Ukraine keeps its gas pipelines out of Moscow's hands

By bne IntelliNews February 7, 2007

Roman Olearchyk in Kyiv -

Legislators in Ukraine, a major transit route for Russian gas and oil supplies to Europe, passed a law Wednesday locking the country's vast gas pipeline transportation system under state control.

The law will hearten Western policymakers, as it erects a major barrier to Moscow's ambitions for gaining control of the country's prized pipelines, responsible for pumping most of Russian and Central Asian gas to Europe. Russia's Gazprom is actively seeking control over pipelines in transit countries including Ukraine, whose vast pipeline system, said to be the second largest in the world after Russa's own, is considered the biggest prize.

The PM caves

The legislation was passed amid growing fears in Kyiv that the governing coalition led by the ostensibly pro-Russian Prime Minister Viktor Yanukovych had offered Moscow a stake in the pipeline in return for hydrocarbon production assets on Russian turf.

The law, championed by fiery opposition leader Yulia Tymoshenko, backs up previous legislation designed to ban privatisation and concession deals that would yield foreign entities an interest in the pipeline system. It was passed as a knee-jerk reaction to comments made recently by Russian President Vladimir Putin, who during a three-hour press conference on February 1 said Ukrainian officials had made a proposal of "revolutionary character," offering an interest in their pipelines in return for production rights in Russia.

PM Yanukovych, who in recent months has wrested authority on foreign and domestic policy away from Ukraine's pro-Western president, Viktor Yushchenko, had dissembled when questioned about the proposal unveiled by Putin.

"I think it has a future. If we speak about combining assets, this should be done on equal terms," he said last week.

But Yanukovych backtracked after mounting protests from critics accusing him of engaging in backroom deals that would strip a strategic asset from state control. This week, he pledged to keep the pipeline in state hands, while Russia would be offered a stake in a yet-to-be built pipeline intended to boost Russian gas transit across Ukraine.

Lawmakers backing Yanukovych eventually supported the law after Tymoshenko's faction threatened to block parliamentary sessions.

The legislation, however, is expected to pose a challenge to often erratic relations between Kyiv and Moscow. Relations between the two countries have been strained since protests against election fraud in 2004 propelled Yushchenko into the presidency over Yanukovych, the Kremlin-backed candidate. Bilateral relations sunk to a new low in 2006 when a gas price dispute triggered supply shortages to Europe.

Relations had improved somewhat since Yanukovich last summer reclaimed the job of prime minister, a post he held before the Orange Revolution.

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