Russia and Ukraine aim to sign gas deal on Monday

MOSCOW Sun Jan 18, 2009 6:12pm EST

1 of 3. Russia's Prime Minister Vladimir Putin (R) and his Ukrainian counterpart Yulia Tymoshenko meet for talks in Moscow early January 18, 2009.

Credit: Reuters/Alexander Prokopenko/Pool

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MOSCOW (Reuters) - Russia and Ukraine aim to sign an agreement on Monday to restart gas flows to Europe through Ukraine after finally agreeing a price for 2009 supplies.

The two former Soviet neighbors, whose pricing dispute left parts of southeast Europe without gas in the middle of winter, said on Sunday they had agreed an outline deal that would quickly restore supplies.

Negotiators were working on a detailed agreement ahead of Monday's planned signing ceremony.

"Gas transit, the Ukrainian side assured us, will be restored very soon," Russian Prime Minister Vladimir Putin said after talks to end the dispute, which began on January 1.

A spokeswoman for Ukrainian Prime Minister Yulia Tymoshenko said she would fly back to Moscow on Monday for a signing if the respective gas companies, Russia's Gazprom and Naftogaz of Ukraine, had finalized details of the deal by then.

The failure of Moscow and Kiev to agree a price for Russian gas has enraged the European Union and has hurt Russia's and Ukraine's credibility as gas supplier and transit route.

Czech Industry Minister Martin Riman, speaking for the EU, said: "We remain realistic. Over the past few days we have seen several similarly hopeful moments. The only thing that counts for the EU is the resumption of gas supplies. For the time being it is not clear when this resumption takes place."

The United States urged Gazprom to restart gas flows "immediately" in a statement by its embassy in Kiev.

ONE-YEAR DISCOUNT

Putin said Moscow had agreed to give Ukraine a 20-percent discount from the price European consumers pay, on condition Kiev froze 2009 tariffs for Russian gas transit to Europe across Ukraine at last year's level.

Prices and transit tariffs next year would be "in line with European levels," without any discount, he added. However, it was not clear which European market prices would be applied.

Ukraine and Russia agreed not to use intermediaries in their gas trade, a Russian government source said. Previous deals have been complicated by the use of the Swiss-based intermediary Rosukrenergo, an opaque 50/50 joint venture between Gazprom and two Ukrainian businessmen.

While Putin had full authority to seal an agreement, it remained unclear whether Tymoshenko's domestic political rival, President Viktor Yushchenko, would respect the deal.

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 Kiev was "stealing" gas intended for export.

Kiev, whose economy is forecast to contract by up to 5 percent this year, says it cannot afford to pay market prices.

Gazprom wanted Ukraine to pay European-level prices of up to $450 per 1,000 cubic meters (tcm) of gas for 2009, up from $179.5 per tcm in 2008. Ukraine, heading into its worst recession for a decade, had said it could afford only $201.

Some analysts believed that, behind closed doors, Ukraine was probably going to pay less for its gas this year than the public statements suggested.

"I doubt that it is realistic to expect Ukraine to pay a price higher than $250 per tcm," said Jonathan Stern of the Oxford Institute for Energy Supplies.

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