19 Jan 2009

Wary EU reaction to Russia-Ukraine gas deal

5:45 pm on 19 January 2009

The European Union has given a guarded response to the announcement that Russia and Ukraine have resolved their dispute over gas prices.

Russian Prime Minister Vladimir Putin and Ukrainian Prime Minister Yulia Tymoshenko emerged to brief reporters, ending a day of delicate talks over a stand-off that has caused shortages across central and eastern Europe for almost two weeks.

The two leaders said that from next year Ukraine would start paying for Russian gas at the much-higher European prices.

At the news conference, Mr Putin said discounts for both Russian gas supplied to Ukraine and the transit rate charged by Kiev would apply for the current year.

"We agreed that in 2009 our Ukrainian partners will have a discount of 20% on condition that the preferential tariff for piping Russian gas to European consumers through Ukraine in 2009 remains in force and that the price for piping will be the price of 2008," he said.

"We also agreed that from 1 January 2010 we will entirely move to price and tariff formation fully in accordance with European standards without any exemptions or discounts as regards both the transit and the price of gas."

European-level prices for gas supplies will mean, at current rates, a jump from $179.5 per 1,000 cubic metres to $450 for Ukraine.

The leaders instructed their respective national gas companies, Russia's Gazprom and Ukraine's Naftogaz, to draw up a formal agreement and once this had been signed, supplies to Europe across Ukraine would resume.

The parties were under intense pressure from the European Union to resolve the dispute, which has cut gas supplies to much of eastern Europe since 7 January and damaged both countries' reputations as reliable energy suppliers.

EU states import a quarter of their gas from Russia and 80% of supplies come via Ukraine. Almost 20 countries in Europe have been affected by the dispute.

Russia switched off the gas this month, accusing Ukraine firstly of failing to pay for its own supply, then later of stealing gas meant for other countries.