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Russia/Ukraine: Premiers Fail To Resolve Gas Dispute

(ITAR-TASS) Russian Prime Minister Mikhail Fradkov and his Ukrainian counterpart Yurii Yekhanurov failed today to reach an agreement in their tense dispute over gas prices, according to Russian news agencies. Russia has been seeking to bring the prices it charges Ukraine for gas in line with world market rates, while Kyiv is asking for the increase to be introduced gradually.

Moscow, 19 December 2005 (RFE/RL) -- Prime Ministers Fradkov and Yekhanurov met behind closed doors in Moscow today to resume talks on the prices of Russian natural-gas supplies to Ukraine.

The Russian gas monopoly Gazprom initially demanded that Ukraine, which currently purchases Russian gas at the subsidized rate of $50 per 1,000 cubic meters, start paying $160 as of the new year.

Gazprom, riled by Kyiv's flat refusal, later raised the price to $220 to $230.

Russian agencies today quoted a source in the Russian delegation as saying that Fradkov and Yekhanurov had failed to make any progress in negotiations.

"The two sides have reiterated their positions and Ukraine showed more understanding of the need to switch to market prices both for transit and supplies," the source was quoted as saying. "But so far the Ukrainian side has not realized this should be done at once."

The source added that talks would continue between Gazprom and the Ukrainian gas firm Naftohaz Ukrayiny.

A Gazprom spokesman said the company had also received confirmation that the talks had yielded no breakthrough.

Ukrainian President Viktor Yushchenko has agreed that Ukraine should eventually pay market prices for Russian gas, but has asked Russia for the price hike to be gradually introduced over a period of five years. Moscow has consistently rejected this request.

Instead, Gazprom is threatening to cut gas supplies unless Ukraine bows to its demands by 2006. The Russian gas giant traditionally provided gas to Ukraine at discounted rates in exchange for access to Ukraine's pipeline system. But now Gazprom says it is prepared to pay European transit rates for gas it sends to Europe via Ukraine.

Russia's tough stance is widely seen as political retribution for Ukraine's efforts to distance itself from Russia. The Western-leaning Yushchenko, who rose to power after a peaceful revolution in December 2004, has made EU membership one of his main goals.
Ukrainian President Viktor Yushchenko has agreed that Ukraine should eventually pay market prices for Russian gas, but has asked Russia for the price hike to be gradually introduced over a period of five years.

Christopher Weafer, chief strategist at Alpha Bank, said the dispute has obvious political undertones, but forecasts that Moscow will eventually agree to a gradual price increase.

"'The most likely outcome is that there will be a negotiated settlement which will see a phased introduction of the higher prices because, quite frankly, Ukraine can't afford to pay an extra 3 billion dollars [per year] for Russian gas right now," Weafer said. "It would cripple its economic recovery. So I think we're definitely seeing a political game that's going on right now.”

Russian officials have warned the row could threaten gas deliveries to European countries, which import almost half of their gas from Russia. About 80 percent of the EU's Russian gas imports are pumped through Ukrainian pipelines.

But the EU so far has been cautious not to take sides.

Speaking to a news conference in Moscow today, Sergei Yastrzhembskii, Russia's envoy for relations with the EU, panned the union for its failure to intervene in the conflict.

"Of course, the European Union could play a more active role here because it has just recognized Ukraine as a market economy," Yastrzhembskii said. "It is simply awkward to talk about simple truths here but it would seem the market-economy status should put an end to any talk about barter deals of any sort. Perhaps professors from the European Union should talk about it with those who make decisions in Ukraine."

Russia also announced today that Belarus, which is politically closer to Moscow, will receive gas from Russia at $46 per 1,000 cubic meters in 2006.

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