The Ukrainian-Russian gas crises in January 2009 demonstrated an urgent need to secure gas transits through Ukraine. Although both parties eventually signed agreements that regulate Ukrainian gas import as well as transit of Russian gas through Ukraine, the underlying conflict is far from being resolved. Most importantly, the difficult technical state of Ukraine’s Gas Transit System (GTS) and the urgent need for investments impose severe risks as they endanger the reliability of the system and thus, of gas transits through Ukraine.
The EU and international financial institutions have offered technical and financial help to improve the technical state of the GTS. However, the economic viability of the already proposed investment projects is still unclear. This paper undertakes a first assessment. We demonstrate that the transit tariffs as determined by the agreement signed in January 2009 are not sufficient to finance the proposed construction of new transit capacity and that they can cover the cost of modernising the existing pipelines only if these will be utilised at (almost) full capacity. However, considering the severe uncertainty with respect to future transit volumes, we conclude that neither the construction of a new pipeline nor the modernisation of existing lines can be financed based on the currently specified transit terms.
