Ukraine agreed Tuesday to a 36-percent increase in price for natural gas supplied by Russia next year, wrapping up annual contract talks that last year dragged on until the Russian gas company, Gazprom, cut off supplies on New Year's Day.
While a victory for Prime Minister Viktor Yanukovich of Ukraine, who has sought to repair strained ties with neighboring Russia since taking office in August, the deal also appeared to require Ukrainian
concessions that would increase Kremlin influence over the former Soviet republic.
A Swiss-registered energy trader, RosUkrEnergo, will supply Ukraine's entire imports at $135 per 1,000 cubic meters, or 35,300 cubic feet, up from $95 now, according to Yanukovich, who brokered the agreement. The average European price for Russian natural gas is $230 per 1,000 cubic meters
The deal, promising Ukraine not less than 55 billion cubic meters of gas from Russia and Central Asia, was signed Tuesday in Moscow, the Interfax-Ukraine news agency reported.
Ukraine relies on imports for about 80 percent of its energy needs, supplied from Russia or through pipelines passing over Russian territory, and is wary that Russia uses its energy for political influence. At a news conference with Yanukovich in Kiev, Prime Minister Mikhail Fradkov of Russia said that Ukraine should respect Russia's position on issues like cooperation with NATO, the European Union and the World Trade Organization. "I would say quite openly that we need to synchronize the negotiation process of our countries on WTO," Fradkov said.
He also raised concerns about the pro-Western ambitions of the Ukrainian president, Viktor Yushchenko. Yanukovich appeared conciliatory, stating that there was no alternative to closer cooperation between Moscow and Kiev.
But the Our Ukraine party, led by Yushchenko, rejected Fradkov's comments on WTO entry and criticized the Russian prime minister for trying to put "pressure on Ukraine aimed at influencing its foreign policy."
Bilateral relations sank two years ago after Yushchenko was swept to power, defeating Moscow-backed Yanukovich in the rerun of a rigged election after Ukraine's Orange Revolution. Yanukovich made a comeback after his Regions party finished first in a March parliamentary election and Yushchenko reluctantly appointed him prime minister in August. In January, Ukraine and Russia engaged in a bitter pricing dispute which resulted in Russia temporarily turning off the taps until Kiev agreed to a twofold price increase. It was seen as Kremlin revenge for Yushchenko's efforts to throw off historic Russian influence in its western neighbor.
The dispute also caused an uproar over energy security in Europe, which gets much of its supply of Russian gas via Ukrainian pipelines. Russia sends up to 80 percent of natural gas destined for the European markets via Ukraine. In his remarks Tuesday, Yanukovich pledged smooth shipments so that "European partners will feel no discomfort."
But Ukraine's hopes for a long-term deal appeared to have foundered as the prices were to apply only for next year. "From the Ukrainian perspective, this is a little disappointing, as the hope would have been that this price would be fixed for three years," Tim Ash, an economist at Bear Stearns in London, wrote in a note. "As it is, Russia has agreed only to fix the price for 2007. The assumption is that Russia will be seeing what is delivered by the Yanukovich administration with respect to its broader political and economic agenda." Valery Chaly, an analyst at the Razumkov Center in Kiev, said it was good that "today, a new approach to searching for compromises in Russia and Ukraine is taking place."
But, he added: "The problem is that this process is not transparent. It's not clear what compromises Ukraine should take and which Russia should. Coming from previous experience, I can guess that the balance of compromises will not be in Ukraine's favor."
(International Herald Tribune, 25/10/2006)