Little Progress Reported At Natgas Talks

KIEV, Ukraine -- Russia and Ukraine made little progress in talks over natural gas prices, but have reached "certain understanding" in other economic and trade issues, Prime Minister Mykola Azarov suggested Thursday.

Dmitry Medvedev (L) and Mykola Azarov

Azarov visited Moscow on Wednesday for a meeting and a working dinner with his Russian counterpart Dmitry Medvedev, primarily to discuss the lower prices for natural gas.

Azarov made his first comments on the meeting on Thursday, saying that besides natural gas there were other issues discussed and "certain understanding" had been reached.

"This is not only gas," Azarov said in report released by his press service.

"These also include steel pipes," a recently imposed duty on automobile imports, and a number of other issues.

"Yesterday, we reached a certain understanding," he said.

Ukraine for more than two years has been unsuccessfully trying to persuade Russia to lower natural gas prices to $250 per 1,000 cubic meters from about $432/1,000 cu m currently.

But as talks failed, Ukraine decided to cut imports of Russian gas dramatically, and to diversify imports by securing gas from Germany and seeking to secure imports of liquefied natural gas, or LNG, from Qatar.

Further underscoring the lack of progress on the gas prices with Russia, President Viktor Yanukovych will be visiting Qatar, one of the major exporters of LNG, later this month.

Energy and Coal Industry Miniser Yuriy Boyko said earlier this month that Ukraine in three years will be importing natural gas from three sources, including Russia, Germany and Qatar, importing 5-7 billion cu m/year from each.

Meanwhile, Azarov's comment shows that Ukraine has rejected Russia's proposal to join the Customs Union, a Moscow-led trade bloc that includes Russia, Belarus and Kazakhstan.

The joining of the Customs Union would automatically derail Ukraine's European integration and place the country firmly into Moscow's orbit for years to come.

But Russia suggested that Ukraine will be able to buy natural gas at $160/1,000 cu m after joining the Customs Union.

The developments comes at a sensitive time as Ukraine is facing a financial crisis with downward pressure mounting on the national currency, the hryvnia, due to growing foreign trade deficit.

Ukraine reduced imports of Russian natural gas by 30% this year, but still was forced to pay $10 billion for gas imports in January through September, about the same amount as in the same period last year.

This, and falling exports of steel due to weakening demand worldwide, has reduced the amount of hard currency coming in the country, causing massive downward pressure on the hryvnia.

Worsening the problem is the fact that the International Monetary Fund has suspended its $15.2 billion loan to Ukraine two years ago after the government had failed to implement key economic reforms, such as hiking domestic gas prices. 

Ukraine has earlier suggested increasing cooperation with the Russia, Belarus and Kazakhstan without joining the Customs Union, calling such cooperation the "3 plus 1" formula.

Moscow rejected the formula, insisting on the full fledged membership by Ukraine. 

Source: Ukrainian Journal