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Gazprom purchases $40 Billion glass beads for the tribe chief



April 22, 2010 – Comments (0)

As every European merchant knows since 17th century at the very least, tribe chiefs have no use for gold, but admire shiny glass beads and rusty nails. Tribe leader Putin is no exception. He loves to see rusty heaps of metal on the shiny surface of the sea. And if such a heap can also be polished on the outside to make it shine like glass beads, the GULAG chieftain feels as exultant as Borat Sagdiyev in front of a picture of naked Pamela Anderson.

But the aborigine's penchant for shiny toys is also bad news for Gazprom's long-suffering shareholders. According to terms of the deal signed yesterday by Putin's avatar, they may now have to pony up as much as $100 for every 100 m^3 of gas they sell. The exact cost of the deal will depend on the market price of gas, but my conservative calculation gives me a staggeringly high number of $40 billion over the lifetime of the contract. 

The other part of the price tag is some $50 Billion earmarked for the construction of two underwater gas pipelines (they are "underwater" in both senses of the word) that would bypass the Ukraine. Putin started building the pipelines to secure gas shipments to Europe after the Ukrainians demanded the above-mentioned 30% discount, which he refused to give them at the time. At first I was going to put the "$90 Billion glass beads" in the headline, but then I thought that maybe I should be fair to the tribe chief and treat these two items separately. OK, so to revise it, let's say that for his (or, rather, Gazprom's) $90 Billion, the tribe chief has purchased a glass necklace AND some fairly impressive amount of rusty nails. Rusty nails sounds like the most accurate description of the latter item because an empty pipeline on the bottom of the ocean has about the same intrinsic value. You can't use it as planned once you have chosen the Ukrainian transport route for your gas, and you can't mortgage an empty pipeline or get fair market price for it if you decide to sell it. You can't even sell it for scrap metal because for that you must first lift it from the bottom of the ocean, which also costs a great deal of money.

"Kiev and Moscow have agreed to extend the lease allowing Russia's Black Sea Fleet to be stationed in Ukraine by 25 years in return for cheaper gas. 

The deal was signed by Ukrainian President Viktor Yanukovych and his Russian counterpart Dmitry Medvedev. 

In return, Russia agreed to grant Ukraine a discount on imports of Russian gas.

The complicated formula would give Ukraine a discount of $100 for every 1,000 cubic metres of gas providing the benchmark rate was above $330 or a discount of 30% if the rate was lower than that.

Ukraine currently pays $305 per 1,000 cubic metres. 


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