UPDATE 1-Russia aims to end Crimea's reliance on Ukraine for electricity

Mon Mar 24, 2014 11:45am EDT

(Adds more quotes, background)

By Darya Korsunskaya

MOSCOW, March 24 (Reuters) - Moscow plans to end Crimea's reliance on Ukraine for electricity by helping to build gas-fired power stations and possibly linking the region to Russia's grid, Russian Prime Minister Dmitry Medvedev said on Monday.

Medvedev told a government meeting that Moscow may have to take part in "international negotiations" to secure near-term supplies, suggesting Russia may be forced to talk to Ukraine's new leaders over Crimea, which it annexed from Kiev last week.

Parts of Crimea, which receives around 80 percent of its electricity supplies from Ukraine, faced blackouts late on Sunday in what the local power company said were technical problems but which underlined the region's vulnerability.

"On electricity, there are the possibilities to unite Crimea with Russia's unified energy system through the Kerch strait," Medvedev said, referring to the small stretch of water separating the region from Russia's southern rim.

Running a cable through the strait could cost between $200 million and $300 million, based on a Reuters calculation of how much it cost Russia to lay cable to an island in its far east.

Since Crimea voted to join Russia in a referendum decried in the West and Kiev as illegal, the pro-European Union authorities in the Ukrainian capital have said they may take "technical" measures if Ukrainian forces in the region were harassed.

Ukrainian troops and their families began evacuating from Crimea on Monday, as Kiev effectively acknowledged defeat by Russian forces who stormed one of the last of their remaining bases on the peninsula.

Crimea's power company said Sunday's outage was due to technical problems in a power line from the Ukrainian mainland.

"(Energy provision) needs to be decided through international negotiations," Medvedev said.

"We need to choose the best way to supply the peninsula."

Medvedev said that, over time, gas production in the region could increase by 1.5 to 2 times, something that state controlled gas company Gazprom had "initiatives" on.

To secure its fuel needs, Crimea's leadership has said it will nationalise the peninsula's oil and gas infrastructure, including offshore drilling firm Chornomornaftohaz, a subsidiary of the Ukrainian state energy company.

Russia has moved swiftly to consolidate its control over Crimea, introducing the rouble currency on Monday. Medvedev said Moscow could give the region status as a special economic zone.

"With all the current problems, we need to think about the long-term development prospects of Crimea. We will need to provide additional preferences to new regions, like tax exemptions," he said.

"I also believe there is a possibility of considering the establishment of a special economic zone in Crimea." (Reporting by Darya Korsunskaya; Writing by Anastasia Lyrchikova and Elizabeth Piper, Editing by Anthony Barker)