Russia and Ukraine reach gas deal

AP

The prime ministers of Russia and Ukraine announced a deal early Sunday to settle the gas dispute that has drastically reduced supplies of Russian gas to Europe for nearly two weeks.

Russian Prime Minister Vladimir Putin said Ukraine will pay 20 percent less than the European price for this year. This means a substantial increase for Ukraine in the first quarter but the price could fall significantly later in the year as gas prices are expected to drop.

Ukraine's Prime Minister Yulia Tymoshenko said natural gas supplies would resume once the two countries' gas companies sign a contract. It was not clear how soon this would happen. Russia's Gazprom and Ukraine's Naftogaz, both state controlled, were told to prepare the documents.

The two leaders reached the agreement in talks that stretched into the early hours of the morning after a meeting Saturday with leaders from the 27-nation European Union ended without a resolution.

The EU normally receives about one-fifth of its gas supplies through Ukraine. Nations in eastern Europe that rely on Russia have been left with virtually no new supplies.

The EU threatened to review its relations with both countries if their dispute is not resolved this weekend. EU spokesman Ferran Tarradellas said Saturday that the EU delegation was "encouraged by the discussions" because Russia and Ukraine were seeking solutions rather than just blaming each other, but "what matters are results."

Ukraine paid $179.50 per 1,000 cubic meters of gas in 2008, less than half the price paid by European countries. The European price for the first quarter of 2009 is about $450, but is expected to fall to reflect the decline in world oil prices.

Before talks broke down on Dec. 31, Russia had offered Ukraine a price of $250 for 2009, which Ukraine refused.

The two countries also reached a deal Sunday on the price Russia will pay Ukraine for transporting gas to Europe through its pipelines. Ukraine had insisted that if it paid more for gas, Russia should pay market prices for transit.

But Putin said Sunday that the discounted transit price would remain in place for 2009. Beginning on Jan. 1, 2010, however, Ukraine will pay full price for gas and Russia will pay market prices for transit, he said.

Before flying to Moscow for the talks, Tymoshenko acknowledged that her country's image had been damaged by the dispute. But she said reaching a deal would be extremely difficult.

Putin, in Germany early Saturday, reiterated accusations that Ukraine has stolen gas and is trying to use its control over pipelines to "blackmail" Russia into selling Ukraine gas at an unreasonably low price.

Putin has promoted a possible stopgap solution, enlisting leading European gas companies for a consortium that would pay for "technical gas" needed to get Ukraine's pipeline up and running and ensure deliveries.

Russia's President Dmitry Medvedev said Saturday that proposal was still on the table, but it was unclear whether Ukraine would agree. An aide to Ukrainian President Viktor Yushchenko, who refused to come to Russia for the conference, earlier this week dismissed the idea as a Kremlin attempt to acquire control of Ukraine's pipeline network.

Another possibility, Medvedev said, would be a credit in a European bank that would be used to ensure Russia is paid.

Russia stopped shipping gas to Ukraine for domestic use on Jan. 1 when the countries could not agree on a price. It then accused Ukraine of siphoning off gas bound for Europe and turned off the taps entirely on Jan. 7.

Russia resumed piping a limited amount of gas toward Ukraine on Tuesday after the EU secured a deal for its monitors check flows, but the gas did not reach Europe. Russia says Ukraine is blocking shipments to European consumers, while Kiev says Russia wants to send gas along a route that would disrupt supplies to Ukrainian consumers.

Geopolitical struggles over Ukraine's future and export routes for the energy riches of the former Soviet Union underlie the commercial dispute.

Russia and Ukraine have been at odds since the 2004 Orange Revolution brought Yushchenko to power. His avid push for Ukraine to join NATO and the EU has angered Moscow.