Russia, Ukraine To Bargain Hard On Gas Price

KIEV, Ukraine -- Ukraine expects this week to persuade Russia to cut the price of vital supplies of gas, a key element in stabilising its chaotic economy, but attention will focus on what concessions Russia will press for in return.

Ukraine expects this week to persuade Russia to cut the price of vital supplies of gas, a key element in stabilising its chaotic economy.

Ukraine's new leadership needs a lower price for strategic imports of Russian natural gas to help it nail down the detail of a 2010 draft budget and secure a resumption of credit from the International Monetary Fund.

Russia said on Friday it had agreed to revise the present gas deal with Ukraine, "including on price parameters", on the basis of proposals made by President Viktor Yanukovych.

Newly elected Yanukovych, who meets Russia's Dmitry Medvedev in Kharkiv on April 21 when the outline of a new deal should emerge, says the present 10-year gas supply agreement signed with Russia early in 2009 exacts an unfair price.

Ukraine's key export markets of steel and chemicals have been hard hit by the global financial crisis and it badly needs to secure new IMF credit to stabilise its finances and restore investor confidence.

Ukrainian officials say they want the country's total annual gas bill to be lowered by $4 billion and are seeking an average price of $240-260 per 1,000 cubic metres for 2010 to help them balance their books. Ukraine has so far paid an average of $305 in the first quarter and $330 in the second quarter.

The European Union, which receives a fifth of its gas from Russia via Ukraine's pipeline network, has a stake in the outcome since a pricing dispute preceding the 2009 deal left customers without gas for nearly three midwinter weeks.


Any agreement in Kharkiv on a new price will be hailed by the new government as a triumph for Yanukovych, who took power in late February only after a bitter campaign that highlighted the sharp east-west division in the ex-Soviet republic.

Since then, he has moved swiftly to repair ties with Moscow which went into cold storage during the presidency of Yanukovych's predecessor, the pro-Western Viktor Yushchenko.

But analysts said that while Prime Minister Mykola Azarov's government will be able to quickly flesh out a draft budget -- a requirement for new IMF credit -- it remains to be seen how hard a bargain Moscow will drive, politically and economically.

One sensitive issue is the status of Russia's Black Sea fleet in Crimea, which is part of Ukraine. Analysts say this will be discussed as part of a package of measures, including economic relations.

Russia would like an extension of the lease of the fleet's base in Sevastopol beyond 2017. Yanukovych, who has endeared himself to Moscow by taking NATO membership for Ukraine off the agenda, has hinted he is ready to discuss this -- though Ukrainian officials say they want to raise the rent.

"Ukraine has many trump cards to play against Russia. One of these is the rent for the Black Sea fleet," Hanna Herman, deputy head of Yanukovych's administration, told the Shuster Live TV talk-show at the weekend.


A wrong move on the issue could, however, draw fire from the political opposition and leave Yanukovych open to accusations of damaging Ukraine's sovereignty.

"For us, the price of concessions is important ... It is clear that the concessions from the Ukrainian side will be fairly large," said Vladimir Fesenko of the political analysis centre Penta.

Kiev has already signalled its readiness to change legislation that forbids the privatisation of its pipelines, which would allow Russia and the European Union to co-manage and upgrade the outdated system.

In addition, it could allow Russia's Gazprom to double its share of the Ukrainian gas market to 50 percent and to supply its major industrial enterprises in the steel and chemical sectors.

As additional incentives, it could propose co-ownership of future nuclear power reactors to be built by Russian loans, ease restrictions on Russian firms seeking to take advantage of privatisation opportunities in Ukraine, and provide guarantees for Russian investment.

Source: Kyiv Post