Russia and Ukraine formally seal gas deal, and Putin orders valves opened

By Andrew E. Kramer
The Associated Press
Monday, January 19, 2009
MOSCOW: Russia and Ukraine signed an agreement resolving their dispute over the price of natural gas and the terms of its transit across Ukraine to Europe, and said they would resume shipments of fuel to freezing homes and idled factories in Europe as early as Monday evening.

After previous agreements collapsed, officials in Europe had been cautious about the deal, which was negotiated between the prime ministers of the two countries, Vladimir Putin of Russia and Yulia Tymoshenko of Ukraine, over the weekend and formalized Monday at a signing in Moscow.

While the long standoff ended with only a modest price increase for Ukraine, which will benefit Russia, the authorities said one silver lining from the dispute for European consumers was a new set of contracts with a far longer, 10-year time frame, decreasing the likelihood of another embargo next year.

In another hopeful sign, Putin personally ordered the resumption of gas shipments after the signing.

"I hope transit supplies in the European direction will be fully resumed in the nearest future," Putin said.

Gazprom, the Russian gas monopoly, had been ordered to restore shipments to both the Ukrainian internal market and for re-export to Europe, he said.

Once gas shipments from Russia are restored to the Ukrainian border, re-pressuring the pipelines for export to Europe will require about 36 hours, Ukrainian officials have said.

Tensions remain between Russia and Ukraine. On Monday, the Russian president, Dmitri Medvedev, signed an order imposing sanctions on countries that have sold weaponry to the former Soviet state of Georgia, which Russia fought in a short war last August.

The sanctions would halt military and technical cooperation with such countries. Ukraine has sold weaponry to Georgia and could be harmed by the measure, because its military industry is closely entwined with that of Russia as a legacy of the Soviet Union.

But in a sign of some melting away of disagreement over the gas business, the two prime ministers offered each other gracious compliments after the signing, a rarity in the relations between Russia and Ukraine.

"I would like to thank the Ukrainian Prime Minister Yulia Vladimirovna Tymoshenko," Putin said. "Faced with one of the hardest situations, she took responsibility for making these important decisions."

Tymoshenko, who flew to Moscow again Monday for the signing after negotiating with Putin for five hours Saturday and early Sunday, returned the compliment. "I am very much obliged to Vladimir Vladimirovich and his team for finding the opportunity to grant special terms for Ukraine," she said.

Under the terms of the agreement, the price of Russian natural gas in Ukraine will be pegged to the price of competing fuels such as diesel or bunker oil on international exchanges, as is the practice in Europe, but with a 20 percent discount in 2009. The discount will be eliminated next year.

According to Gazprom's own projections of European gas prices in 2009, Ukraine would be expected to pay an average of between $208 and $240 for 1,000 cubic meters of natural gas, depending on the price of oil.

Ukraine, meanwhile, accepted a transit fee that is about half the average rate in Europe, but with the understanding that it will be raised next year.

As it played out over three cold weeks this January, the shut-off eventually left hundreds of thousands of homes without heat in southeastern Europe and shuttered at least hundreds of factories. Slovakia, in response, had proposed restarting a obsolete nuclear reactor to make up for the gas shortfalls.

Russia halted shipments of gas to Ukraine on New Year's Day, and then, accusing Ukraine of siphoning gas from the export pipelines, halted shipments to countries farther west on Jan. 7.

The Russian authorities also said the Ukrainian national energy company, Naftogaz, was refusing requests to transship fuel; Naftogaz said it was impossible to deliver small shipments because the pipelines were being used to meet internal demand.