and by European consumers of gas. And for that we need the authorized representatives of law firms those who can, of course, record the actual numbers. Another very important point: has the Ukrainian party put forward any suggestions for future agreements on gas supplies to Ukraine?

ALEXEI MILLER: There has been no progress in negotiations with our Ukrainian colleagues on the delivery of gas to Ukraine. The talks have resumed but it seems that Ukrainian negotiators have no mandate and no authority with regards to the level of prices in 2009 and the volume of gas purchases. Negotiations are virtually useless. We see no willingness on the part of Ukrainian negotiators to sign a contract.

DMITRY MEDVEDEV: And do they have instructions on this topic? Did they talk about this?

ALEXEI MILLER: It seems that they do have instructions but that these are very general in nature they are clearly not enough to allow the negotiating groups to sign a contract with Gazprom.

DMITRY MEDVEDEV: This simply proves what we have been saying in recent times. It is evidence of a problem within Ukraine's political system. It reveals a lot about the state of today's political situation, how decisions are taken, who is responsible for these decisions, and it also tells us about people's motivations for making such decisions.

I would like to recall that last year when we supplied gas to Ukrainian consumers for USD 179.50, the same gas was actually sold to them at a price of USD 320 per thousand cubic metres. And all this margin went straight into the pockets of certain unknown structures, structures that most likely represent corrupt interests. And very likely the money from these transactions was used to achieve certain political goals or to solve personal problems. This is very sad because it empties the pockets of ordinary Ukrainian consumers people who we care about, people who are close to us. Incidentally, they must know that Gazprom delivered gas at one price, and that the price in Ukraine was almost double this throughout the year. We need to speak openly about this and our European colleagues need to know this.

ALEXEI MILLER: Of course in this situation the question to ask is: where is the money?

DMITRY MEDVEDEV: Yes. I can pretty well imagine where the money is, and unfortunately this is not a good thing for anybody in Ukraine. Well, what do you hope to do in the near future?

ALEXEI MILLER: In the course of the day we expect to sign a protocol on the establishment of an independent international mechanism to support the transit of Russian gas through Ukraine. And as soon as we do so we will resume deliveries and transit for our European customers.

DMITRY MEDVEDEV: That is right. Naturally we are interested in seeing transit resume as soon as possible. Nevertheless, I would like you to perform this task with one of my requests in mind: all these actions can be taken only after signing the documents. Unfortunately, we have no faith in the good intentions of the Ukrainian side. We will act only according to signed documents. Otherwise such an irresponsible policy and theft, theft which has been going on for many years, will never stop.

However, life continues. I would like you to report to me on the situation in our country. How is our gas transmission system operating? Because it is now winter and this is always a difficult time of year. We have prepared and are now implementing a very good programme for bringing gas to Russian regions. What has been done and what remains to be done in this area?

ALEXEI MILLER: The gas transmission system in Russia is up and running. All consumer demands are being satisfied fully and regularly. Gazprom continues to implement its programme for bringing natural gas to Russia. When we started it, Dmitry Anatolyevich, gas was being delivered to 25 regions they now number 68.

DMITRY MEDVEDEV: Including in the Far East.

ALEXEI MILLER: Yes, of course. We are now moving into the Far East, Eastern Siberia, the Kamchatka Peninsula and Sakhalin Island. And although the financial crisis has obviously raised difficult questions about financing these projects, Gazprom is absolutely confident about its financial plan. The company has maintained its pre-crisis investment programme for 2009 in terms of supply. I can assure you that all the challenges Gazprom faces in its priority construction projects and this also applies to those that have been much in the news of late, the North Stream pipeline under the Baltic Sea, the Bovanenkovo-Ukhta gas trunkline system, the extraction of gas in the Yamal Peninsula [West Siberia], the development of the Bovanenkovskoye oil and gas condensate field, and the creation of a new resource base for Russia in the Yamal  Peninsula I can assure you that all these goals and objectives that Gazprom has set for itself in 2009 as part of its investment programme will be implemented.

With regard to the population and utilities sector, the system is working smoothly, and we are increasing the gas supply in those areas where it has recently been colder. Russia's gas transportation system is set up in a way that ensures great endurance and stability. This system is recognised by international experts as the most reliable transmission system in the world. From a single complex in Moscow, we can optimise working conditions and extraction, transport and storage, and the distribution of gas. This allows us to supply gas to the regions where current weather conditions mean extra supplies are required, where they need more gas.

DMITRY MEDVEDEV: Good. Of course this means that for us the biggest priority is to develop our gas transportation system and ensure supplies to our people, including our villages, our rural population, because there the gas situation has always been quite difficult.

As for the future, as we discussed when I was on Gazprom's Board of Directors, we need to think, on the one hand, about how to ensure the supply of gas for export to Europe under normal conditions. This is where our closest partners are, the consumers who have made their plans based on the supply of gas from Russia, the countries that have for a long time now worked with Russia and Gazprom. But we should also think about the future for gas supply in other areas, since the challenge of diversifying the pipeline system is so topical and there is a lot of demand in a number of Asian countries. I believe that we must move in this direction. It would be beneficial for our country and for Gazprom as Russia's largest company, and would help deal with the problem of ensuring energy security in the world.

ALEXEI MILLER: Gazprom's strategy will be to continue to work on the diversification of gas transportation routes and on the creation of transport corridors, such as North Stream and South Stream, a new gas pipeline under the Black Sea going directly to Bulgaria from Russia.

Incidentally, the current crisis has shown that the first countries to be affected are in the Balkans. Therefore the construction of South Stream, the acceleration of its construction is becoming more urgent. If our Western partners suggest that the design capacity of South Stream as well as that of North Stream be increased, and ask for the acceleration of the construction of these facilities, Gazprom will respond positively to such a proposal.

With regard to the diversification of our business, one of our priorities is also diversifying our markets. Europe today is one of our biggest markets, but the Russian government asked Gazprom to make our domestic market its priority, to do everything with that in mind. In particular, working within the deadlines that were agreed upon to work out a programme for increasing domestic prices to international ones, so that by 2011 the main competitor for the European market will be our domestic market. And of course we see our primary task as meeting the demands and needs of our Russian consumers, of the public, the utilities sector of our industry and our energy industry.

The diversification of markets is without doubt very important since we cannot put all our eggs into one basket. We are now at a very advanced stage in the development of projects to supply gas to Asian countries and to create projects for the liquefaction of natural gas. These projects will enable us to supply gas to virtually every corner of the world, and in fact Gazprom is becoming a global company. On the basis of subsidiary operations, we will be able to supply gas to South America, India and other countries that require energy resources. Demand for energy is growing. It is obvious that economic growth always brings with it an increase in energy consumption, so solid, long-term contracts for the purchase of Russian gas are very important for many developing economies, and that is what we are working on, Dmitry Antolyevich.

With regard to Ukraine, of course we have to stop this Ukrainian practice, this game of stealing Russian gas. It must now be brought to an end.

DMITRY MEDVEDEV: As you know, one of the causes of the financial crisis was a lack of equality among financial partners and a lack of price equilibrium. Thus the future financial model that all states must now create must be based on universally recognised supervision mechanisms, including for prices, and the upcoming summit will be devoted to this. For this reason I don't think that in the future we should offer special advantages or preferential treatment to any state. If there is a price, it should be the same price for all the countries in Europe, including Ukraine. No discounts, no premiums. Ukrainians should pay exactly what Europeans pay. This is the only way to ensure the competitiveness of the Ukrainian economy and the stability of its political system. It does not help when our Ukrainian comrades take provocative stands dictated by corrupt ambitions. This should be borne in mind.

ALEXEI MILLER: With regard to the next steps to be taken and future proposals for international trade, in particular in primary energy resources, in oil and gas, the question of trade in primary energy resources is an essential item on the agenda, and the international trading infrastructure must change. In particular new trade channels must be created. This issue is being actively discussed by the members of OPEC, in which Russia participates as an observer, as well as by a newly created organisation, the Gas Exporting Countries Forum. New trade flows must be created, and it is important that these channels give rise to new international lending institutions that will guarantee the financial returns of real barrels of oil, of actual cubic metres sold by gas-producing countries. Now at the corporate level there is an active dialogue concerning the outlines of new trade, finance and credit infrastructure. It looks as if in the near future these issues will be on the agenda for our discussions with consumer countries.

DMITRY MEDVEDEV: Good. I hope that all this work will continue and that Gazprom will continue to act in the way that it has always done, namely to respect all of its international obligations while first and foremost taking into account Russias national interests.


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