Russians to Re-enter Ukraine in Exchange for Gas Price Cuts

Apr. 18 – A decision on cutting the price of gas for Ukraine in exchange for participation in the country’s energy sector could be made on Tuesday, when Ukrainian Fuel and Energy Minister Yuri Boiko returns to Moscow for additional talks, as told by Russian Deputy Prime Minister Igor Sechin to reporters in Murmansk on Saturday.

Moscow and Kiev are due to resume talks on gas supplies a day before President Dmitry Medvedev meets his Ukrainian counterpart, Viktor Yanukovych in Kiev on Tuesday . A deal should pave the way for Ukraine to approve its 2010 budget and secure more financing from the International Monetary Fund.

“One of the questions we are indeed discussing is a price discount,” Sechin said. “The Ukrainian side proposes an exchange. We have many interests, particularly in the energy sector – in particular hydropower generation, the nuclear industry and many others.”

The Ukraine Ministry of Fuel and Energy (MFE) official and his Russian colleague pointed out to the media three possible options in this concern: the contract with Russian TVEL Corporation (17 percent of global market) on delivery of nuclear fuel in 2011-2015, the contract on purchase of the Russian equipment for two new blocks of the Khmelnitskiy atomic power station, and also assistance in return of “Tatneft’s” share in Kremenchug oil-refinery. The First step on this had been done on March 29th, when MFE addressed the Higher Economic Court of the country demanding to return the factory to state property, as mentioned in a court official site.

The Ukrainian weekly journal Zerkalo nedeli adds six more points to the options list including Moscow wishing to solve problems of joint construction of An-124 “Ruslan” planes, interest in uranium enrichment factories in Yellow Waters, Kharkov “Turboatom”, in car-factories and a military-industrial complex.

The Russian government said on Friday that it had agreed with Kiev to approve agreements reached by Gazprom and its Ukrainian partners, but gave no details. Gazprom CEO Alexei Miller met Boiko in Moscow to discuss contracts for supply and transit, Ukraine’s government said in a statement: “We recorded some progress in reaching agreement on the review of gas contracts.”

Meanwhile, Medvedev told reporters in Brasilia that he would make an unscheduled visit to Yanukovych next week and that gas talks were continuing.

“As far as gas is concerned… our Ukrainian colleagues believe that gas prices are quite heavy for the current economic situation in Ukraine,” Medvedev said on the sidelines of a summit of leaders of Brazil, Russia, India and China. He said he hoped that the deal could be signed during his visit to Ukraine, although he added that it was “not a closed subject.”

Kiev has already signaled its readiness to change legislation that forbids the privatization of its pipelines, which would allow Russia and the European Union to co-manage and upgrade the outdated system.

Russian government stated last week that Moscow might lend $5 billion to $6 billion to Ukraine to construct two nuclear reactors. Elected president in February, Yanukovych has moved swiftly to repair ties with Moscow. But he has said a 10-year gas-supply deal signed in January 2009 exacts an unfair price from his country.

Kommersant reported on Friday that Ukraine planned to offer Russian companies its gas-storage facilities for rent as well as stakes in the Kremenchug refinery and future nuclear reactors in exchange for a US$4 billion discount on gas purchases this year. According to Russian paper Vedomosti’s sources in Gazprom board and Ukranian cabinet, sides have reached the preliminary arrangement that in 2010 the average price of gas for Ukraine will make US$250-260 for 1000 cubic m against the US$334 fixed in the project of its budget. If so, Gazprom can lose about $3 billion gains, speculates the paper.

It is not obvious yet for how long new gas prices for Ukraine will continue. Gazprom official told media that they are currently discussing only 2010. “The Company is going to conclude to an additional agreement to the 11-year-long contract with Naftogaz signed in January, 2009. What lies further is not clear yet.”