Ukraine, Russia Moving Towards Clash As Gas Talks Stall: Analyst

KIEV, Ukraine -- Ukraine and Russia are drifting towards another wave of confrontation over natural gas prices as the two governments have failed to make progress in talks over lowering them, an analyst said Thursday.


Russian President Dmitry Medvedev has cancelled plans for visiting Sevastopol in Ukraine on July 31, thus delaying indefinitely a meeting with his Ukrainian counterpart Viktor Yanukovych.

The rescheduling of Medvedev's visit, which has been planned on July 30-31, is testimony that Kiev and Moscow are far away from a compromise in the gas issue, said Dmytro Marunich, the head of the Energy Research Institute, a Kiev-based think tank.

Medvedev was expected to arrive in Sevastopol, the home of Russian Black Sea naval fleet in Crimea, to celebrate Russian Naval Day, according to a report by the Sevastopol city government.

Yanukovych, who is currently working from his Black Sea summer residence in Crimea, was supposed to meet Medvedev in Sevastopol, according to the report.

The Ukrainian president earlier this month said he had planned to meet Medvedev before the end of July for an important round of natural gas talks.

Oleksandr Dykusarov, a spokesman at the Ukrainian Foreign Ministry, said the two governments are working to schedule the next meeting, but it is unlikely to take place in July.

The meeting may be postponed until the fall, according to an official at the Ukrainian government who asked not to be named.

The delay underscores a major cooling in relations between Ukraine and Russia over the past seven months, which is reflected in the frequency of their meetings.

Medvedev and Yanukovych met only one time so far this year, on April 26, compared with 11 meetings in the course of 10 months in 2010.

THREAT OF DEVALUATION

Ukraine has been persistently seeking lower Russian gas price over the past 12 months, but Moscow has refused to cooperate.

Russian Prime Minister Vladimir Putin said earlier this year that Ukraine would be able to qualify for lower gas prices in the event of joining a Moscow-led trade block, known as the Customs Union, or merging Naftogaz Ukrayiny and Gazprom.

Yanukovych has less and less time to strike a deal on lowering prices for Russian gas, Marunich said.

Obviously, all other Ukrainian negotiators have already exhausted their potential for the deal.

Ukraine's budget may have to be revised again in September unless the parties fail to agree on lowering gas prices in the fourth quarter, according to Anatoliy Miarkovskiy, the first deputy finance minister.

This may also have a major impact on the country's currency, the hryvnia, prompting its depreciation against the US dollar and triggering an economic turbulence.

The threat of the hryvnia's devaluation will rise considerably, Marunich said.

Unless the agreement is reached within the next several months, the high gas price may play a role of a trigger that will set off a new wave of economic crisis in Ukraine, he said.

Source: Platts

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