European Spot Gas Markets, September 9, 2005

Victor Yushchenko, the president of Ukraine, sacked his entire government on Thursday, claiming that ministerial infighting had damaged "team spirit" and affected the basics of state policy.

The dismissals include prime minister Yulia Tymoshenko, and the head of the security and defence council, Petro Poroshenko. Both clashed in cabinet and Poroshenko has been tainted by allegations of corruption including nepotism and pressuring the judiciary. Poroshenko claims the accusations to be "groundless and absurd".

Professor Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, said the implications for the gas sector would depend on who was appointed to the new cabinet: "In the short term it freezes everything. The hope must be that some constructive people emerge in Kiev who will not spend all their time fighting each other and trying to get money for themselves."

Stern added: "The key issues are balancing Russia-Ukraine supply with Turkmen-Ukraine supply, and the institutional and contractual arrangements which are in place and may be put in place for both sets of supply and transit."

William Browder, c.e.o. of Hermitage Capital Management in Moscow, told The Heren Report that Yushchenko made a big mistake by appointing Yulia Tymoshenko, known widely in Ukraine as the "the gas princess".

"A woman who is the equivalent of Mikhail Khordokovsky became prime minister," he said.

Olexander Turchinov, the head of Ukraine's security service, was also removed from office. He was the man charged with investigating whether the Turkmen gas trade is indirectly controlled by Semyon Mogilevich, a Ukrainian-born Russian high on the FBI's wanted list.

A senior figure in Russian finance told The Heren Report that news of Turchinov's resignation was "very disturbing". "We were quite happy to see that investigation [into Mogilevic] going on," he said.

Mikhail Korchemkin, an expert in Russian gas, said that in the long term the political manoeuvring in Ukraine would have little impact on the gas sector. "In terms of natural gas, what matters are volumes, transits and production, that's it. It's very much like Russia from the Communist era through the turbulent 1990s to today - gas exports have never stopped."