Ukraine announces deal on cheap natural gas from Russia

Oct 24, 2006, 13:55 GMT

Kiev - The pro-Moscow tilt of Ukraine's government produced hard cash results on Tuesday with senior officials announcing a deal giving the former Soviet republic natural gas supplies at close to half international rates.

Ukraine has received a Kremlin commitment for the delivery of 55 billion cubic metres of Russian natural gas at a price of 130 dollars per cubic metre, said Prime Minister Viktor Yanukovich at a Kiev press conference. The prevailing rate in Europe is between 220 and 250 dollars.

Yanukovich is a strong supporter of tighter relations between Ukraine and Russia - a switch from previous Ukrainian governments, which had pushed for closer links between Ukraine and Europe.

'The negotiations are reaching their final stage ... and once we have the signed contracts, we will make them public,' Yanukovich said. 'This is a major step for the stability of our economy ... and international energy markets.'

Russia and Ukraine last January halted natural gas shipments for two days as a result of a pricing dispute. The conflict sparked panic in Europe, which depends on Russian natural gas delivered through Ukrainian pipelines.

The cut-price quota of 55 billion cubic metres would allow Ukraine to fill practically all its imported natural gas requirements at the reduced rate.

The limit would if enforced also fulfil a main Russian condition in the talks: preventing Ukraine from importing discounted natural gas from Russia, and then reselling it on the international market at the full market rate.

'Our two countries must coordinate their policies together,' said Russian Prime Minister Mikhail Fradkov at the press conference.

A main reason for the success of the talks, according to both Fradkov and Yanukovich, was that Russian natural gas monopolist Gazprom and Ukrainian natural gas import monopolist Naftohaz Ukrainy - rather the countries' respective foreign services, are conducting the negotiations.

Yanukovich since his appointment as prime minister this summer has repeatedly bypassed his government's pro-Europe Foreign Ministry.

Ukraine Foreign Minister Borys Tarasiuk in Tuesday comments to the Interfax news agency criticized Yanukovich for 'failing to follow agreed-upon foreign policies,' rather than praising the deal for cheap natural gas.

Yanukovich during a September trip to Brussels touched off a firestorm of domestic criticism by declaring Ukraine uninterested in joining NATO, despite almost a decade of efforts by Ukraine's foreign and defence Ministries to that very end.

Russian officials have made clear that Ukraine can join NATO if it wants to, but if Kiev does so it cannot expect traditionally close relations with Moscow.

Ukraine's energy-intensive steel and chemical industries would lose much of their internationally-competitive price edge were they to pay for energy at international prices.