Yanukovych Sure On EU Pact As Ukraine Braces For Russia Backlash

KIEV, Ukraine -- Ukrainian President Viktor Yanukovych said he’s confident his country will sign an accord to cement ties with the European Union this year as Russia threatens retaliation for snubbing its own customs union.

Viktor Yanukovych

Ukraine plans to sign an Association Agreement and free-trade pact with the 28-member bloc at a summit in the Lithuanian capital of Vilnius on Nov. 29, Yanukovych said in an interview yesterday in New York.

Russia has disrupted the passage of Ukrainian goods across its border in recent weeks and has tied requests from its neighbor for cheaper natural gas imports to membership in the customs bloc it created with Belarus and Kazakhstan.

“There’s a mutual understanding that there will be no obstacles on the way to signing the agreement,” Yanukovych said after meeting European Union President Herman Van Rompuy and European Commission President Jose Barroso.

“The main problem in Ukraine’s relations with Russia has always been Russia’s use of energy to pressure Ukraine.”

The EU deal would pull Ukraine further away from Russia’s orbit 22 years after it declared independence following the Soviet Union’s demise, directing it toward the path that brought the three Baltic nations, also former Soviet republics, into the world’s largest trading bloc in 2004.

“We are hearing these threats and even some humiliation by the media outlets,” Yanukovych said.

“That doesn’t help our relations and that doesn’t paint Russia in a good way.”

‘No Sense’ 

While Ukraine is “convinced” it will sign the EU agreement in November, it wants to find a way to develop a relationship with the Russia-led customs union, Yanukovych said, adding that it “makes no sense” for the bloc’s members to reply to Ukraine’s EU agreement with a trade war.

“Our relations with the EU will benefit the customs union,” Yanukovych said.

“Ukraine is a bridge between Russia and the EU and it’s very important to make sure the bridge is strong and reliable.

Dialog between Ukraine, Russia and the EU on trade issues is possible in the near future.”

While EU enlargement head Stefan Fule said the bloc backs Ukraine amid Russian pressure, to seal the pact the country must address examples of selective justice such as ex-Premier Yulia Tymoshenko’s jail term.

A European Parliament commission led by ex-Polish President Aleksander Kwasniewski and Pat Cox, the former head of the legislature, is working on a solution to the issue of Tymoshenko’s seven-year sentence for abuse of office while serving as prime minister, according to Yanukovych.

‘Very Complicated’ 

There are no means of freeing her or allowing her to receive treatment in Germany under existing Ukrainian law and she’s awaiting decisions in other cases against her, Yanukovych said.

“The Tymoshenko issue is very complicated,” he said.

“It would be less complicated if she’d attend court meetings, but she’s refusing to do so.”

Separately, the Ukrainian leader said he’s optimistic the government can reach an agreement this year with the International Monetary Fund for a $14.3 billion bailout as the economy struggles to recover from a recession.

While the Washington-based lender has sought an increase in household gas tariffs to reduce budget subsidies, Yanukovych said that would be “unacceptable” and he’s seeking different terms.

“We’ve been in talks with the IMF all these four years and we expect the IMF will finally be willing to make an agreement,” he said.

“We’ve fulfilled all of the conditions, except for one, which is an increase in gas prices for households.

There is no room for us to hike the price.

On when the agreement may be signed exactly -- this is a question to the IMF.

We’re willing to replace that condition with another and are willing to discuss it.”

Exxon, Shell 

Ukraine is seeking alternative sources of fuel to bypass what it considers an “unfair” price charged by OAO Gazprom (GAZP), Russia’s natural-gas export monopoly, Yanukovych said.

The Ukrainian leader will meet executives from Exxon Mobil Corp. (XOM) and Royal Dutch Shell Plc (RDSA) during his U.S. visit and plans to sign agreements that will allow the companies to start producing natural gas in Ukraine, he said.

Exxon is seeking to explore off Ukraine’s Black Sea shore, while Shell in January signed a shale-gas production sharing agreement with the government.

Ukraine wants to raise its gas production to 30 billion cubic meters a year by 2017 from 21 billion cubic meters currently, which would be enough to cover its domestic consumption of the fuel, Yanukovych said.

Source: Bloomberg