Russia to Review its Gas Contract with Ukraine

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Sept. 28 – Russia has agreed to review its gas contract with Ukraine, Ukrainian Prime Minister Mykola Azarov said Monday.

“We have finally managed to reach an agreement with Russia on reviewing the contract,” Azarov said at a meeting with a delegation of the Council of Europe’s parliamentary assembly.

Ukraine has been pressing Russia for months to revise a 2009 gas deal, agreed under the previous Ukrainian leadership, which current President Viktor Yanukovych’s government says saddled the country with an exorbitant price for supplies of Russian gas.

Yanukovych, who has said on many occasions that the current gas price formula with Russia is unfair and has been seeking to revise the 2009 gas contract, held a meeting with Russian President Dmitry Medvedev and Prime Minister Vladimir Putin on Saturday to settle the long-running deadlock. Separately, top energy officials of the two countries held talks on Sept. 25.

Following the meeting, the Ukrainian president’s press office said that “considerable progress had been reached during the negotiations” but declined to specify.

“We aim to complete this work in October,” Azarov said. According to Russian information agency Interfax, Ukrainian and Russian inter-government meetings will take place in Kiev mid-October.

Azarov said Russia had also agreed to establish a consortium with Ukraine and the European Union that would upgrade and manage Ukraine’s gas transportation system, the main route by which Russian gas flows to Europe.

The consortium will increase the reliability of energy transits to Europe, he said.

Ukrainian officials earlier said they wanted to get 34 percent in the consortium and leave 33 percent each to Russia and the EU.

Both sides have since reported progress in the talks but gave no details. Russian gas monopoly Gazprom said earlier Monday that negotiations would continue this week.

Under the 2009 deal, Ukraine must import not less than 33 billion cubic meters of gas from Russia at a price linked to world oil and oil product prices. Kiev insists on reducing both the price and the volume of imports. The big purchases allowed Ukraine to save money because gas prices were higher later in the year and are expected to go even higher in the fourth quarter as winter nears.

Ukraine has complained the current price of US$354 per 1,000 cubic meters is far too high and that it will likely pay even more in the fourth quarter – perhaps as much as US$400 – due to rising oil prices.

Ukrainian Energy Minister Yuriy Boyko told the Kiev television channel earlier this September that Russian natural gas should be standing at US$230 per 1,000 cubic meters. He contended Ukraine is paying more than other European countries at that price.

Until now, Moscow had refused to renegotiate the deal, saying it was possible only if Ukraine joined a Russia-led customs union. Ukraine says it has no interest in doing this since it is not compatible with its goal of integration with the European Union.

About 80 percent of Russia’s Europe-bound gas passes through the Ukraine. A pricing dispute and unpaid debt between Russia and Kiev in 2009 led to a brief shutdown of European gas supplies by Gazprom, causing widespread consternation in European markets.

“Ukraine will pay its natural gas bills to Russia on time, thus avoiding a winter European supply shutdown,” Azarov said to reporters in Kiev before the week-long negotiations with Russia start.

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