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Russia-Ukraine Contract To Avert New Year Gas War

Gazprom spokesman Sergei Kupriyanov: "We have signed, in our opinion, a good contract with Naftogaz Ukraine."
MOSCOW (Reuters) -- Russian gas will move via Ukraine without interruption this New Year as the ex-Soviet states have a 10-year supply deal in place, Russia's monopoly gas exporter said today, easing fears in Europe of a repeat gas war.

Gazprom has also dropped litigation in a Stockholm court against Ukrainian state energy firm Naftogaz, its chief spokesman said, while Ukraine's crisis-hit economy is unlikely to face fines in 2010 related to under-consumption of gas.

"We have signed, in our opinion, a good contract with Naftogaz Ukraine. Therefore we can mark this New Year at home," Sergei Kupriyanov said in a radio interview on New Year's Eve.

Russia and Ukraine signed the 10-year gas contract after a three-week standoff in January 2009 in a bid to avoid a repeat of the cuts along a route supplying one-fifth of Europe's gas needs, which shook confidence among the continent's consumers.

Analysts have said Moscow is unlikely to be tough on Kyiv this year ahead of Ukraine's presidential election in January in the hope Ukraine chooses a relatively pro-Russian leader.

Evidence that Moscow is softening its stance came when Prime Minister Vladimir Putin brokered a deal with his Ukrainian counterpart, Yulia Tymoshenko, allowing Kyiv to import 35 percent less gas in 2010 than contracted.

Gazprom waived fines it could have imposed on Ukraine for under-consumption in 2009 and has cut the minimum gas volume Kyiv must buy in 2010 to 33.75 billion cubic meters from 52 bcm.

"That means that the risk of fines arising is close to zero," Kupriyanov said live on Ekho Moskvy radio station.

There is still a risk, however, that supplies could be disrupted should Ukraine fail to keep up monthly payments. The next test will come on January 11, by when Naftogaz is due to pay for December supplies of Russian gas.

Tymoshenko has admitted Ukraine has had difficulty meeting monthly payments, although the country has so far paid on schedule. Low temperatures could push Ukraine's December bill to nearly $1 billion from the $770 million paid for November.

Gazprom Chief Executive Aleksei Miller on December 25 described the situation regarding December gas payments as "very alarming" and said reduced off-take confirmed Ukraine was facing "serious difficulties" with future payments.

Ukraine can, however, count on cash from the International Monetary Fund, which relaxed the conditions for its $16.4 billion bailout program late on December 30 by allowing the central bank to spend from its foreign currency reserves an extra $2 billion on debts, including the gas bills.

The decision, the IMF said, "did not involve any new disbursement" but it effectively gave Kyiv the $2 billion it had been seeking to help plug its overstretched finances.

The cash is likely to keep Ukraine's finances stable as its political elite begin battle in the first presidential election since the 2004 Orange Revolution that brought pro-Western President Viktor Yushchenko to power.