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24 Mar, 2009 13:01

Putin condemns EU deal on Ukraine gas pipelines,

Russian Prime Minister, Vladimir Putin, has condemned the signing of an agreement between the EU and Ukraine on overhauling Ukraine's gas pipelines, saying it is meaningless without Russian involvement.

Almost half the gas consumed in Europe crosses Ukraine. But the country is in the midst of an economic crisis, with the International Monetary Fund is trying to stave off default. Now the EU has stepped in with an offer of $3.5 billion to help finance the modernization of Ukraine’s gas pipeline system.

A key part of the deal will see an independent company will take over the pipeline system and set transit fees, according to EC Energy Commissioner, Andris Piebalgs .

“This declaration offers new possibilities for financial institutions to invest in Ukraine. It's just the beginning and it is not a concrete set of measures for investment. In future we plan to work together and not against Gapzrom. Because we had gas deliveries disruption, we started to work first with Ukraine.

Ukraine carries 80% of Russia's gas export to Europe. A number of pipelines connect the two countries – yet Russia is not a part of the EU’s modernisation plan.

The declaration also conflicts with earlier agreements struck by Russian and Ukranian counterparts. Gazprom deputy CEO, Valery Golubov, believes Russia needs to be part of any modernization process

“Russia is not participating, and it's strange because Ukraine's pipeline system was created in Soviet Times as a common system with the Russian one. It is impossible to change the operation of the Ukrainian system without taking into consideration the Russian gas pipeline system.”

Russian Prime Minister, Vladimir Putin, criticized the agreement, insisting that it was impossible to discuss a bigger gas transit through Ukraine without Russia, as source of most of the gas moving through Ukraine.

“If Russia's interests are being ignored, then we will be forced to revise our relationship with our partners.  We really do not want things to reach that level. But the main point, which I would like to emphasize, is that trying to solve the problem of increasing gas supplies, gas which is Russian, is meaningless. We want this signal to be heard, we are ready for constructive work with all of our partners.”

Despite the EU’s talk of building an independently-run Ukrainian gas transit system – so far, what’s on offer is merely patching up the current Soviet era system, and Roland Nash, Head of Research, at Renaissance Capital believes this fact alone makes Russian involvement essential.

“It is really impossible to ignore Russia's interests in this process. Russia is the monopoly supplier to gas to Europe and without Russia's participation an agreement is not worth much at all.”.

Last week the EU said that system would need $3.5 billion simply to keep it operating at current levels. 

Ukraine's Prime Minister, Yulia Timoshenko, told journalists after the conference that Kiev welcomes the possible participation of Russia, Gazprom or any other Russian companies in upgrading the country’s gas network.  But she added that the Brussels declaration was specially signed “to involve the European Commission and international financial institutions in modernization”.