April 26, 2013 / 4:46 PM / 7 years ago

Ukraine government introduces bill to allow pipeline privatization

KIEV (Reuters) - Ukraine’s government asked parliament on Friday to lift a ban on the privatization of gas pipelines that pump Russian gas to Europe, which could allow Kiev to sell or lease them to Moscow in return for cheaper gas supplies.

Ukraine, which is both a consumer and a transit nation for Russian gas, has long sought to negotiate a lower price for its supplies, saying the current price of over $400 per thousand cubic meters is exorbitant.

But Moscow says it will give Kiev a discount only if Russia’s gas export monopoly Gazprom (GAZP.MM) is allowed to take over the pipelines.

Kiev has been resisting such a move for two decades since gaining independence after the collapse of the Soviet Union. Previous disputes over gas between the two ex-Soviet neighbors briefly disrupted Russian gas supplies to Europe.

The draft law submitted to parliament and published on Friday would remove the ban on the sale of state energy firm Naftogaz NAFTO.UL, which owns and operates the pipelines among other assets.

Last month, Ukrainian President Viktor Yanukovich had offered Russia a compromise solution in which a joint venture part-owned by Gazprom could rent the pipelines from the state.

The new draft law would make such a scheme possible. It remains unclear, however, whether Russia would consider it acceptable.

Yanukovich’s Party of the Regions, together with its traditional communist allies and pro-government independents, has enough votes in parliament to pass the bill. A date for the vote is yet to be set.

The proposed bill would also allow Ukraine to meet the conditions set out by the European Union for financing upgrades of its pipeline network.

The EU wants Kiev to break Naftogaz into several parts and end the practice of subsidizing energy sales to households through the company, which results in heavy financial losses.

Having achieved no progress in gas price talks, Ukraine cut Russian gas purchases by more than a quarter last year. Gazprom, in turn, sent Naftogaz a $7 billion bill claiming it was obliged to purchase certain volumes of gas or pay for them anyway.

Since late 2012, Ukraine has also been buying more and more gas on the European spot market at a price slightly lower than that of Russian imports.

But Gazprom has said the practice is illegal and has threatened legal action.

editing by Jane Baird

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