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Ukraine: Moscow Ends Gas Dispute, But Kyiv's Energy Problems Remain

Russia's agreements with Ukraine on transit and gas supplies for next year have eased the tensions between the two countries and fears of energy shortages. But Moscow still seems determined to build a bypass pipeline around Ukraine, and there are signs that Kyiv's energy problems have been postponed rather than solved. Our correspondent Michael Lelyveld reports.

Boston, 28 December 2000 (RFE/RL) -- Russia and Ukraine have ended their long-running quarrel over gas debts in time for the new year, but it is not clear that the causes of the problems between the two countries have changed.

Last Friday, officials signed two agreements covering Russian gas transit through Ukraine and payments for gas supplies to Kyiv for the coming year. The deals opened the door to a further pact on cooperation in the gas sphere, raising hopes for accords on determining Ukraine's past debts and assuring Russian electricity deliveries.

Russian President Vladimir Putin hailed the developments, saying, "The fact that specific agreements have been reached has changed the attitude to Ukraine," the Ukrainian News reported.

The agreements have calmed a crisis that began last July when the Russian government announced plans to build a bypass pipeline around Ukraine through Poland to Western Europe. The idea emerged after years of Russian complaints about Ukrainian thefts of transit gas.

Since about 90 percent of Russia's gas exports to Europe pass through Ukraine, Moscow appeared largely helpless to stop the gas diversions, despite Kyiv's mounting debts for supplies. The situation was aggravated this year by accusations that Ukrainian traders were selling stolen gas at a profit in Europe, undercutting legitimate sales by Russia's Gazprom.

The last straw seems to have been an admission by President Leonid Kuchma in an interview with the German magazine Der Spiegel that gas thefts were sanctioned by the Ukrainian government to supplement supplies. Fears of a Russian bypass and the threat of a cutoff prompted efforts to reform Ukraine's energy sector and collect unpaid bills for gas and power.

In the search for a settlement, many plans were also aired to give Russia part ownership in Ukraine's pipelines. The bypass proposal gained credibility after Gazprom opened talks with European gas companies to build the new line and the European Union announced plans to double its imports of Russian gas.

Under the latest agreements, Russia will supply Ukraine with 30,000 million cubic meters of gas for transit of 124,600 million cubic meters to Europe next year. Ukraine could receive an additional 1,000 million cubic meters as a wintertime "credit" and another 5,000 million cubic meters as "insurance" in case of disruption in gas deliveries from Turkmenistan.

Russia is said to have allowed a 10-year delay in payments on at least $1.4 billion in Ukrainian debts in exchange for a pledge to treat the bills as sovereign obligations of the state. Ukraine also promised to halt thefts, but in the event that they occur, they would also be counted as debts of the state.

The settlement came, as some analysts had predicted, by the start of the calendar winter season. Despite months of discord, observers noted there was little alternative in the near-term to gas transit through Ukraine, in light of the fact that a bypass project could take years. If Russia had failed to reach an agreement, it might have risked damage to its reputation as a reliable supplier to Europe.

But Putin has sent mixed messages about the settlement and future reliance on Ukraine. On the one hand, he portrayed a new era in relations on the issue, saying that "Ukraine and Russia will enter the European gas market together -- Russia with its product and Ukraine as an independent partner supplying this product."

On the other hand, Putin indicated that Russia would continue to pursue plans for the bypass project. In other words, Moscow means to strengthen compliance with the agreements by reducing its export dependence on Kyiv.

The approach means that Ukraine may have a limited time to make changes in its own energy dependence. Russian supplies will give the country less than half of the 78,000 million cubic meters of gas it will use next year. Turkmenistan has agreed to supply 30,000 million cubic meters, while Ukraine produces 18,000 million cubic meters for itself.

But Turkmenistan only agreed to resume deliveries this year after Ukraine pledged advance payments every week. Supplies have been cut off in the past, and there are doubts that Central Asian pipelines can handle gas for both Ukraine and Russia without more work.

Last week, Kyiv won a temporary respite from its financial troubles with a decision by the International Monetary Fund that allows Ukraine to draw $246 million. The European Bank for Reconstruction and Development has promised energy loans, while the EU is trying to organize more international aid following the shutdown of Ukraine's crippled Chornobyl nuclear power plant. Those efforts may help Ukraine to keep up with its payments for Turkmen gas.

But there are greater questions about whether the country can reduce its extravagant energy consumption, which has been largely unchanged since the Soviet period. Ukraine's economic growth is forecast to continue, implying that it may need even more gas unless efficiencies increase.

If Putin pursues the pipeline plan through Poland, Ukraine's leverage will inevitably wane, even though the harsh political rhetoric of the past year may be toned down. Ukraine's energy problems, like its debts, may be delayed. But real solutions are still needed in addition to the agreements that have been signed.