EU wary as Russia and Ukraine reach gas deal

By Oleg Shchedrov

MOSCOW (Reuters) - The prime ministers of Ukraine and Russia said on Sunday they had reached an outline deal to restore disrupted gas supplies, while the European Union said it was waiting to see gas actually flowing on to Europe.

The row between the two ex-Soviet neighbors enraged the EU by leaving large parts of Europe without gas in the middle of the winter, and eroded Russia's and Ukraine's credibility as gas supplier and transit route respectively.

The dispute, the worst in an annual tug-of-war over prices between Ukraine and Russia, has pushed European consumers and policymakers to think hard about building new gas routes to cut their heavy reliance on Russian supplies.

"Gas transit, the Ukrainian side assured us, will be restored very soon," Russian state channel Vesti-24 showed Russian Prime Minister Vladimir Putin saying in a brief statement after the marathon talks, which lasted into the small hours of Sunday morning.

But Czech Industry Minister Martin Riman, speaking for the EU, said: "We remain realistic. Over the past few days we have seen several similarly hopeful moments. The only thing that counts for the EU is the resumption of gas supplies. For the time being it is not clear when this resumption takes place."

ONE-YEAR DISCOUNT

Putin, standing next to his Ukrainian counterpart Yulia Tymoshenko, said Moscow had agreed to give Ukraine a 20 percent discount from the price European consumers pay, "on condition Kiev keeps preferential tariffs for Russian gas transit to Europe across Ukraine in 2009 at last year's level."

"We also agreed that, starting January 1, 2010, we will fully move to gas prices and transit tariffs in line with European levels, without any reductions and discounts," Putin said.

Tymoshenko said contracts would be prepared by Monday.

"Once all the documents on gas transit and gas purchases have been signed, gas transit to Europe will be fully restored."

Neither premier spelled out the agreed gas price.

In Kiev, a spokeswoman for Tymoshenko said she would fly back to Moscow on Monday for a signing if the respective gas companies, Gazprom of Russia and Naftogaz of Ukraine, managed to finalize all details of the deal by then.

Russia's Interfax news agency quoted a Russian government source as saying: "It is expected that the documents will be ready for signing on Monday and will be signed in the presence of the prime ministers of Russia and Ukraine."

A Russian government source said the two sides had agreed not to use intermediaries. Previous deals have been complicated by the use of the Swiss-based intermediary Rosukrenergo, a 50/50 joint venture between Gazprom and two Ukrainian businessmen.

Putin and Tymoshenko were under intense pressure from the European Union to resolve the dispute, which has cut gas supplies to much of eastern Europe since January 7.

While Putin had full authority to seal an agreement, it remained unclear whether Tymoshenko's domestic political rival, President Viktor Yushchenko, would respect the deal.

A source in Yushchenko's office said: "It is our understanding that this is an agreement between the two prime ministers and that the two sides in Moscow are now drawing up an agreement."

OCTOBER DEAL

Last October, Tymoshenko and Putin clinched a deal calling for a three-year transition period after which Ukraine would pay market prices.

Yushchenko had no objections to that deal and said repeatedly Ukraine must be prepared to pay market prices, while saying a formula had to be found to determine the price.

Yushchenko and Tymoshenko had disagreed on some tactics in the run-up to the deal, notably on whether gas for Ukraine and gas transiting to Europe should be handled separately.

The all-night talks followed a meeting in Moscow of gas-consuming nations at the Kremlin on Saturday afternoon which failed to resolve the dispute.

Russia cut off supplies to Ukraine on January 1 because it would not pay higher prices for its gas. Six days later, export flows to eastern Europe through Ukraine ceased amid Russian accusations that Kiev was "stealing" gas intended for export.

Kiev, whose economy is forecast to contract by up to 5 percent this year, says it cannot afford to pay market prices and wants Russia to pay higher transit fees for gas it exports through Ukraine.

A hurdle appeared to have been overcome when a consortium of European companies agreed to supply enough gas to fill the empty pipeline and restore pressure so that exports could resume.

But the key sticking point remained the price Ukraine must pay for its own supplies. Yushchenko insisted exports could not resume to Europe until Ukraine had agreed this with Moscow.

Gazprom wanted Ukraine to pay European-level prices of $450 per 1,000 cubic meters (tcm) of gas for 2009, up from $179.5 per tcm in 2008. But Ukraine, heading into its worst recession for a decade, had said it could afford only $201.