Doing a deal: Yulia Tymoshenko and Vladimir Putin
Kiev and Moscow eye new gas deal
Russia and Ukraine aim to sign an agreement today to restart gas flows after finally agreeing a price for this year, potentially ending a dispute that has severed supplies to Europe for nearly two weeks.
The ex-Soviet neighbours, whose pricing dispute left parts of southeast Europe without gas in the middle of winter, agreed an outline deal on Sunday they say will quickly restore supplies both to Ukraine and across its territory to Europe.
Russian gas giant Gazprom and Ukrainian state energy player Naftogaz were working on a detailed agreement ahead of a signing ceremony scheduled for later today.
"Gas transit, the Ukrainian side assured us, will be restored very soon," Russian Prime Minister Vladimir Putin said after weekend talks to end the dispute with his Ukrainian counterpart, Yulia Tymoshenko.
Putin said Moscow had agreed to give Ukraine a 20% discount to the price paid by European consumers, on condition Kiev holds 2009 tariffs for Russian gas transit across Ukraine at last year's leve of $1.70 per 1000 cubic metres over 100 kilometres.
Prices and transit tariffs next year would be "in line with European levels", without any discount, he added. However, it was not clear which European market prices would be applied.
Tymoshenko left Kiev for Moscow with the intention of signing the deal, the Ukrainian government's press service said.
"Gas supplies to Europe will be resumed immediately after the signing," a Gazprom spokeswoman told reuters. It would take 36 hours for the first Russian gas to cross Ukraine and enter Europe, Naftogaz officials said.
The failure of Moscow and Kiev to agree a price for Russian gas has enraged the European Union and brought into question the credibility of Russia and Ukraine as gas suppliers to Europe.
While Putin has full authority to seal an agreement, it remained unclear whether Tymoshenko's domestic political rival, President Viktor Yushchenko, would respect the deal.
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."
Russia cut supplies to Ukraine on 1 January because Kiev 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.
Ukraine, heading into its worst recession in a decade, says it cannot afford to pay higher prices. Analysts are forecasting its economy will shrink by up to 5% this year.
"Talks are continuing. The method of calculation has been agreed and the price will be in the contract," Putin's chief spokesman, Dmitry Peskov, said today.
Gazprom wanted Ukraine to pay European-level prices of up to $450 per Mcm of gas for 2009, up from $179.50 per Mcm last year. A 20% reduction on Gazprom's latest European price assessment would give a price of $360 per Mcm, while Ukraine has said it could afford only $201 per Mcm.
But gas prices, which traditionally lag oil prices by around six months, are widely expected to fall. This may ease the pain for Ukraine even if it has to shoulder high first-quarter costs.
"With oil trading at around $40 per barrel, by summer the equivalent Ukrainian (gas) price will likely be below the $179.50 per Mcm it was paying in 2008," Alfa Bank said in a research note.
"I doubt that it is realistic to expect Ukraine to pay a price higher than $250 per Mcm," said Jonathan Stern of the Oxford Institute for Energy Supplies.
Ukraine and Russia also agreed not to use intermediaries in their gas trade, a Russian government source said. Previous deals have been complicated by the use of Swiss-based intermediary Rosukrenergo, an opaque 50-50 joint venture between Gazprom and two Ukrainian businessmen.