Yanukovych Drives Ukraine Toward EU As Putin Dangles Promise Of Cheap Gas

KIEV, Ukraine -- Ukrainian President Viktor Yanukovych said he wants to pursue European Union membership for the former Soviet republic that is also being wooed by a Russian-led customs union with the lure of lower natural-gas prices.

Ukrainian President Viktor Yanukovych.

The country of 46 million is the main transit route for Russian fuel to EU countries, including Germany, Austria and Poland.

Yanukovych, 60, wants to cut the price it pays for Russian gas by almost 20 percent to $240 per 1,000 cubic meters, he said in an interview in his office in Kiev yesterday.

Russia is trying to use fuel prices as a lure to pull Ukraine into a customs union with Belarus and Kazakhstan even as the former Soviet republic looks to deepen economic and political ties with the EU.

Ukraine depends on Russia for more than 50 percent of its natural-gas supply, which its eastern neighbor shut off for two weeks in 2009.

“Our main priority is integration into the EU,” Yanukovych said, surrounded by 20th century paintings of Ukrainian landscapes. “We are ready to sign the association agreement this year. We want the prospects of Ukraine entering the EU to be included in this accord so that the accord would not be empty.”

Ukraine sought to reset relations with Russia after Yanukovych was elected last year. His predecessor, Viktor Yushchenko, angered the Kremlin by backing Georgia during its five-day war with Russia in 2008 and pushing for Ukraine’s membership in the NATO.

Stocks, Currency Gain

The Ukrainian benchmark stock index rose 0.19 percent as of 11 a.m. in Kiev, while the hryvnia strengthened to 7.9965 to the dollar, compared with 8.00 yesterday, Bloomberg data shows.

Yanukovych, from eastern Ukraine, pledged to improve relations by cooperating with gas producer OAO Gazprom and ruled out membership in the North Atlantic Treaty Organization.

He kept the door open to the EU by taking his first trip as president to Brussels before visiting Moscow.

Ukraine’s association agreement with the EU may be concluded this year, European Commission President Jose Barroso said in Kiev on April 18, adding that the two sides have made progress on agreeing to visa-free travel.

Entering the customs union with Russia, Kazakhstan and Belarus would end the chances for the agreement, he added. Ukraine four days later said it won’t enter the customs union.

Russian `Partner'

“Russia was, is and will be our strategic partner,” Yanukovych said. “We are now searching for mechanisms of cooperation. We do think we can reach an agreement that will allow us to work with the customs union to the extent which Ukrainian laws and our obligations to world organizations such as the World Trade Organization allow.”

Russian halted gas shipments to Europe through Ukraine for two weeks in 2009, the second stoppage in three years, before then-Premier Yulia Tymoshenko signed a 10-year contract with Russia.

Last April, Russia agreed to reduce the price it charges Ukraine in exchange for extending the lease on a Black Sea naval base.

Ukraine wants to review the agreement, which it considers discriminatory, according to Yanukovych, whose office overlooks Independence Square in central Kiev.

He ruled out a potential merger between NAK Naftogaz Ukrainy and Gazprom, proposed by Russian Prime Minister Vladimir Putin.
Asset Sales

“Should Ukraine sell part of its energy resources, it will be done in a transparent way on market conditions,” Yanukovych said. “Such big enterprises as energy companies will undergo registration for initial public offering in the near future.”

Yanukovych, who met with Gazprom’s Chief Executive Officer Alexei Miller yesterday, plans to meet his Russian counterpart, Dmitry Medvedev, in the end of June, according to a statement posted on his website yesterday.

Sergei Kupriyanov, a spokesman for OAO Gazprom, Russia’s gas export monopoly, declined to comment on talks with Ukraine.

Russia buys 27 percent of Ukraine’s exports, compared with 28 percent purchased by the EU.

Ukraine’s economy will probably expand at a faster pace this year than in 2010, Yanukovych said. Gross domestic product may rise about 5 percent, compared with 4.2 percent in the previous year, he said.

Ukraine in July obtained a $15.6 billion loan from the International Monetary Fund, its second bailout in two years. The fund has released $3.4 billion in two tranches, helping the government cover its budget deficit and boost foreign-currency reserves.

The third disbursement, initially planned for March, has been delayed as the Cabinet and legislature iron out pension system changes.

The country will continue its cooperation with the IMF, Yanukovych said, and will be ready to host the Euro-2012 soccer championship together with Poland.

“Ukraine, with several exceptions, is sticking to preparation plans,” Yanukovych said. “I’m sure Ukraine will be on time and will be completely ready to host the Euro-2012.”

Source: Bloomberg