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Russia And Ukraine Say Gas Deal Reached

Prime Ministers Vladimir Putin and Yulia Tymoshenko with Gazprom CEO Aleksei Miller (right).
MOSCOW (Reuters) -- The prime ministers of Ukraine and Russia said on January 18 that they had reached an outline deal to restore gas supplies to European consumers after marathon talks which dragged on into the small hours of the morning.

"Gas transit, the Ukrainian side assured us, will be restored very soon," Russian state channel Vesti-24 showed Russian Prime Minister Vladimir Putin saying in a brief statement after the drawn-out talks.

Putin, standing next to his Ukrainian counterpart Yulia Tymoshenko, said Moscow had agreed to make a 20-percent discount for Kyiv from a price European consumers pay, "on [the] condition [that] Kyiv keeps preferential tariffs for Russian gas transit to Europe across Ukraine in 2009 at last year's level".

"We also agreed that starting January 1, 2010 we will fully move to gas prices and transit tariffs in line with European levels without any reductions and discounts," Putin said.

Tymoshenko said: "We ordered the heads of Naftohaz and Gazprom to prepare by Monday (January 20) the whole package of documents and formulate them the way it was agreed during today's talks."

"Once all the documents on gas transit and gas purchases have been signed, gas transit to Europe will be fully restored."

Gazprom spokesman Sergei Kupriyanov told local channels Russia's gas export monopoly and Ukraine's Naftohaz "are now drawing up an agreement on gas supplies to Ukrainian consumers and gas transits". Naftohaz offered no comment.

Putin and Tymoshenko were under intense pressure from the European Union to resolve the dispute, which has cut gas supplies to much of eastern Europe since January 7 and damaged both countries' reputations as reliable energy partners.

While Putin, Russia's paramount leader, had full authority to seal an agreement, it remained unclear whether Tymoshenko's domestic political rival Viktor Yushchenko would respect the deal reached in Moscow.

Last October, Tymoshenko and Putin clinched a deal calling for a three-year transition period after which Ukraine would pay market prices.

President Yushchenko had no objections to that deal and said repeatedly Ukraine must be prepared to pay market prices, while saying a formula had to be found to determine the price.

Yushchenko and Tymoshenko had disagreed on some negotiating tactics in the final run-up to the deal, notably on whether a deal for Ukraine and transit to Europe should be separate.

The frantic all-night talks followed a summit in Moscow of gas-consuming nations at the Kremlin on the afternoon of January 17, which failed to resolve the dispute.

Russia cut off supplies to Ukraine on January 1 because it would not pay higher prices for its gas. Six days later, export flows to eastern Europe through Ukraine ceased amid Russian accusations that Kyiv was "stealing" gas intended for export.

After the Kremlin meeting, Medvedev reiterated Moscow's position on the issue at the heart of the dispute, saying that Kyiv had to pay European prices for gas supplies, more than double current levels.

"There is nothing damaging about that. It's the money our other partners pay and Ukraine is in a position to pay it," Medvedev told a news conference.

Kyiv, whose crisis-gripped economy is forecast to contract by up to 5 percent this year, says it cannot afford such high prices and wants Russia to pay higher transit fees for gas it exports through Ukraine.


Russian officials had earlier questioned if Tymoshenko, a former gas trader, had the necessary mandate to discuss a solution.

In Kyiv, a source in Yushchenko's office said there were no divergences between the president and the prime minister. "The prime minister has a full mandate at the talks.

Otherwise, she would not be taking part in them," the source said.

Russia invited heads of government of all countries buying or transporting its gas to its "Moscow International Conference on Ensuring Delivery of Russian Gas Supplies" on January 17, but most stayed away.

The Czech Republic urged EU member states not to attend so that Brussels could speak with one voice. Slovakia was the only EU member to come, apart from the Czechs. Most other attendees were Russia's allies in the Balkans and eastern Europe.

A key hurdle to ending the dispute appeared to have been overcome when a consortium of European gas companies said they had agreed to supply enough gas to fill the empty pipeline and restore pressure so that exports could resume.

But the key sticking point remained the price Ukraine must pay for its own supplies this year. Yushchenko insisted there could be no question of exports resuming to Europe until Ukraine had settled its own prices with Moscow.

Gazprom wanted Ukraine to pay European-level prices of $450 per 1,000 cubic meters (tcm) of gas for 2009, up from $179.50 per tcm in 2008. But Ukraine, heading into its worst recession for a decade, had said it can afford only $201.

The row has focused minds in Europe about the need to find new routes for gas but experts say any solution would take years to build and Gazprom says EU dependency on Russian gas is forecast to increase over the coming years.