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23 Mar, 2010 18:06

Ukraine gas talks renewed with new government

A delegation from Ukraine is in Moscow to start the process of renegotiating gas contracts between the two countries, with a new Kiev administration bringing a renewed sense of goodwill.

Ukraine’s Fuel and Energy Minister, Yury Boyko, is charged with trying to soften the obligations set out in the 10 year contract agreed in January 2009.

It wants to return to an idea first proposed in 2003, of Russia joining a gas consortium with Ukraine. But this would not allow foreign investors to actually own a share of the pipeline. Dmitry Aleksandrov, energy analyst at East Kommerts says control could be largely ceded for investment.

“Ukraine is proposing offering a 66% interest to foreign investors, which will be put on the negotiating table today. The share will determine how much money will be available to invest in the modernisation of Ukraine's gas pipelines.”

But Russia is not eager to spend vast quantities of money on Ukraine's gas distribution system as it has plans for alternative gas routes, Nord Stream and South Stream, which it is not prepared to give up.

Kiev is keenly aware of the prospect of new competing routes for gas transit. Konstantin Simonov, Head of the National Energy Security Fund says it is currently trying to negotiate terms for the next 8 years, after which the new pipelines are expected to be completed.

“Ukraine's compression stations and reconstruction of underground storage facilities requires $2.5 billion according to Ukraine's estimates. But Nord and South Stream will provide all the necessary capacity for Russia to be able keep its market share in Europe.”

Relations between Moscow and Kiev have improved, and there is a sense of new beginnings on both sides. But business is business, and all the parties will be trying to extract the best possible deal. So while the prospect of future gas wars has diminished, the stakes are still high.