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Russia and Ukraine reach gas deal

Latest update : 2008-02-12

After last-minute talks, Russian President Vladimir Putin and his Ukrainian counterpart Viktor Yushchenko announced that they had reached a gas deal, avoiding another winter gas supply cut-off. However Russia did warn Ukraine against joining NATO.

To read an analysis by business editor Douglas Herbert, click here.



MOSCOW, Feb 12 (Reuters) - Russian and Ukrainian leaders  
settled a row over gas debts at last-ditch talks in the Kremlin
on Tuesday, minutes before a Moscow-imposed deadline on Ukraine
to pay up or face supply cuts.

The row between the two former Soviet states had sent
jitters through customers in Europe, who feared it could
escalate into a repeat of early 2006, when a pricing dispute
between Moscow and Kiev disrupted shipments to the EU.

"We have agreed that Ukraine will on Thursday start repaying
the debt which was amassed in November-December of last year
because supply contracts had not been signed by the structures
involved," Ukrainian President Viktor Yushchenko told a news

"Gazprom is satisfied with proposals made by the Ukrainian
side," President Vladimir Putin told the same news conference.

Russian gas export monopoly Gazprom, which provides a
quarter of Europe's gas, had threatened to cut 25 percent of its
supplies to Ukraine at 1500 GMT if there was no deal on the
debt, which Russia put at $1.5 billion. Kiev put the figure at
just over $1 billion.

Most Russian gas exports pass across Ukrainian territory but
both countries have assured Europe that westward gas flows will
not be interrupted.

Many analysts had predicted Russia and Ukraine would clinch
the deal since Putin wanted to show support for Yushchenko at a
time when he is locking horns with Ukraine's new prime minister
Yulia Tymoshenko, who is more openly critical of Moscow.

Both presidents looked exhausted and pale after talks which
lasted for four hours.

Putin, concerned about Ukraine's ambitions to join NATO,
warned Kiev that Russia could be forced to redirect its missiles
towards its former Soviet neighbour if it joined the Western
military alliance and deployed a U.S. missile defence shield.



Gazprom insisted the dispute with Ukraine was a purely
commercial one over unpaid bills, but it is likely to revive
criticism that Russia is using its energy clout to exert
political pressure on its neighbours.

The row blew up less than two months after Tymoshenko
returned to the prime minister's job after winning a
parliamentary election, replacing Viktor Yanukovich, who had
warmer relations with Moscow.

Tymoshenko, who clashed with Russia over gas during her
earlier stint in office, now blames Russian-imposed gas
middlemen for racking up the debt.

She has demanded Moscow axe some of the intermediaries
immediately, a move previously opposed by Yushchenko.

"We are all interested in making our cooperation as
transparent as possible," said Putin.

"We have also agreed that (Ukrainian state energy firm)
Naftogaz and Gazprom form a working group, which should in the
nearest future come up with a proposal on simpler and more
transparent relationship...," said Yushchenko.

Naftogaz's head Oleg Dubyna told reporters the two state
firms would switch to a new scheme from 2009.

Yushchenko said Russia had pledged to stick to the agreed
price of $179.5 per 1,000 cubic metres despite earlier demands
by Moscow for Kiev to pay over $300 for supplies in January.

The gas Russia supplies to Ukraine is a mixture of fuel from
Russian fields and cheaper Central Asian gas, which flows
through Gazprom's pipeline network.

The markets in Moscow closed before the deal was announced.
The shares of Gazprom, Russia's largest firm by market value,
closed 3.6 percent up, in line with the broader market

Date created : 2008-02-12