Yushchenko steals PM's thunder by resolving gas dispute with Russia

By bne IntelliNews February 13, 2008

bne -

Russian president Vladimir Putin and Ukrainian President Viktor Yushchenko resolved a dispute over gas prices at a meeting Tuesday, February 12 that could have ended with Russia once again cutting Ukraine off from its main energy source.

Russia's state-owned gas giant Gazprom was threatening to cut off Ukraine's gas deliveries from that day if an argument over debts and gas prices wasn't resolved. This wasn't an empty threat: Russia shocked Western Europe by cutting off Ukraine's supplies and hence those to most of Western Europe in the winter of 2006.

This time, though, the two presidents agreed on gas shipment terms for 2008 and the following years on terms that suited Gazprom, Putin said after the meeting. "The proposals made by the Ukrainian partners suit Gazprom. Hopefully, all agreements will be implemented," Putin was quoted by Interfax as saying after the meeting. "As major European countries, Russia and Ukraine bear a significant share of responsibility for stability and security in Europe."

Regarding the field of energy, Putin said: "We are extremely interested in making our cooperation [with Ukraine] absolutely transparent. We have very good prospects for developing our energy cooperation with the aim of enhancing Ukraine's role as a major energy player in Europe."

The last time Gazprom cut of gas to Ukraine was a public relations disaster for Russia and the Kremlin is hoping to repair some of the damage this time with a smiles-all-round result. Putin said that the two sides had negotiated "the principles of cooperation for 2008 and the coming years," with deliveries in 2008 remaining at the base price of $179.

The two presidents also settled an argument over exactly how much Ukraine owes to Russia in unpaid gas bills. "We agreed that the 2007 debt will be covered, covered in the near future in the volumes and on the terms stipulated in the relevant agreements," Yushchenko said at the press conference.

The two countries will also set up a forum for Gazprom and Ukraine's national gas company Naftogaz to liaise in order to ensure that relations run smoothly from now on. "Under an agreement we have reached, Naftogaz and Gazprom will form a working group, which within days will work through a way of establishing simpler, direct and more transparent relations in matters of organizing the market and the shipments," Yushchenko said.

Face to face

In a statement released later by Gazprom, Gazprom chief Alexei Miller said RosUkrEnergo would be eliminated from the gas trade, and instead Gazprom and Naftogaz would set up a new 50-50 joint venture to handle the gas sales, according to Interfax. How this arrangement, if it comes about, will satisfy Ukrainian Prime Minister Yulia Tymoshenko isn't clear. Tymoshenko, who made her millions in Ukraine's murky gas trading industry in 1990s, has somewhat ironically demanded an end to all intermediaries operating in the gas trade.

The Ukrainian president also said he will actively work to accelerate Russia's accession to the World Trade Organisation - something that has been high on the Kremlin's wish list for a long time. Ukraine joined the organisation in February and potentially has the power to impede Russia's bid. Russia said February 12 it hopes to join the club by the start of next year. "Ukraine is interested in Russia's earliest possible membership of the WTO and will do all it can to facilitate it," Yushchenko said. "Adjusting our trade policies to the standards and rules of the World Trade Organization is in our two countries' interests."

The Ukrainian side believes, Yushchenko said, that "restrictions hinder bilateral trade." With this promise, Yushchenko plays his trump card and thus takes it out of the game. This statement is clearly meant as a peace offering to the Kremlin, which seems to have been accepted.

Meanwhile, Putin demanded that Russian investors should not be discriminated against. "We hope that our companies and our investors will not be at a disadvantage compared with other investors in Ukraine. Russian and other foreign investors must be put on an equal footing. All disputable issues must be dealt with within legal procedures. We talked about this with Viktor Andreyevich [Yushchenko] - he assured me this will be so," Putin said.

"Problems have arisen recently over our investment in Ukraine. I am sure this has to do with problems in the Ukrainian legislation and in the privatization procedure, not with Russian investors' activities," Putin added, referring to a series of de-privatisation cases that have been started involving companies acquired in Ukraine by Russian investors.

The two presidents talks also touched on Ukraine's bid to join Nato. "Anything Ukraine does [on the path of its integration into Nato] is not designed to work against a third party, not to mention Russia. We have agreed that we will hold consultations on this issue," Yushchenko said, pointing out that the Ukrainian constitution does not provide for the setting up military bases of other countries on Ukraine's territory.

However, Ukraine's bid to join the Nato Membership Action Plan has already resulted in gridlock in the Rada, as the opposition Party of Regions is blocking any further work. On February 11, Rada faction leaders failed to reach any agreement on how to proceed after the country's leadership wrote to the Nato secretary general requesting that Ukraine be included in the Nato Membership Action Plan. Polls this week showed that 60% of Ukrainians are against Nato membership.

All in all, the meeting helped smooth the rather battered relations that exist between the two countries. In recent weeks, there have been conflicting signals coming out of Kyiv over how to deal with the Russia gas situation. PM Tymoshenko has taken a hard line and called for the notorious intermediaries in the gas trade to be abandoned; Yushchenko has taken a softer line calling for cooperation with the Russians.

With the deal, Yushchenko has effectively stolen Tymoshenko's thunder, who has also arrived on an official visit to Moscow. If a deal hadn't been agreed by February 12, then the ball would have dropped into Tymoshenko's court, who would have probably used the issue to earn herself some political capital. Polls released recently show that her approval rating has been rising and Ukrainians approve of the hard line she's taking with the Russians.

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