Kiev Approves Vital Section of Gas Deal

KIEV, Ukraine -- A Ukrainian government competition panel on Tuesday approved the creation of new joint venture to supply Russian and Central Asian natural gas to Ukrainian consumers, backing a key component in a deal aimed at ending a price dispute between Moscow and Kiev.

Ivan Plachkov, Ukraine's Fuel and Energy Minister, answers media questions in Kiev, Ukraine, Tuesday, Jan. 31, 2006. The Cabinet on Tuesday approved a gas deal aimed at keeping Russian and Central Asian gas flowing into Ukraine, paving the way for the agreement to be signed, a top gas company official said.

The deal is part of a complicated, face-saving agreement worked out earlier this month following a Russian cutoff of gas supplies to Ukraine, and the interruption of gas supplies to some European countries.

The Anti-Monopoly Committee's approval set the stage for the signing of the pricing dispute agreement, which sees the joint venture supplying gas to Ukrainian consumers at $95 per 1,000 cubic meters. The venture will be co-owned by Ukraine's state-owned Naftogaz and Rosukrenergo, an intermediary that is 50-50 owned by Gazprom and a group of unidentified investors.

Oleksiy Kostusyev, head of Ukraine's Anti-Monopoly Committee, said that the new venture, called Ukrgazenergo, will oversee sales of gas to industrial consumers together with Naftogaz; Naftogaz will still have sole responsibility for sales to residential consumers, a key victory that will allow it to buffer Ukraine's largely poor population from painful price increases.

"The existence of a new player in the market ... will spur competition," Kostusyev said. He added that the new venture would increase competition by weakening the position of the monopolist, Naftogaz.

The agreement between Russia and Ukraine, hammered out in tense negotiations on Jan. 4, had called for setting up this venture by Tuesday. That step was necessary before the overall agreement that ended the pricing dispute could be officially signed by Naftogaz and Gazprom.

The larger gas agreement has come under regular fire in Ukraine and abroad due to Rosukrenergo and its shady background. It has been accused of having links to Semyon Mogilevich, a Ukrainian-born Russian citizen and reputed organized crime figure who is wanted by the FBI.

Oleg Palchikov, a Rosukrenergo representative, said on Ukraine's Inter television Monday that the company had no connection with Mogilevich, and insisted that it was committed to openness and transparency.

But Rosukrenergo's refusal to release the names of all its investors has raised concerns among opposition lawmakers who united to sack Ukraine's President Viktor Yushchenko's cabinet earlier this month. Yushchenko has refused to recognize the vote.

Kostusyev said that committee knows who is behind Rosukrenergo but is prevented from making the information public. He cited the secretiveness as his one criticism of the company.

He said control of Ukraine lucrative gas pipelines will not be handed to the new venture. Russia depends on those pipelines to ship most of its supplies to European consumers, giving Ukraine some leverage in its deals with Moscow.

Yulia Tymoshenko, a former prime minister and now opposition lawmaker, called on the government to postpone signing the document, her party said in a statement. Her party has criticized the deal as a betrayal of Ukraine's national interests.

Under the deal, Ukraine will buy the mix of Russian and Central Asian gas from Rosukrenergo at the Russian-Ukrainian border. The price -- nearly double what Ukraine had been paying -- is set for the first six months of this year. Rosukrenergo has said the future price -- far less than what Russia is demanding for its gas -- will depend on how much the Central Asian nations wish to charge.

Source: AP

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