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20 Feb, 2008 14:17

Ukrainian ‘gas princess’ in Moscow to settle dispute

Ukraine's Prime Minister, Yulia Timoshenko has met her Russian counterpart Viktor Zubkov in Moscow. She has confirmed Ukraine will pay off a $US 1.5 billion gas debt to Russia's energy giant Gazprom.

Timoshenko's visit comes a week after Ukraine's President Viktor Yushchenko met Vladimir Putin at the Kremlin, where a deal over the gas row was reached. Since then, Ukraine has paid off over $ US 280 million of its debt.

Timoshenko also met the Russian leader to discuss business co-operation between the two countries.

During the ministerial meeting, a number of important issues was discussed.

“We discussed energy, including natural gas, and confirmed the implementation of the agreements between our presidents. It's a good guarantee for the successful development of our two countries and a common contribution to energy safety in Europe. It's obvious such co-operation should be mutually beneficial. But it's not only about oil and gas. There is potential for common work in electric and atomic energy,” Zubkov said.

Yulia Timoshenko added that the Ukrainian government believes the two countries have an open field for co-operation.
“However, we have to rebuild relations with other countries afresh by seeking common ground. What Russia and Ukraine need to do is use what is available. And this is a big advantage in our bi-lateral relations,” she said.

It's hardly a secret that gas is one of the main factors fuelling tensions between Russia and Ukraine.

In early 2005 Ukraine paid nearly five times less than any European country for Russian gas, and Russia enjoyed reduced prices to transport its gas to the West.

In March 2005 Ukraine demanded market prices for using its territory to deliver supplies to Europe. In return, Gazprom demands Ukaine pay market prices for gas.

On January 1, 2006 Gazprom cut off supplies to Ukraine, and the New Year started off on the wrong foot.

But not only were Ukrainians in the cold, Europe started to feel the difference too, which came as a surprise as Gazprom had promised the dispute would not disrupt deliveries to the West.

“Ukraine is stealing gas from an export pipe destined for European consumers. We will take all necessary measures to supply gas to Europe according to existing contracts,” stated Aleksandr Medvedev, then Deputy Chairman of Gazprom.

With Western Europe looking on with worry, a Ukrainian team was swiftly dipsatched to Moscow. Four days later a deal was reached.

The agreement saw the creation of RosUkrEnergo, an intermediary that buys Russian gas for market prices, combines it with cheap Central Asian gas, and then sells it on to yet another intermediary that in turn sells it on to Ukraine. Under this complicated scheme, everyone was due to come out a winner.

Because of shortages in supplies from Central Asia in winter 2007, Gazprom started pumping extra gas to Ukraine. But when the bill came no one was willing to pay it.

According to Ukraine, it was thee intermediaries that were to blame, as no direct deal between Ukraine's Naftogaz and Russia's Gazprom had ever existed.  

“Taking into consideration that we do not have any signed documents and everything goes through RosUkrEnergo, we cannot fulfill our duties before Gazprom,” said Yulia Timoshenko.

In the absence of cash Gazprom threatened to cut supplies again. This time, the Ukrainian president visited Moscow to hammer out a new deal.

“We've heard from our partners that they will start paying their debts, and we've also agreed upon the principles of cooperation for the year 2008 and for coming years,” said Russian President Vladimir Putin.