Bloomberg News

Ukraine-Russia Talks End Without Lower Price for Russian Gas

June 07, 2011

June 7 (Bloomberg) -- Talks between the Ukrainian and Russian prime ministers ended without Ukraine gaining a cut in the price of gas imported from Russia.

Ukrainian Prime Minister Mykola Azarov met with his Russian counterpart, Vladimir Putin, today in Moscow to seek a review of their countries’ 2009 gas accord, which Ukraine has called “a burden” on its economy. Ukraine, the largest consumer of Russian gas, pays $297 per 1,000 cubic meters of fuel under the discount. Ukrainian President Viktor Yanukovych said May 24 he wants to cut the price to $240 per 1,000 cubic meters.

“We have a contract. It works and it was signed,” Putin told reporters after the talks, add that the price was market- related. “We are ready to discuss various options.”

Ukraine depends on Russia for more than 50 percent of its natural-gas supply and in turn the country of 46 million is the main transit route for Russian fuel to European Union countries. Russian gas shipments to Europe were halted for two weeks in 2009 because of a price dispute between Russia and Ukraine.

“The ideal formula leads to the fact that our neighbors are getting gas at a lower price,” Azarov told reporters. “We presented the arguments for the working group to consider. But of course we take a civilized approach to the existing agreement. We are fulfilling it, until it is revised,” he said, adding that solutions may be found in three months.

OAO Gazprom, Russia’s gas export monopoly, links its contract prices to oil and oil products with a lag of six to nine months. The price for Ukraine may jump to $400 in the fourth quarter, according to Ukraine’s Energy and Coal Ministry.

In April 2010, Russia agreed to reduce the price it charges Ukraine in exchange for extending the lease on a Black Sea naval base. Now, Russia is trying to use fuel prices as a lure to pull Ukraine into a customs union with Belarus and Kazakhstan even as the former Soviet republic looks to deepen economic and political ties with the EU.

“There are probably some different variants that would let us talk, hold a dialog and finally find acceptable solutions,” Putin said at the joint news conference. “A group will start working on this.”

--Editors: Heather Langan, Ben Livesey

To contact the reporters on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net; Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net.

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; Will Kennedy at wkennedy3@bloomberg.net.


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