European Gas Flows Safe As Russia, Ukraine Haggle, Tihipko Says

KIEV, Ukraine -- Ukraine will ensure gas flows to Europe continue uninterrupted as it seeks to revise supply contracts with Russia, avoiding a repeat of cutoffs that have twice left European consumers without heat.

Deputy Prime Minister Serhiy Tihipko

“We’ll pay on time for gas, and in that regard Europe needn’t be concerned,” Deputy Prime Minister Serhiy Tihipko said yesterday in an interview in Washington.

“This is a slightly different government, a more responsible one, I’d say. A government that won’t allow any gas supply disruptions for its people or for Europeans.”

Disputes between Russia and Ukraine over gas pricing and transport costs have interrupted supplies of the fuel to Europe twice since 2006.

People in at least 20 countries lost heat for about two weeks in freezing temperatures in January 2009.

Russia and Ukraine made “substantial progress” during talks outside Moscow this weekend, Ukrainian President Viktor Yanukovych’s press office said.

Yanukovych, who replaced his Western-backed rival, Viktor Yushchenko in 2010, is asserting Ukraine’s independence from its neighbor by rejecting an offer to hand over control of Ukrainian state gas company NAK Naftogaz Ukrainy in return for a new contract.

The president is also refusing to join a customs union with Russia, Kazakhstan and Belarus, in return for subsidized gas prices, as this would jeopardize his efforts to negotiate a free-trade accord with the 27-nation EU as a first step toward membership.

Political Concessions

“I don’t think Ukraine will agree to any political concessions or economic concessions,” Tihipko said. “If we can’t reach an agreement, we’ll meet the conditions and pay the price that’s written into the agreement.”

Ukraine is paying more for Russian gas than some consumers in Europe, which “isn’t right,” Tihipko said.

The country must pay 150 percent for unused gas that it is obligated to buy in summer months and 300 percent in the winter, he said.

The current agreement between the two nations, which requires Ukraine to buy at least 33 billion cubic meters a year, was signed by then-Prime Minister Yulia Tymoshenko in January 2009 to resolve the most recent gas cutoff.

She is now awaiting trial on charges including abuse of power by agreeing to overpay for Russian gas.

Ukraine announced plans this month to break up Naftogaz to force a renegotiation of the terms under which it buys gas from Russia.

Tihipko, who was attending the International Monetary Fund’s annual meeting in the U.S. capital, said he wasn’t sure what progress had been made in Yanukovych’s talks with Russian President Dmitry Medvedev and Prime Minister Vladimir Putin.

No New Topics

“I don’t think there will be any new topics,” he said.

The negotiations will revolve around the gas-pricing formula, penalties for unused gas and the “fairly modest” payments Ukraine gets for letting Russia export through its pipelines.

“These are the questions that may be up for discussion,” Tihipko said. “It would really be nice to see some sort of actual progress.”

This month, Russian gas export monopoly OAO Gazprom started pumping fuel through the Nord Stream pipeline that runs from Russia to Germany under the Baltic Sea.

The $10 billion route was created to make European energy supplies more secure by bypassing transit states such as Ukraine.

About 80 percent of Russian gas headed for the European Union passes through Soviet- era pipelines in Ukraine.

Ukraine’s budget won’t suffer major losses from the gas flows sent through the new route, Tihipko said.

The government is seeking to lessen its dependence on Russian supplies by developing Ukraine’s gas reserves and promoting energy- efficiency programs, he said.

“We can cooperate successfully with Russia, and I would even say that we absolutely must,” Tihipko said.

“We have major economic interests there, and Russians have major economic interests in Ukraine. Inflexibility on these things never leads to anything good.”

Source: Bloomberg