Russia suspicious of EU-Ukraine gas "master plan"

BRUSSELS Mon Mar 23, 2009 3:10pm EDT

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BRUSSELS (Reuters) - Europe on Monday welcomed a Ukrainian "master plan" to modernize the infrastructure carrying Russian gas to the west but Moscow warned that European Union energy security was at risk if Russia was not consulted.

Russian Energy Minister Sergei Shmatko told an investment conference at which the plan was unveiled that it appeared to draw Ukraine legally closer to the European Union and might harm Moscow's interests.

Prime Minister Vladimir Putin called the plan "unprofessional" and threatened to review ties if the EU continued to ignore Russian concerns.

Ukraine unveiled the plan to increase the capacity of its Soviet-era gas pipelines from 140 billion cubic meters (bcm) a year to 200 bcm at a cost of billions of euros, and called on European investors to help fund the project.

Ukraine, the EU executive and three international banks signed a pledge of cooperation, aimed at encouraging investment and averting a repeat of the recent winter gas crisis, caused by a row over the price Russia charges Ukraine for gas.

The dispute resulted in cuts in some European countries' gas supplies and shook the EU, which has been uneasy about its reliance for energy on newly assertive Moscow since Russia invaded neighboring Georgia last August.

"We cannot allow our citizens to experience fuel shortages in the depths of winter again," said Benita Ferrero-Waldner, EU commissioner for external relations.

But Putin told the bloc it must consult Moscow when negotiating any further deals with Ukraine.

"It seems to me the document about which we are talking is, at a minimum, ill-considered and unprofessional because to discuss such issues without the basic supplier is simply not serious," Putin said in the Black Sea resort of Sochi.

INTEGRATION

Shmatko said the joint declaration touched on more sensitive issues than just gas and might damage EU energy security.

"It goes far beyond modernization of the Ukraine transit system and talks of the integration of Ukraine into the legal sphere of the European system as far as energy is concerned," he told reporters.

About a fifth of Europe's gas comes from Russia via Ukraine, and the EU has recently tried to curb that heavy dependence by seeking new supplies and transit routes.

Ukrainian Prime Minister Yulia Tymoshenko described the proposal to modernize the network as a cheaper way of increasing EU gas imports than building long-distance gas pipelines such as Nabucco, the proposed pipeline from the Caspian region.

She said the corruption that had long plagued the Ukrainian gas market had been stamped out. "The shadow money that was traveling alongside this sector will not travel there in 2009," she told reporters.

Philippe Maystadt, president of the European Investment Bank, said reform of the Ukrainian gas trading system was essential to encourage investment in the country.

The joint declaration said Ukraine would ensure the gas network operator would become a truly independent commercial entity, which would provide fair and transparent tariffs for gas transport. It would also rent out its huge gas storage sites.

"If this is a small technical breakdown in complex, three-way relations between Russia, Ukraine and the European Union, then it's nothing," said Putin. "But if it's the start of attempts systematically to ignore the interests of the Russian Federation, then of course it's bad."

(Additional reporting by Anne Jolis in Brussels and Denis Dyomkin in Russia; Writing by Pete Harrison, editing by Tim Pearce)

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