EU, Ukraine open talks on gas network repairs and reforms

Mar 23, 2009, 9:36 GMT

Brussels - The European Union and Ukraine on Monday were set to approve a programme of political reforms which should encourage European players to invest in physical repairs to the former-Soviet state's giant gas network.

'Ukraine's gas transit system provides an important physical link between Russia, Ukraine and the EU which is of course crucial to the EU's energy security. This infrastructure is in need of modernization,' EU foreign affairs commissioner Benita Ferrero- Waldner said as she opened a conference on upgrading the system.

One fifth of all the natural gas consumed in the EU flows through Ukraine's 13,500-kilometre network of gas pipelines, but experts say that that network will need some 2.5 billion euros (3.4 billion dollars) in investment over the next six years just to keep pipes and pumping stations in running order.

'Today's conference is extremely important for us because Europe's energy security is one of today's challenges which requires an approach based on solidarity and agreement between the EU and Ukraine,' Ukrainian Prime Minister Yulia Tymoshenko said.

Her country ultimately wants some 5.5 billion euros to expand the system's capacity, she said.

Analysts say that Ukrainian monopoly Naftogaz, which runs the pipeline system, finds it hard to attract the necessary investment because of a perceived lack of transparency and accountability both in its management and in Ukraine's top political leadership.

On Monday, Tymoshenko and her bitter political rival, Ukraine's President Viktor Yushchenko, were set to present a plan for modernizing the system to the head of the EU's executive, Jose Manuel Barroso, and officials from the World Bank, European Investment Bank and energy companies in Brussels.

The attendance of both Ukrainian leaders was a 'symbol of their unity of purpose,' Ferrero-Waldner said.

The sides were scheduled to sign a joint declaration committing Ukraine to reforming the rules by which it operates its gas network.

That should pave the way for Western and Russian donors to invest in the renovation of the network.

'This document sets out a framework for permitting the necessary investments that then can bring advantages to all of us ... I hope it will clear the way for some of you here today to invest into Ukraine's energy infrastructure,' Ferrero-Waldner said.

The question of Ukraine's gas transit system has been highly charged ever since a row with Russia in 2005-06 provoked Russian gas monopoly Gazprom to shut supplies off to Ukraine, causing severe shortfalls in Europe.

The drama was repeated in January in a spat that crippled gas supplies to the EU for two weeks.

The EU is now keen to reduce its dependency on both Russia and Ukraine as energy suppliers. On Thursday, EU leaders voted to dedicate 200 million euros to the 'Nabucco' pipeline project, which is meant to bring gas direct from the Caspian Sea to Europe.