Russia spares Ukraine from gas shock despite row

NOVO-OGARYOVO, Russia Thu Oct 2, 2008 5:20pm EDT

Russian Prime Minister Vladimir Putin (R) exchange documents with his Ukrainian counterpart Yulia Tymoshenko during a signing ceremony in the Novo-Ogaryovo residence outside Moscow October 2, 2008. Russia and Ukraine agreed on Thursday to set a step-by-step, three-year period for Ukraine's transition to purchases of Russian natural gas at market prices, Tymoshenko said. REUTERS/Sergei Karpukhin

Russian Prime Minister Vladimir Putin (R) exchange documents with his Ukrainian counterpart Yulia Tymoshenko during a signing ceremony in the Novo-Ogaryovo residence outside Moscow October 2, 2008. Russia and Ukraine agreed on Thursday to set a step-by-step, three-year period for Ukraine's transition to purchases of Russian natural gas at market prices, Tymoshenko said.

Credit: Reuters/Sergei Karpukhin

NOVO-OGARYOVO, Russia (Reuters) - Russia agreed on Thursday to spare Ukraine from a shock rise in its gas export prices despite a row over Ukrainian arms sales to Georgia with which Moscow fought a brief war in August.

Russian Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia Tymoshenko met outside Moscow to try to hammer out an agreement over the price Ukraine will pay next year for the Russian gas on which its economy depends.

Apart from the row over Ukraine's weapons supplies to Georgia and the support of Ukraine's West-leaning leadership for Tbilisi, Russia is also angry over its moves to join the NATO military alliance.

"We have just signed a memorandum," Putin told a news conference after signing a broad energy cooperation memorandum with Tymoshenko.

"During today's negotiations we talked about such serious issues as further cooperation in the energy sector, including Russian gas supplies and uninterrupted transits of energy supplies to consumers in Europe."

Tymoshenko, sitting next to Putin, said: "The parties confirmed their willingness to establish a gradual transition to market prices within three years. We have come to a conclusion that our countries do not need shock therapy."

The energy memorandum made no mention of new gas prices but it will serve as a basis for signing long-term gas deals in the future, Tymoshenko said, adding the two sides had agreed there would be no middlemen in their gas trade.

With Russian gas prices for Europe at record highs of over $500 per 1,000 cubic meters, Russian gas giant Gazprom made clear on Wednesday Tymoshenko would get no easy ride in her bid to shield Ukraine's economy from a sharp price rise.

Gazprom has long said it wants to switch to market prices with ex-Soviet states and has indicated it could increase significantly the price for Ukraine, which at the moment pays $179.50 per 1,000 cubic meters.

ARMS SALES, INFIGHTING IN KIEV

Putin took Ukraine's pro-Western leaders to task for arms sales to Georgia.

He said Ukrainian weapons and military experts may have been sent to Georgia during the armed conflict there.

"If this is confirmed, this will be what I have called a crime, because this is termed 'direct involvement in an armed conflict', pitting Russian and Ukrainian peoples against each other," Putin said after meeting Tymoshenko.

He said that if Russia received proof of Ukraine's military support for Georgia during the conflict, Moscow would "build its relations accordingly with those who admitted this."

Tymoshenko said she was confident "such facts will not be confirmed," commenting on Putin's allegations.

Moscow, condemned by the West for its action over Georgia, was irked by support that pro-western Ukrainian Viktor Yushchenko showed for Tbilisi in the conflict.

Russia has also watched with unease Yushchenko's campaign to join NATO. The president has said Russia's navy will have to leave the base it rents on Ukraine's Black Sea coast when the lease expires in 2017.

Opening his meeting with Tymoshenko, Putin said a political stand-off in Ukraine between Tymoshenko and Yushchenko -- which has seen their coalition fall apart -- could put a question mark over any gas deal.

Tymoshenko was viewed with caution by Moscow after she joined with Yushchenko in 2004 to overturn a victory for the Moscow-backed candidate in a presidential election.

But as her ties with Yushchenko have turned sour, she has softened her stance toward Moscow and criticized the president for backing Georgia too stridently.

(Writing by Dmitry Solovyov; editing by Richard Balmforth)

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