Wednesday, February 25, 2009

The Gathering of Wisdom: The calm before the storm

More and more community leaders are calling for Ukraine's President, Viktor Yushchenko, to resign and for Ukraine to hold early presidential elections in the Summer/Fall.

Viktor Yushchenko is facing an avalanche of public opinion as pressure increases with no sign of letting up. Yushchenko has less then 4% public support and the prospect of a drawn out prolonged period of uncertainty is not in Ukraine's best interest.

The latest broadside shot comes from Ukraine's first President since Independence, Leonid Kravchuk.

Kravchuk, joining a growing chorus of political leaders, has called on incumbent president Viktor Yushchenko to resign and for Ukraine to hold early presidential elections.

The sudden resignation of Ukraine's National Security and Defense Council (NSDC) Secretary Raisa Bohatyriova has signaled a split in Yushchenko's support with some analysts stating that Bohatyriova's resignation marks the start of Yushchenko's presidential election campaign.

The NSDC has been Yushchenko's inner cabinet and it was rumoured that Yushchenko was planning on using the NSDC as a pretense to call a state of emergency and the instigation of Presidential rule in order to prolonging his term as President. A move that was reportedly opposed by Raisa Bohatyriova yet supported by Yushchenko's right hand adviser, Viktor Baloha, the head of the presidential secretariat.

The level of community unrest and the number of demands for Yushchenko to resign is increasing with public protest against Ukraine's president on the rise.

Adding to Yushchenko's downfall is pressure coming from Ukraine's governing majority lead by Ukraine's Prime Minsiter, Yulia Tymoshenko and Viktor Yanukovych, leader of National Opposition, Party of Regions. Party of Regions along with members of the government have recently called for Yushchenko to face impeachment proceedings.

Yushchenko has been accused of undermining Ukraine's economic development and sabatoge of the Government's attempts to address the current financial crisis. There is ongoing division within Yushchenko's politcial party "Our Ukraine" with the office of the president actively seeking to destabilize the governing coalition and \calling for the President to make a preemptive strike to stave off impeachment by dismissing Ukraine's parliament. Come July the president loses the constitutional authority to dismiss Ukraine's parliament. Suggestions of dismissing Ukraine's parliament have been rejected by Ukraine's Parliamentary Speaker Volodymyr Lytvyn. Lytvn has claimed that any mopve to force another round of parliamentary elections without holding Presidential elections would be counter productive.

Any attempt by Yushchenko to undermine the governing coalition and dismiss the parliament is expected to make the current situation worst with suggestions that the Governing majority lead by Yulia Tymoshenko and Opposition Party of Regions could still form an alliance to counter moves by Yushchenko.

Ukraine has seen two parliamentary elections since Yushchenko took office in 2005 with the political infighting going from bad to worst. Yuschhenko has dismissed three prime-ministers, illegally dismissed three Constitutional Court Judges and unconstitutionally interfered in the operation of Ukraine's courts in a desperate attempt to retain power and authoritative control over Ukraine.

With Presidential elections due by the end of the year and Yushchenko not in a winnable position the best option for Ukraine is for Yushchenko to announce his resignation in order to facilitate the holding of early Presidential elections. Clinging on to power and prolonging the inevitable would only make matters worst with Ukraine facing a serious risk of social collapse fueled by political uncertainty and a deteriorating economic situation

Presidential elections would be become a vote of confidence or a change in direction hopefully putting to rest the ongoing division and political crisis that has plagued Ukraine since Yushchenko's election which sparked the Orange Revolution in 2004/5.

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Tuesday, February 17, 2009

Yushchenko's Poll Dance to Oblivion

Ukraine's embattled President, Viktor Yushchenko, would not survive the first round of voting and does not even rate according to a recent public opinion poll conducted by the Sofia Center for Social Studies on February 3-13, 2009 and published in the KyivPost


Presidential Candidate Support











CandidateParty %
Viktor YanukovychPoR 24.2%
Yulia TymoshenkoBYuT 15.3%
Arseniy YatseniukBAY 11.8%
Volodymyr LytvynBL 5.2%
Petro SymonenkoCPU 4.6%
Vikor YushchenkoOU 3.0%
Other/Undecided/None35.9%


Even more telling is that the President's Party "Our Ukaine" would not win any seats with only five political parties winning representation if fresh Parliamentary elections were held last week.

Parliamentary Party Support











Party %
Party of RegionsPoR25.8%
Bloc Yulia TymoschenkoBYuT15.6
Bloc of Arseniy YatseniukBAY10.4%
Communist Party of UkraineCPU5.5%
Bloc of LytvynBL5.3%
Our UkraineOU2.7%
Other/Undecided/None34.7%


The People's Union Our Ukraine Party would fail to overcome the 3% threshold, receiving only 2.7% of the vote.

A total of 2,018 respondents participated in the interview. The poll's margin of error does not exceed 2.2%.

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Friday, February 13, 2009

Yushchenko under pressure to resign

Ukraine's President, Viktor Yushchenko is increasingly coming under pressure to resign in the midst of an ongoing debilitating feud and conflict between the Office of the President and Ukraine's Prime Minister, Yulia Tymoshenko.

Yushchenko continues to undermine the Ukraine's Government with his latest attack aimed at destabilising Ukraine's gas deal that settled a dispute with Russia that left Europe without gas and in the cold

There is growing concern that amidst the current global financial crisis the ongoing battle and struggle between the parliament and the Office of the President is having a detrimental effect on Ukraine's economy.

According to recent polls support for Victor Yushchenko following his attempts to dismiss Ukraine's parliament and the Tymoshenko government late last year has slumped to less then 4%, the lowest level of support for a head of state in the world.

Ukraine is due to hold presidential elections by the end of the year

With less then 4% public support Viktor Yushchenko can not win a second term of office. Yushchenko, if he contests the next Presidential election, would be not survive the first round ballot. Any attempt by the President to hold on to office by declaring a state of emergency, as has been suggested, would bring Ukraine close to breaking point with the serious possibility of political and civil unrest.

A long and protracted presidential contest is not good for a country that is already struggling to financially. Ukraine needs to establish political stability and take positive steps to restore confidence in its financial security.

Pressure is mounting for the President to announce his resignation in order to facilitate an early Presidential ballot, paving the way for a Summer/Fall election as opposed to holding on to office and forcing an election in the middle of Ukraine's harsh winter.

There are many in Ukraine who believe that an early presidential election would be best for the country and that the President announcing his resignation would be the cleanest way in which to allow for early elections to take place and avoiding the need for the Parliament to consider possible impeachment proceedings against Yushchenko.

Victor Yushchenko's dwindling public support has diminished the President's effectiveness with many people both within and outside of Ukraine opting to ignore the President altogether.

Early Presidential elections would be seen as a way of putting an end to the uncertainty and conflict that has paralysed Ukraine during his term of office. The sooner Yushchenko announces his intention to resign, the sooner Ukraine can unite elect a new head of state and move forward.

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Monday, February 02, 2009

Gas Contract - 10 year plan

Below is a copy of the gas Contract signed by Ukraine and Russia (Source Kyiv Post)

Ukrayinska Pravda (www.pravda.com.ua), a Ukrainian news website, has published the full text of the Ukrainian-Russian gas transit deal for the next decade. The agreement was signed in Moscow on Jan. 19. The following is the English-language translation done by the Kyiv unit of British Broadcasting Company (www.bbc.co.uk).

The Naftohaz Ukrayiny national joint-stock company (Ukraine), hereinafter referred to as the Contractor, represented by the first deputy head of the board, Ihor Mykolayovych Didenko, acting on the basis of the power of attorney dated 02.01.2009 No 14-346, on the one side, and Gazprom open joint-stock company (Russian Federation), hereinafter referred to as the Customer, represented by the deputy head of the board, Valeriy Aleksandrovich Golubev, acting on the basis of the power of attorney dated 09.11.2007 No 01/0400-510 d, on the other side, have concluded this Contract on the following:

Article 1. Terms and definitions

Except for those cases when the content envisages otherwise, the following terms and definitions are used in this Contract. All measurement units used in this Contract have the meanings determined in the international ISO 1000 standard "CI units and recommendations for use of their components and some other units" dated 15.02.1981.

"Applicable time" means Moscow time.

"Contract Day" means the time period of 24 consecutive hours from 10 a.m. Moscow time of any calendar day till 10 a.m. Moscow time of the next calendar day. If the period between 10 a.m. of one calendar day and 10 a.m. of the next calendar day is more or less than 24 hours (during transition from "winter time" to "summer time" and vice versa), the rights and obligations of the Parties in relation to a day are measured proportionally for such period.

"Contract Month" means the time period from 10 a.m. Moscow time of the first day of any calendar month till 10 a.m. Moscow time of the first day of the next calendar month.

"Quarter" means any period from among those listed below consisting of three consecutive months, beginning at 10 a.m. Moscow time of the first day of any Quarter and ending at 10 a.m. Moscow time of the first day of the next Quarter:

First Quarter: January-March

Second Quarter: April-June

Third Quarter: July-September

Fourth Quarter - October-December

"Contract Year" means the period of time from 10 a.m. Moscow time of the first day of a calendar year till 10 a.m. Moscow time of the next calendar year when Natural Gas transit is being fulfilled in accordance with the terms of this Contract.

"Natural Gas" or "Gas" means any hydrocarbon or a mix of hydrocarbons (consisting mainly of methane) and incombustible gases in gaseous form of Russian, Kazakh, Turkmen or Uzbek origin.

"Cubic metre of Natural Gas" or "m3" of natural gas means the amount of natural gas occupying the cubic capacity of one cubic metre at a temperature of 20 degrees Celsius and absolute pressure of 0.101325 MPa.

"Lowest Thermal Value" or "(Ni)", when applied to natural gas, means the value of heat in kcal/m3 (kWh/m) produced during full combustion of one cubic metre of natural gas at a temperature of 20 degrees Celsius and absolute pressure of 0.101325 MPa and the same temperature and pressure of the redundant air that natural gas has, when combustion products are cooled to a temperature of 20 degrees Celsius and when the water emerging as a result of combustion, is not condensed into liquid form.

"Kilocalorie" or "kcal" - one kilocalorie equals 1/859.845 kWh.

"Kilowatt-hour" or "kWh" - one kilowatt-hour equals 859.845 kcal.

"Excessive pressure" is determined on the basis of readings of measurement devices in accordance with Technical Agreements to the Contract. Excessive Pressure is measured in kgf/cm2 and can also be denoted in bars and MPa

1 kgf/cm2 = 0.98067 bars = 0.098067 MPa

"Delivery and Acceptance Point" mean Gas Consumption Measuring Points (GCMP) and Gas Measuring Stations (GMS) where technical delivery and acceptance of gas takes place (measurements of gas volume and qualitative parameters, documentary formalization of gas delivery and acceptance).

"Entry Point" means a geographical point (points) in a place where gas pipelines cross state borders of the Russian Federation - Ukraine, the Republic of Belarus - Ukraine, the Republic of Moldova - Ukraine.

"Exit Point" means a geographical point (points) in a place where gas pipelines cross the state borders of Ukraine - Poland, Ukraine - Slovakia, Ukraine - Hungary, Ukraine - Romania, Ukraine - the Republic of Moldova.

"Gas Consumption Measuring Point" (GCMP) means an object designated for measuring the volume of gas in a gas pipeline during its delivery and acceptance and consisting of one or several measuring pipelines. Gas Consumption Measuring Points: GCMP in Volchansk, GCMP Loznaya, GCMP Limanskoye, GCMP of ATI [administrative technical inspection] gas pipeline looping.

"Gas Measuring Station" means a unit (units) where measurement of the volume and determination of quality of the transmitted natural gas is carried out. Gas Measuring Stations are: GMS Sudzha, GMS Sokhranovka, GMS Serebryanka, GMS Pisarevka, GMS Valuyki, GMS Platovo, GMS Mozyr, GMS Kobrin, GMS Belgorod, GMS Prokhorovka, GMS Alekseyevka, GMS Caushani, GMS Uzhhorod, GMS Berehove, GMS Drozdovychi, GMS Orlovka, GMS Tekovo, GMS Grebeniki, GMS Ananyev.

The word "Party" means the Customer and Contractor individually, and "Parties" means the Customer and Contractor together.

"Repair Works" means repair works of the operable equipment of the transport system used for natural gas transit in accordance with the terms of this Contract; the procedure of their coordination is described in the Technical Agreements.

"Reasonable and Prudent Operator" - the term reasonable and prudent operator, when used to describe the level of a Party's caution while fulfilling its obligations in accordance with this Contract, means such a level of attention, foresight and foreknowledge which are reasonably and habitually demonstrated by qualified operators involved in the same kind of activity under the same or similar circumstances and terms with due respect to the other Party's interests.

"Technical Agreement" means the annual document regulating the regimes of gas transit, gas supplies to consumers in Ukraine, relations between the Parties in the course of natural gas transit through the territory of Ukraine, duties of representatives of the Parties at delivery and Acceptance Points, along with distribution of general gas volumes among Entry/Exit Points, which are an integral part of this Contract.

"Annex to the Contract" means the written documents signed by the authorized representatives of the Parties, which contains changes and amendments to the Contract and is an integral part of the Contract.

Article 2. Subject of the Contract

The subject of this Contract is provision of services of Natural Gas transit through the territory of Ukraine through pipeline transport from Entry Points to Exit Points by the Contractor during the period from 2009 to 2019 inclusive on an compensatory basis, in the volumes and within the terms in accordance with Article 3 of this Contract.

Article 3. Volumes of natural gas transit

3.1. During the period from 2009 to 2019 inclusive, the Customer annually delivers Natural Gas to the Contractor for its transit to European countries in the amount of at least 110bn (one hundred and ten billion) cu.m. at Delivery and Acceptance Points at the border of the Russian Federation - Ukraine, the Republic of Belarus - Ukraine, the Republic of Moldova - Ukraine, and the Contractor ensures its receipt and further transit through the territory of Ukraine to Delivery and Acceptance Points at Ukraine's border with Romania, Hungary, Slovakia, Poland and Moldova. The Contractor independently ensures proper operation of the Ukrainian gas transport system and guarantees secure and undisrupted transit of the Customer's Natural Gas through the territory of Ukraine in the amount provided by the Customer for transit.

3.1.1. Gas transit volume will equal 120.083bn cu.m. in 2009, including Quarters:

- for consumers in the Republic of Moldova:

up to m cu.m.

Total 3,170m cu.m.

First Quarter 1,140m cu.m.

Second Quarter 530m cu.m.

Third Quarter 500m cu.m.

Fourth Quarter 1,000m cu.m.

- for European importing countries:

up to

Total 116,913m cu.m.

First Quarter 28,350m cu.m.

Second Quarter 29,803m cu.m.

Third Quarter 26,615m cu.m.

Fourth Quarter 32,145m cu.m.

including to the following directions:

up to million cu.m. GMS

Uzhhorod

Total 77,273m cu.m.

First Quarter1 8,528m cu.m.

Second Quarter 20,483m cu.m.

Third Quarter 17,904m cu.m.

Fourth Quarter 20,358m cu.m.

Berehove

Total 12,980m cu.m.

First Quarter 3,237m cu.m.

Second Quarter 3,185m cu.m.

Third Quarter 2,536m cu.m.

Fourth Quarter 4,022m cu.m.

Drozdovychi

Total 4,790m cu.m.

First Quarter 1,150m cu.m.

Second Quarter 1,200m cu.m.

Third Quarter 1,190m cu.m.

Fourth Quarter 1,250m cu.m.

Orlovka *

Total 20,250 m cu.m.

First Quarter 4,965m cu.m.

Second Quarter 4,635m cu.m.

Third Quarter 4,685m cu.m.

Fourth Quarter 5,965m cu.m.

Tekovo

Total 1,620m cu.m.

First Quarter 470m cu.m.

Second Quarter 300m cu.m.

Third Quarter 300m cu.m.

Fourth Quarter 550m cu.m.

*These volumes of gas can be supplied to GMS Orlovka on condition of operation of the Tiraspol-1, 2 and Vulcanesti compressor plants, planned load at the Tiraspol-Vulcanesti-Isakchea gas pipeline segment, load at the Tarutino compressor plant and looping belonging to the Gaztransit CJSC, to which the Naftohaz Ukrayiny and Gazprom OJSC are parties.

In the event of technical feasibility, the Contractor will ensure the increase of Gas transit volumes to the places listed above.

3.2. Annual Gas transit volumes through the territory of Ukraine and their quarterly distribution (including the perspective of these places) for coming years will be specified in Annexes to this Contract. In the event of the Parties failing to conclude this kind of Annex before the beginning of the relevant Contract Year, the transit volume of the gas which should be ensured for such year will be determined on the basis of consolidated obligations in supplying minimum annual volumes of Gas in accordance with Gazrpom Export OJSC contracts with European customers receiving Gas delivered as transit through Ukraine's gas transport system. In this case, minimum annual obligations, in accordance with the Gazprom Export OJSC contracts, should be confirmed by an auditor.

3.3. Upon the Parties' consent, changes in quarterly Gas transit volumes to these places are possible. Parties agree the proposals on changing Natural Gas transit volumes 15 days before the beginning of the relevant Quarter.

Distribution of quarterly Gas volumes indicated in clause 3.1 by months shall be fulfilled evenly, based on the average daily volumes by Quarters. Upon the consent of the Parties, changes in the monthly volumes of Gas transit are possible. Parties agree the proposals on changing monthly Gas transit volumes 10 days before the beginning of each month.

Upon a mutual agreement of the Parties formalized in writing, redistribution of Natural Gas flows by places is allowed.

3.4. As a rule, Gas Delivery and Acceptance are fulfilled evenly in the course of a month, with the deviation of admissible deviation of daily volumes from the average daily and monthly volumes envisaged in clause 3.1 of this Article not exceeding +/- 6.5 per cent, and at the GMS Uzhhorod - not exceeding +/- 4.5 per cent.

In the event that the Customer takes volumes of Russian gas exceeding the admissible deviations indicated in this clause of the Contract, and there is no contract on storing the Customer's natural gas in the amounts necessary to compensate for exceeding the deviation in Ukrainian UGSF [underground gas storing facilities], and if a contract on storing is available - absence of Customer's written notification about taking of gas from underground gas storing facilities (UGSF), the Customer ensures gas supplies to the Contractor to compensate for these deviations at the borders of the Russian Federation/Ukraine, the Republic of Belarus/Ukraine 36 hours prior the moment of the emergence of the deviations exceeding the admissible ones at the latest. In such case, the Parties agree the volumes, directions and duration of Gas supply.

In the event that the Customer does not provide compensation for exceeding admissible deviations, the Contractor does not bear responsibility for ensuring Contract Regimes of Gas Delivery and Acceptance.

The Parties have agreed that the volume of the Natural Gas supplied by the Contractor on each Contract Day at Ukraine's gas transport system (hereinafter "GTS") exit points at Ukraine's western border after its transit through the territory of Ukraine should equal the volume of the natural gas supplied by the Customer at Ukraine's GTS entry points within the same Contract Day.

3.5. If the volume of Gas actually transported during the Contract Year exceeds the volume determined in clause 3.1 of this Article, the cost of the services provided by Contractor in transit delivery of additional volumes of Gas shall be paid by the Customer in accordance with the provisions of this Contract.

3.6. The Parties have agreed that, in the event of necessity, the Contractor will ensure Gas transit through the territory of Ukraine to Ukraine's border with the Republic of Moldova for its further transit through the territory of the Republic of Moldova via the Ananyev-Chernivtsi-Bogorodchany gas pipeline through the GMS Ananyev in the direction of GMS Alekseyevka for its further transit.

Article 4. Terms of gas transit

4.1. Contract Gas pressures, procedure of determination of its volume, requirements of its quality and caloric value are determined in the Technical Agreement to be concluded every year.

In the Technical Agreement to be concluded on an annual basis, the Customer and Contractor agree directions and length of Natural Gas transit through the territory of Ukraine. The absence of the signed Technical Agreement is not an obstacle for the Parties to fulfil their obligations in accordance with this Contract.

4.2. The Parties have agreed to urgently consider the issues related to Gas transit volumes when Gas transit volumes change, including changes due to circumstances of insurmountable force, taking into account operational regimes of compressor plants, main gas pipelines and technical capacities of gas supply systems.

4.3. Upon the written mutual consent of the Parties, reductions of daily volumes of Gas supplies at exit points from the Ukrainian GTS are possible only for certain places of Gas transit.

In case of general reduction of the volumes of Gas supplied for transit to Contractor's gas transportation system, Gas transit volumes are proportionally reduced in all places.

4.4. Natural Gas is delivered by Customer to Contractor in the general gas flow.

Gas measurements are fulfilled in Delivery and Acceptance Points indicated in the Technical Agreement. Technological losses of Gas at border segments of gas pipelines are determined in accordance with agreed documents.

4.5. The Contractor bears responsibility for ensuring secure and undisrupted operation of Ukraine's gas transport system, including its timely and full supply with technological gas, along with any losses of Natural Gas delivered by the Customer for transit through the territory of Ukraine.

4.6. The Customer entrusts technical implementation of this Contract in line with his obligations to organizations: LLC Gazrpom Transgaz Moscow, LLC Gazprom Transgaz St Petersburg, LLC Gazprom Transgaz Kuban, LLC Gazprom Transgaz Volgograd, LLC Gazprom Export (permanent representative office of LLC Gazprom Export in Ukraine), BDC JSC Topenergy, OJSC Beltransgaz and JSC Moldovagaz.

The Contractor entrusts technical implementation of this Contract in line with its obligations to the Ukrtranhaz State Company.

In this case, the presence of the signatures of representatives of the organizations/enterprises whom the Parties have entrusted technical implementations of the Contracts on acts and other documents related to the fulfillment of this Contract is not mandatory if such representatives had been specially authorized by the Parties.

4.7. The Parties have agreed that the Contractor, upon the Customer's authorization, takes measures for restricting transit Gas supplies to the relevant places. The Customer sends written notification with regard to this to Contractor 48 hours prior to the beginning of the term of Gas supply reduction, with an indication of the period of its validity.

rticle 5. Repair works

5.1. In case of the necessity of carrying out Repair Works, including technological operations comprising the fulfillment of intratubal defectoscopy, the Parties coordinate fulfillment of these Repair Works in advance, thereby exempting themselves from mutual sanctions related to violation of the Gas transit regime caused by fulfillment of the Repair Works. The Contractor undertakes to fulfil all necessary repair works, including technological operations related to putting into operation, control of procedure and acceptance of cleaning devices an intratubal defectoscopes ensuring secure and undisrupted operation of Ukraine's gas transport system.

5.2. The procedure for carrying out Repair Works will be determined by the Parties in the Technical Agreement to be concluded on an annual basis.

Article 6. Gas quality

6.1. Quality of the Natural Gas, its transit being the subject of this Contract, should comply with the following specification at Delivery and Acceptance Point/Points:

6.1.1. Chemical composition:

Methane CH4(C1) not less than 90 per cent

Ethane C2H6(C2) not more than 7 per cent

Propane C3H8(C3) not more than 3 per cent

Butane C4H10(C4) not more than 2 per cent

Pentane C5H12(C5) and other heavier hydrocarbons not more than 1 per cent

Nitrogen N2 not more than 5 per cent

Carbonic acid CO2 not more than 2 per cent

Oxygen O2 not more than 0.02 per cent

6.1.2. Sulfur content:

Hydrogen sulfide H2S not more than 6 mg/m3

Sour sulfur not more than 20 mg/m3

Mechanical additives - absent

6.1.3. Range of Admissible Lowest Combustion Temperature:

Maximum not more than 8,250 kcal/m3

Minimum not less than 7,800 kcal/m3

6.1.4. Dew point:

For water - not more than - 8 degrees Centigrade at a pressure of 3.92MPa

6.2. The Natural Gas identified in the first paragraph of clause 6.1 of this Article should not contain mechanical additives.

6.3. Standard methods of quality assessment.

The rules of measuring the Lowest Combustion Temperature and the standard methodology of assessing Gas quality applied for assessing compliance of the Natural Gas supplied in accordance with this Contract to the specification mentioned in this Article are indicated in the Technical Agreement.

Article 7. Documentary formalization of gas delivery and acceptance

7.1. Technical delivery and acceptance of gas are fulfilled at Delivery and Acceptance Points according to the procedure determined in Technical Agreements. Simultaneously with the signing of this Contract, the Parties undertake to sign the Technical Agreement for the year 2009, and for each next Contract Year - by the end of the Third Quarter of the year preceding the Contract Year. In the event that the Parties fail to sign a Technical Agreement for each next Contract Year, then the Technical Agreement which was in force during the previous Contract Year is valid.

7.2. Monthly Gas delivery and acceptance act shall be done at each GMS, GCMP by way of summation of daily readings at all measuring runs for the month under review, with the deduction of technological losses and taking of Gas at the border segments of gas pipelines from GMS, GCMP to the Ukrainian border, and they shall be signed by representatives of the Parties on the first day following the month under review in four copies (two copies for each Party).

7.3. The Parties appoint authorized representatives for formalization of monthly Gas delivery and acceptance acts with an indication of its quality.

7.4. Consolidated (general) monthly Gas delivery and acceptance acts shall be prepared by way of summation of the daily volumes of Gas recorded in monthly delivery and acceptance acts for all GMS and contain the information about Gas supplies to Contractor, volumes of Gas transit through the territory of Ukraine and gas supplies to Ukraine by third parties with a breakdown for each supplier and buyer.

Consolidated (general) monthly Gas delivery and acceptance acts shall be signed by representatives of Contractor and Customer in four copies (two copies for each Party) by the eighth day of the month following the month under review at the latest.

For the purposes of timely signing of consolidated (general) monthly Gas delivery and acceptance acts, the Parties have agreed to resolve all disputes between the Customer and Contractor on Gas accounting and other issues by way of negotiations and not to relate them to formalization of these documents.

Consolidated monthly Gas delivery and acceptance acts serve as the grounds for formalization of the acts on the cost of transit services.

7.5. Monthly documents confirming the quality of Natural Gas are prepared at GMS and are an integral part of monthly Gas delivery and acceptance acts.

Article 8. Rate of payment for gas transit

8.1. The rate of payment for the services in transit of 1,000 (one thousand) cu.m. of Gas through the territory of Ukraine in 2009 is accepted as equaling 1.7 US dollars (one dollar and 70 cents) for each 100 (one hundred) kilometers of distance, with the exception of the rate of payment for services in transit of 1,000 (one thousand) cu.m. of Gas provided towards paying off the previously received advance payment indicated in clause 8.2 of this Article.

From 2010, the rate of payment for services in transit of 1,000 (one thousand) cu.m. of Gas through the territory of Ukraine (Tn) shall be calculated annually for volumes of Gas actually transported according to the following formula:

Tn = An + Kmz nj, where

An is the component figure calculated according to the following formula:

An = 0.5 x A2010 + 0.5 x An-1 x (1 + In-1), where

A2010 equals 2.04 US dollars per 1,000 cu.m. per 100 km.

An-1 is the component of the tariff which was in force during the year immediately preceding the given year of transportation.

For calculation of the rate of payment for services in transit in 2010, An-1 = A2010.

In-1 is the rate of inflation in the European Union annually published by the Eurostat agency for the year immediately preceding the given year of transportation. For An calculation for 2010, In-1 = ).

Kmz nj is the fuel component of the tariff determined annually according to the formula:

Kmz nj = 0.03 x Pnj / L x 100

where:

Pnj is the price for gas supplies to Ukraine according to Contract No [no number indicated] dated 19.01.2009 in US dollars per 1,000 cu.m. in force for this month of calculation.

L is the distance of transportation in kilometers (km) equaling 1,240 km.

n is the relevant year of transportation of gas.

j is the relevant month of gas transportation during the year n.

8.2. Towards [paying off the] advance payment that had been received earlier from the Customer in accordance with Annex No 4 dated 09.08.2004 to the Contract on volumes and terms of natural gas transit through the territory of Ukraine for the period from 2003 to 2013 dated 21.06.2002, the Contractor will provide services in Gas transportation for the sum of 250m US dollars in 2009.

The rate of payment for services in transit of 1,000 (one thousand) cu.m. of Gas through the territory of Ukraine provided towards paying off the indicated advance payment is established in the amount of 1.09375 US dollars (one dollar and 9.375 cents) per each 100 (one hundred) kilometers of distance.

The cost of the services provided by Contractor towards paying off the advance payment shall be reflected in monthly acts on cost of services in Gas transport and verification acts of settlements between the Parties.

8.3. The Parties have agreed the monthly schedule of services in Gas transit through the territory of Ukraine provided by the Contractor to the Customer in 2009 towards [paying off] earlier received advance payment:

Month of 2009

Monthly sum, US dollars

January 0.00

February 20,000,000.00

March 20,000,000.00

April 20,000,000.00

May 25,000,000.00

June 25,000,000.00

July 25,000,000.00

August 25,000,000.00

September 25,000,000.00

October 25,000,000.00

November 20,000,000.00

December 20,000,000.00

8.4. After paying off the advance payment for services in transit on a monthly basis according to the rate of payment for transit indicated in clause 8.2 of this Article, according to the schedule in line with clause 8.3, the Customer pays the cost of Contractor's services during the years 2009-19 in monetary funds according to the rate of payment for services in transit of 1,000 (one thousand) cu.m. of gas through the territory of Ukraine indicated in clause 8.1 of this Article.

8.5. The estimated cost of services in transit of the volumes of Gas indicated in clause 3.1 of Article 3 of this Contract through the territory of Ukraine in 2009 equals approximately 2,350,000,000 (two billion three hundred and fifty million) US dollars.

8.6. The rate of payment for Gas transit paid by the Customer includes all taxes and duties (including VAT).

8.7. In the event of substantial changes in formation of transit tariffs on the European gas market in 2010 and subsequent years in comparison with those reasonably anticipated by the Parties during the conclusion of this Contract, and if the rate of payment for services in transit indicated in clause 8.1 of this Contract does not correspond to the rate of transit tariffs on the European gas market, each of the Parties has the right to apply to the other Party with a claim to review the rates of payments for transit services.

8.7.1 A claim to review the rate of payment for services in transit should be presented in written form and duly grounded by the Party that submits it. Upon the receipt of the aforementioned claim by the relevant Party, the Parties undertake to commence negotiations within 20 days and, in the reaching an accord, sign the relevant annex to this Contract.

8.7.2. If written agreements on revision of the rate of payments for services in transit is not reached within 3 (three) months from the date of commencement of the negotiations, each of the Parties has the right to lodge the case with arbitration in accordance with Article 12 of this Contract for a final decision to be made.

Article 9. Procedure for settlements

9.1. Parties have agreed that Customer makes payment for the services provided by Contractor in gas transit through the territory of Ukraine exclusively with monetary funds, taking into account provisions of clause 8.4.

9.2. The Parties have agreed that the rate of payment for services and mutual settlements in accordance with this Contract shall be determined in US dollars.

US dollars are the currency of payment for this Contract. Expenses for transfer of monetary assets to the Contractor's account shall be borne by the Customer.

9.3. Parties formalize the act on cost of services in Gas transit through the territory of Ukraine by the eighth day of the month following the one under review at the latest. The Contractor shall issue an invoice to Customer within 5 (five) calendar days after signing of the mentioned acts.

9.4. Verification of estimations is made by the Parties on quarterly basis by the 25th day of the month following the quarter under review on the basis of the information and actual cost of the Contractor's services in Gas transit and payment for Gas transit with monetary funds.

The mentioned verification shall be formalized by an estimation verification act.

9.5. Customer makes monthly payments for the services provided by Contractor in Gas transit through the territory of Ukraine by way of transferring monetary funds to the Contractor's account by the 20th day of the month following the month of provision of services on the basis of bills submitted by the Contractor in accordance with the act on cost of services in Gas transit in the amount of the actual cost of provided services calculated on the basis of the total volume of transported Gas indicated in monthly acts and transit rates in accordance with clauses 8.1 and 8.2, taking into account the provisions of clause 8.4.

In the event that the Contractor submits a bill later than on the 15th day of the month following the month under review, the term of payment for services in transit services is prolonged for the relevant number of working days.

Article 10. Liability of Parties

10.1. The Customer and Contractor will take all necessary measures for proper fulfillment of the obligations they had assumed in accordance with this contract.

In case of failure to fulfill the provisions of this Contract, each of the Parties is obliged to compensate proven damages incurred by the other Party as a result of the failure to fulfill them.

10.2. The quality of Gas delivered by the Contractor to the Customer for European importing countries and the Republic of Moldova after its transit through the territory of Ukraine in all Delivery and Acceptance Points should not be worse than the quality of the Gas received at the Contractor's gas pipeline system. If quality parameters of Gas deteriorate in the course of transit through the territory of Ukraine, the Contractor ensures their recovery to the parameters at the entry to the territory of Ukraine at its own expense, and in the event of impossibility of this recovery compensated Customer the proven damages caused by payment of a fine to third parties for deterioration of Natural Gas quality or granting a discount on the price of Natural Gas for the reason of deterioration of its quality.

10.3. In the event of a delay in payment for the services provided in Gas transportation against the term indicated in clause 9.5 of this Article, the Contractor has the right to impose a fine in the amount of 0.03 per cent of the sum of monetary funds transferred in an untimely manner per each day of delay.

While paying the fine, in accordance with Article 20 of the "Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on avoidance of double taxation of income and assets and prevention of evasion from paying taxes", the Customer deducts from this sum the profit tax in the amounts envisaged by legislation and sends the act confirming the fact of tax deduction to the Contractor.

10.4. In the event of taking by the Contractor of the Natural Gas supplied for transit to Ukraine's gas transport system, the whole volume of withdrawn gas shall be formalized in accordance with the Contract on sales and purchases of natural gas between the GazpromGazprom -Search using: News, Most Recent 60 Days OJSC and the Naftohaz Ukrayiny NJSC No [no number indicated] dated 19 January 2009. The price of this Gas is determined in accordance with clause 4.3 of Article 4 of the Contract on sale and purchase of natural gas between theGazprom -Search using:

· News, Most Recent 60 Days

Gazprom OJSC and the Naftohaz Ukrayiny NJSC No [no number indicated] dated 19 January 2009.

Article 11. Circumstances of insurmountable force (force majeure)

11.1. The Parties are exempted from liability for failure to fulfill their obligations in accordance with this Contract if this failure to fulfill them has been caused by the circumstances which do not depend on the will of the Parties and had not been predicted by them, which arose after the conclusion of this Contract and have an extraordinary and unavoidable nature (circumstances of insurmountable force).

11.2. Circumstances of insurmountable force comprise, in particular: fires, explosions, natural calamities, flooding, earthquakes, landslides which influence the decrease of transit, military actions, strikes which can cause a delay in the transit of Natural Gas during the whole period of their duration, but only in the event that these circumstances, having arisen, make fulfillment of the obligations in accordance with this Contract fully or partially impossible within the determined terms.

11.3. The Party for which the fulfilment of its obligations in accordance with this Contract becomes impossible due to the effect of the circumstances of insurmountable force should notify the other Party about this in written form within 3 (three) calendar days and inform it about the fact, scale and expected duration of effect of these circumstances.

11.4. The Party announcing the circumstances of insurmountable force coming into effect there is obliged to take all reasonable measures for resuming the fulfillment of its obligations in accordance with this Contract in their full scope within the shortest possible term.

11.5. The effect of the circumstances of insurmountable force should be confirmed within a two-week term by the chamber of trade and industry or other competent authority of the country on territory of which these circumstances had taken place.

11.6. The Party which failed to notify or having notified the other Party in an untimely manner about the emergence of circumstances of insurmountable force loses the right to refer to these circumstances as the grounds for exemption from responsibility for its failure to fulfill its obligations in accordance with this Contract and is obliged to compensate the damages incurred as the result of this failure to fulfill them to the other Party.

11.7. In the event that the circumstances of insurmountable force and/or their consequences last more than 6 (six) months, or one of the Parties has all the grounds to presume that these circumstances and/or their consequences will last more than 6 (six) months, as the result of which one of the Parties will be unable to fulfill its obligations in accordance with this Contract, the Parties will meet within the shortest possible term and commence negotiations to look for a reasonable and fair solution. If the Parties fail to reach mutual accord within a 30-day term from the moment when one Party had received the relevant notification from the other Party, any of the Parties has the right to terminate the fulfillment of its obligations in accordance with this Contract for the period of effect of the circumstances of insurmountable force without affecting other rights and obligations of the Parties in accordance with this Contract. In this case, the Party which terminates the fulfillment of its obligations is obliged to notify the other party about this in written form within a term of at least 15 (fifteen) days before the moment of expected termination after the end of the aforementioned 30-day term on condition that the circumstances of insurmountable force are still in effect.

Article 12. Arbitration

12.1. This Contract is regulated and is subject to interpretation in accordance with the material law of Sweden.

12.2. The Parties shall seek to resolve all disputes and differences with regard to interpretation and application of this Contract among themselves by way of negotiations. If the Parties are unable to find a mutually acceptable solution within 45 days from the moment of emergence of any kind of dispute or controversy, any dispute, difference or claim in relation to this Contract or its violation, termination or invalidation shall be ultimately resolved by way of arbitration in accordance with the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce. Arbitration shall consist of three arbitrators. The venue of the arbitration shall be Stockholm, Sweden. The language of arbitration hearings shall be Russian. The decision of the arbitration shall be final and obligatory for both Parties.

12.3. Clauses 12.1-12.2 of this Contract in relation to arbitration shall be compulsory for the Parties, their authorized representatives and legal successors, and the validity of these clauses shall remain in force regardless of the expiry of the term of validity or termination of validity of this Contract.

13. Other conditions

13.1. With the coming into force of this Contract, the contract between the Naftohaz and the GazpromGazprom -Search using: News, Most Recent 60 DaysOJSC about the volumes and terms of transit of Russian natural gas through the territory of Ukraine for the period from 2003 till 2013 dated 21 June 2002, including all annexes, amendments and additional agreements to it (Hereinafter - "Contract dated 21.06.2002") loses its force from 1 January 2009. At the same time, the duties related to making settlements and provision of services in Natural Gas transit towards advance payments made that had not been fulfilled by the Parties within the framework of the Contract dated 21.06.2002 shall, from the moment of coming into force of this Contract, be recognized by the Parties as valid and will be fulfilled by the Parties within the framework of this Contract. The Parties take the obligation to sign, by 31.03.2009 at the latest, to sign the mutual settlement verification act on obligations not fulfilled within the framework of the Contract dated 21.06.2002.

13.2. If any provision of this Contract becomes invalid in accordance with applicable legislation or invalid, this does not influence the validity of other provisions of this Contract. In the case of invalidation or termination of the force of any provisions of this Contract, the Parties shall reach agreement on replacing this invalid or inoperative provision with a new provision, the economic result of whose introduction would be maximally close to the economic result of the invalid or inoperative provision.

13.3. The Parties observe confidentiality in relation to this Contract and undertake to do everything possible to not make its content public to third parties, except for those cases when this, for legal reasons, is necessary for the Parties to fulfill their obligations in accordance with this Contract.

13.4. In the event that the Contractor makes a transfer of monetary assets to the Customer's account, all bank expenses shall be borne by the Contractor.

13.5. In the event of a change of the legal or organizational form, and/or merger, and/or other restructuring of one of the Parties resulting in passage of rights and obligations in accordance with this Contract to a newly established entity, the mentioned Party is obliged to duly ensure legal succession.

13.6. All changes and amendments to this Contract should be carried out in written form and signed by the Customer's and Contractor's authorized representatives.

The Parties have agreed that the said changes and amendments which have been signed and posted by fax have legal force in the event of their subsequent confirmation with the originals.

The Parties are obliged to inform one another on changes to bank account details, legal addresses, telephone numbers and telefax numbers within a period of five days from the moment of occurrence of the relevant changes.

13.7. In order to ensure the fulfillment of the obligations in accordance with this Contract, the Parties have right to take additional measures, including insurance and other actions.

13.8. Neither of the Parties may pass its rights and obligations in accordance with this Contract to third parties without the written consent to do from the other Party.

13.9. Relations between the Parties that have not been regulated by this Contract may be settled by additional agreements between the Parties.

13.10. All correspondence, notifications and negotiations related to this Contract shall be fulfilled in the Russian language.

13.11. The Buyer hereby gives assurances and guarantees that, as of the date of conclusion of the Contract, the Buyer has got all approvals, permits and endorsements necessary for signing, enforcement and fulfillment of this Contract in accordance with Ukrainian legislation and the Buyer's corporate documents. The mentioned assurances and guarantees remain in force during the entire term of validity of this Contract.

13.12. In the event of a dispute on any issue arising related to the fulfillment or validity of the Contract, the Contractor must not disrupt or reduce, the same way as allow anyone under its direct or indirect control, in particular, the authorized gas transport company, to disrupt or reduce, or demand from anyone being under its direct or indirect control, in particular, the authorized gas transport company, to disrupt or to reduce the transit of natural gas until the end of the procedure for resolving the dispute stipulated in Article 12 of the Contract.

Article 14. Term of validity of the Contract

14.1. This Contract comes into force from the moment of its signing by the Parties. The validity of this Contract is applicable to the relations of the parties having arisen from 1 January 2009.

14.2. This Contract remains valid till 10 am on 1 January 2020. This Contract may be prolonged if the Parties reach relevant agreement by 01 July 2019.

Termination of the term of validity of this Contract does not influence the rights and obligations of the Parties that had arisen from this Contract during the period of its validity and had not been fulfilled as of the moment of the end of its term of validity.

Concluded in Moscow on 19 January 2009 [date inserted by hand] in two copies in the Russian language, both having equal legal force, with one copy for each of the Parties.

Article 15. Legal addresses and bank account details

Naftohaz Ukrayiny national joint-stock company

Legal and postal address:

6 B.Khmelnitskoho St, Kiev 01001 Ukraine

OKPO code 20077720

Multicurrency account No 260053012609 in Prominvestbank, Ukraine, K

SWIFT: UPIB UA UX

Intermediary:

Bank of New York

USA, New York

SWIFT: IRVT US 3N

Acc: 890-0060-077

Deutsche Bank Trust Company Americas

USA, New York

SWIFT: BKTR US 33

Acc: 04-182-382

Multicurrency account No 26000100664001

Alfa-Bank, Ukraine, Kiev

SWIFT: ALFA UA UK

Intermediary:

JP Morgan Chase Bank

USA, New York

SWIFT: CHAS US 33

Acc: 400-940-442

Multicurrency account No 26001012817704

The State Export-Import Bank of Ukraine

Ukraine, 03150, Kiev, 127 Gorkogo St.

SWIFT: EXBS UA UX

Intermediary:

JP Morgan Chase Bank

USA, New York

SWIFT: CHAS US 33

Acc: 400-124-432

Deutsche Bank Trust Company Americas

USA, New York

SWIFT: BKTR US 33

Acc: 04-094-227

Citibank N.A., New York

SWIFT: CITI US 33

Acc: 36-083-522

Check account No 26009300000516

Forum Bank, Kiev, Ukraine

SWIFT: FJSC UA UK

Forum Bank First Kiev Branch

3901290006

Intermediary:

American Express Bank

SWIFT: AEIB US 33

Acc: 00749580

Deutsche Bank Trust Americas Co.

USA, New York

SWIFT: BKTR US 33

Acc: 04-405-216

Citibank N.A., New York

SWIFT: CITI US 33

Acc: 36159654

Gazprom open joint-stock company

Legal and postal address Gazprom -Search using:

Gazprom OJCS, 16 Namyotkina St,Moscow, Russian Federation, V-420, GSP-7, 117997

Settlement account:

Gazprombank (open joint-stock company), 16 Namyotkina St., build. 1, Moscow 117420 Russian Federation

In rubles:

Settlement account 40702810000000000001

Cash account 30101810200000000823

USD currency transit account

40702840400007000001

Beneficiary bank:

Gazprombank, Moscow, Russia

SWIFT code: GAZPRUMM

Intermediary bank:

Deutsche Bank Trust Company Americas, New York

New York, USA

SWIFT code: BKTR US 33

Account No 04414534

INN 7736050003

KPP 997250001

BIK 044525823

OKPO code 00040778

Telephone: 719 3001

Teletype: 111823 Cintin

Telex: 411467 GAZ RU

Fax: 719 8333

On behalf of Naftohaz Ukrayiny NJSC

[Signature, seal] I.M.Didenko

On behalf of Gazprom OJSC

[Signature, seal] V.A.Golubev

Annex No 1

to Contract dated 19 January 2009 between the Naftohaz Ukrayiny national joint-stock company and the GazpromGazprom -Search using:

· News, Most Recent 60 Days open joint-stock company on volumes and terms of natural gas transit through the territory of Ukraine for the period from 2009 to 2019 No TKGU

City of Moscow 19 January 2009

The Naftohaz Ukrayiny national joint-stock company (Ukraine), hereinafter referred to as the Contractor, represented by First Deputy Head of the Board Ihor Mykolayovych Didenko, acting on the basis of the power of attorney dated 02.01.2009 No 14-346, on the one side, and the Gazprom open joint-stock company (Russian Federation), hereinafter referred to as the Customer, represents by Deputy Head of the Board Valeriy Aleksandrovich Golubev, acting on the basis of the power of attorney dated 09.11.2007 No 01/0400-510 d, on the other side, hereinafter referred to as the Parties, have concluded this Annex to the Contract dated 19 January 2009 between the Naftohaz Ukrayiny NJSC and the Gazprom OJSC on volumes and terms of natural gas transit through the territory of Ukraine for the period from 2009 to 2019 (hereinafter "Contract") on the following:

1. To supplement the Contract with clause 9.6, with the following content: "9.6. The Customer has the right to take advance payments (prepayment) in January-February 2009 in the amount of 1.7bn US dollars for services of Gas transit provided by the Contractor on the basis of bills submitted by the Contractor. The Contractor undertakes to use monetary funds received from the Customer for paying the legal claims transferred in favour of the Naftohaz Ukrayiny NJSC by the Gazprom

OJSC, GazpromGazprom -Search using: News, Most Recent 60 Days Export LLC, ZMB GmbH, GBP OJSC or its affiliated company (hereinafter Creditors) to RosUkrEnergo AG in accordance with the Transfer Agreement between the Naftohaz Ukrayiny NJSC, Gazprom OJSC Export LLC, ZMB GmbH, GBP OJSC or its affiliated company dated 19.01.2009. Payment of the indicated sums shall be made by the Contractor according to the Bank-Client system during the same banking day with making of the Customer's advance payments in the Contractor's favour.

Taking into account the provisions of clause 8.4 of the Contract, the Contractor will provide services in the transit of gas through the territory of Ukraine at the expense of advance payments indicated in this clause, while payment for transit services shall not be made in monetary funds until the received sums of advance payments are paid off in full."

2. The Parties have agreed to express clause 9.1 in the following wording:

"The Parties have agreed that the Customer makes payment for the services provided by the Contractor in gas transit through the territory of Ukraine exclusively with monetary funds, taking into account provisions of clauses 8.4 and 9.6."

3. This Annex has been concluded in two copies in the Russian language, one copy for each of the Parties, and is an integral part of the Contract.

4. In the event of any contradiction between the provisions of this Annex and the Contract, the provisions of the Annex are in force. Other provisions of the Contract remain unchanged and are obligatory for the Parties.

5. This Annex comes into force from the date of its signing.

On behalf of Contractor

First Deputy Head of the Board of Naftohaz Ukrayiny NJSC

[Signature, seal] I.M.Didenko

On behalf of Customer

Deputy Head of the Board of Gazprom OJSC

[Signature, seal] V.A.Golubev

Gazprom said on 29 January that the disputed gas in Ukrainian storage facilities belongs to the intermediary RosUkrEnergo. See Gazprom says disputed gas in Ukrainian storage facilities belongs to trader", Inter TV on 29 January. At 1320 on 29 January, the Interfax-Ukraine news agency quoted Gazprom’s information department as saying that according to the relevant agreement, Gazprom and Gazprom Export had transferred to Naftogaz the right to claim from RosUkrEnergo a debt of $1.7 billion in cash only, and not in the form of gas.

Source: Ukrayinska Pravda website, Kiev, in Ukrainian 22 Jan 09

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