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20 Jan, 2009 17:26

Gas dispute over

Russia and Ukraine have signed a gas deal on Monday which will allow the two sides to resume transit of Russian fuel to European customers. Gas will soon start moving to Europe after it enters Ukraine's pipelines.

Gazprom and Naftogaz CEOs, Aleksey Miller and Oleg Dubina, put their signatures on the documents in the presence of Prime Ministers Vladimir Putin of Russia and Yulia Timoshenko of Ukraine.

As Russia’s Prime Minister explained after the signing ceremony, there are two contracts: “a contract to supply gas to Ukraine and a contract for transit that runs for ten years”. Putin also stressed that the two documents are not connected with each other.

Thus, the gas dispute was resolved on Monday.

“We will restart gas transit immediately after this gas gets into Ukraine's gas pipeline system,” Timoshenko said after talks with Russian Prime Minister Vladimir Putin.

“I hope transit supplies in the European direction will be fully resumed in the nearest future. Gazprom will do all that is needed for this. We now expect our Ukrainian partners to act accordingly. Once again, I want to express regrets to all those who suffered from the gas crisis – which we consider was not started by the Russian side,” the Russian premier said.

Chronology of Russia-Ukraine gas war

The current gas cuts are the culmination of a long gas war between Russia and Ukraine, RT looks back at its latest chapter, starting back in October 2007 and the ongoing crisis, the effect of which is now being felt all around Europe.

Europe's dependence on Russian gas

Taking sides with pipelines

Gas war chronology

Meanwhile, Gazprom has been ordered to begin pumping gas in all directions proposed by the Ukrainian partners and will fully meet European consumers' request for the daily amount of gas.

“Gazprom will take all necessary technological measures to ensure that. We expect our Ukrainian partners to speedily restore their gas transportation system,” Putin remarked.

According to the agreements Russia and Ukraine have switched to European market formula for calculating gas price from January 1. However, Ukraine will enjoy a 20% discount to the market price in 2009. But by 2010 both countries will switch to full market price.

The two prime ministers have also agreed to get rid of a murky middleman company, RosUkrEnergo – a move that experts described as one of the main successes of the talks.

“Any middleman increases time and cost, and I’m sure direct deals are normally better than doing through intermediaries,” says political analyst Vladimir Ismailov.

However, the deal, hailed by Timoshenko as a very advantageous one for Ukraine, has yet to get approval from her political rival, President Viktor Yushchenko.

No gas since January 7

On January 7, 2009, Ukraine shut all four pipelines that send gas to Europe.

A fifth of Europe's gas comes from Russia through Ukraine. Eighteen countries have either run out or are running low on the vital fuel. Households are suffering without heat in severe winter weather, businesses and plants have been forced to shut-down. The millions of citizens affected have made this a political crisis in the European Union.

Before that Ukraine was stealing the Russian gas bound for European consumers, according to Gazprom and the results of an independent monitoring by a national resource analysts’ group from Switzerland. After that Russia made a decision to stop gas supplies via Ukraine to prevent the illegal siphoning.

Ukraine also insists Russia should supply ‘process gas’ (maintenance gas needed to keep the fuel flowing through the pipes) before it can guarantee the uninterrupted transit of supplies to Europe. However, Gazprom dismisses the idea, saying Ukraine has to pay for the gas or buy it elsewhere.

European consumers just want to get the gas flowing again.

“If the gas doesn’t flow again, we will have to look point by point at our relations with Russia and Ukraine and assess whether we can continue to do business as usual in these circumstances,” EU representative Johannes Leitenberger said.

Sharing the responsibility

Europe might finally warm-up, but there is still likely to be a chill in Brussels.

Some Western countries accused Russia of using gas a political tool. Russian officials believe Moscow and Europe are being held hostage by the leadership crisis in Ukraine.

“This margin in the price of Russian gas that gets into Ukraine and the selling price on the internal Ukrainian market is approximately $US 14 million a day, or at least it was last year. I believe that no one in the world would dare to call this sum unattractive. I'm sure in the conditions of economic hardship in Ukraine there are more than enough people who are willing to fight for this sum of money to the end, and this is the battle we are witnessing right now,” said Konstantin Kosachev, head of State Duma’s Foreign Affairs Committee.

Even before Putin and Timoshenko struck their deal, President Medvedev was warning that a resolution to this crisis would by no means be grounds to relax.

“This crisis showed that the current mechanisms do not work – we need a new system,” he warned.

The Kremlin is now pushing forward an idea of mutual responsibility, in order to secure the interests of Europe as well as its own.

Since the collapse of the USSR, Ukraine has enjoyed subsidised prices for gas. Gazprom says that for years it had paid for European energy security out of its own pocket. Now it wants Europe to share the responsibility.