Putin, Yushchenko Defend Gas Deal

ASTANA, Kazakhstan -- Barely a week after Moscow and Kiev were accusing each other of theft and blackmail, President Vladimir Putin and his Ukrainian counterpart, Viktor Yushchenko, hailed the controversial deal that ended their tense standoff over gas supplies as fair and in line with "market economy principles."

Russian President Vladimir Putin(R) welcomes his Ukranian counterpart Viktor Yushchenko to a meeting in Astana. Yushchenko warned that the sacking of his pro-Western government by lawmakers over a controversial gas deal with Russia would destabilize the country, less than three months before a key parliamentary election.

During a news conference Wednesday in Astana, where the two leaders attended the inauguration of Kazakh President Nursultan Nazarbayev, Putin and Yushchenko stood side by side and sought to put a positive spin on the deal, both saying it was "mutually beneficial."

Yushchenko's comments came a day after his government was thrown into turmoil by a parliamentary vote for the ouster of his Cabinet over the deal, with his former Orange Revolution ally Yulia Tymoshenko accusing him and his government of striking a deal that was unfavorable to Ukraine.

Wednesday's briefing followed a meeting, part of which was televised, where the two leaders sat in armchairs and swapped what appeared to be light banter, good-naturedly interrupting each other mid-sentence.

Putin began the news conference by praising the deal, under which Ukraine will pay an average of $95 per 1,000 cubic meters for gas in 2006, nearly double the price it paid last year. Gazprom had demanded that Ukraine pay $230 instead.

"This choice was made with full respect and taking the interests of both sides into account," Putin said.

"I would like to say that we are very pleased that after many years of relations with Ukraine we finally have people in Kiev who do what they say," he said.

Yushchenko said that the fierce dispute had even served a useful purpose, as the deal reached was "mutually beneficial" for Russia and Ukraine.

"Over the last two months, we went though a rather difficult and turbulent period, but I believe it was mutually beneficial," Yushchenko said. "We came to principles that are clear and transparent."

He added that the deal would "get rid of suspicions that Russia sells gas to Ukraine for half of the price and that Ukraine pumps it farther for [the other] half of the price."

The gas dispute has tarnished Russia's reputation as a reliable energy supplier in the eyes of the West and has led several European countries to look into alternatives to getting their gas supplies from Russia. The deal has been widely criticized for giving secretive Swiss-registered middleman Rosukrenergo the potential to export gas from Ukraine and to divert profits from Gazprom.

On Jan. 1, Gazprom reduced gas supplies going through Ukraine, and spokesman Sergei Kupriyanov bluntly accused Ukraine of stealing Russian gas from the transit pipelines that deliver supplies to Europe through Ukrainian territory.

But 10 days later in Astana, Putin struck an altogether softer note.

"Ukraine is our closest neighbor and partner, and I reckon that one should pick polite words when speaking about such a country," Putin said.

Yushchenko said Wednesday that the agreement put an end to "feudal relations" between Russia and Ukraine.

Under the deal, Gazprom will sell gas to Rosukrenergo for $230 per 1,000 cubic meters and add cheaper Central Asian gas to the mix. Ukraine will then buy gas from Rosukrenergo for $95 per 1,000 cubic meters.

Rosukrenergo is 50 percent owned by Gazprombank. The other 50 percent is nominally held by Austria's Raiffeisen Zentralbank on behalf of investors that it has refused to identify.

Putin said Wednesday that Gazprom's sale price of $230 could rise or fall depending on global market prices. "And we will certainly agree [to lower the price], if it goes down," Putin said.

Putin said he and Yushchenko had also discussed the conditions under which the Russian Black Sea Fleet uses the naval base in Sevastopol, as well as nuclear energy cooperation between the two countries.

As the gas dispute escalated late last month, some Ukrainian politicians called for a hike in the rent Russia pays for its use of the Crimean port. Yushchenko later assured Putin in a telephone call that the rent would not be reviewed unilaterally.

During their armchair meeting, Putin at one point lightened the tone, saying that he would like to take up Yushchenko's invitation to go skiing in the Carpathian Mountains.

When Yushchenko laughed, Putin joked, "Incidentally, they say that there's no snow there, unfortunately, I mean ..."

"There's frost, frost," Yushchenko cut in.

"There's frost, but there's no snow," Putin shot back.

The dispute came after what Putin has described as "a year of lost opportunity" in Russian-Ukrainian relations.

Strains appeared with the disputed presidential elections in late 2004, and relations further soured after Yushchenko beat the Kremlin's favored candidate, Viktor Yanukovych, in the December 2004 presidential election rerun, vowing to build closer ties with Europe.

The ostentatious display of mutual understanding and sympathy between Putin and Yushchenko in Astana appeared to be prompted by the need to defend the Rosukrenergo deal against its Ukrainian and international critics, said Maxim Dianov, head of the Institute for Regional Problems think tank.

Putin also needs the agreement to hold up because it is very beneficial to Gazprom and Russia, said Sergei Markov, a Kremlin-connected political analyst.

"Putin needed to stress the good relations between Russia and Ukraine to calm down the West, which became concerned about its energy dependence on Russia during the gas scandal with Ukraine," Markov said.

Source: The Moscow Times