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Russia, Ukraine PMs say reach gas deal

THE prime ministers of Ukraine and Russia said today they had reached an outline deal to restore gas supplies after marathon talks which dragged on into the small hours of the morning.

Putin's spokesman Dmitry Peskov said the deal envisaged Kiev paying much higher European prices for its own gas, less a 20 percent discount for this year in return for not increasing the transit fees it receives for Russian gas.

From 2010, Ukraine would pay the full European market price for gas, he said.

The leaders instructed their respective national gas companies, Russia's Gazprom and Ukraine's Naftogaz, to draw up a formal agreement and once this had been signed, supplies to Europe across Ukraine would resume, Peskov said.

This would happen in the "very near future", he said.

Russian premier Vladimir Putin and his Ukrainian counterpart Yulia Tymoshenko were under intense pressure from the European Union to resolve the dispute, which has cut gas supplies to much of eastern Europe since January 7 and damaged both countries' reputations as reliable energy partners.

While Putin, Russia's paramount leader, had full authority to seal an agreement, it remained unclear whether Tymoshenko's domestic political rival Viktor Yushchenko would respect the deal reached in Moscow.

Last year, Tymoshenko flew to Moscow and agreed a gas deal with Putin, only to see Yushchenko veto it once she returned home.

The frantic all-night talks followed a summit in Moscow of gas-consuming nations at the Kremlin yesterday afternoon which failed to resolve the dispute.

Russia cut off supplies to Ukraine on January 1 because it would not pay higher prices for its gas. Six days later, export flows to eastern Europe through Ukraine ceased amid Russian accusations that Kiev was "stealing" gas intended for export.

After the Kremlin meeting, Medvedev reiterated Moscow's position on the issue at the heart of the dispute, saying that Kiev had to pay European prices for gas supplies, more than double current levels.

"There is nothing damaging about that. It's the money our other partners pay and Ukraine is in a position to pay it," Medvedev told a news conference.

Kiev, whose crisis-gripped economy is forecast to contract by up to 5 percent this year, says it cannot afford such high prices and wants Russia to pay higher transit fees for gas it exports through Ukraine.

Russian officials had earlier questioned whether Tymoshenko, a former gas trader, had the necessary mandate to discuss a solution.

In Kiev, a source in Yushchenko's office said there were no divergences between the president and the prime minister.

"The prime minister has a full mandate at the talks. Otherwise, she would not be taking part in them," the source said.

Russia invited heads of government of all countries buying or transporting its gas to its "Moscow International Conference on Ensuring Delivery of Russian Gas Supplies" yesterday, but most stayed away.

The Czech Republic urged EU member states not to attend so that Brussels could speak with one voice. Slovakia was the only EU member to come, apart from the Czechs.

A key hurdle to ending the dispute appeared to have been overcome when a consortium of European gas companies said they had agreed to supply enough gas to fill the empty pipeline and restore pressure so that exports could resume.

But the key sticking point remained the price Ukraine must pay for its own supplies this year. Yushchenko insisted there could be no question of exports resuming to Europe until Ukraine had settled its own prices with Moscow.

Gazprom wanted Ukraine to pay European-level prices of US$450 per 1,000 cubic meters (tcm) of gas for 2009, up from US$179.5 per tcm in 2008. But Ukraine, heading into its worst recession for a decade, had said it can afford only US$201.

The row has focused minds in Europe about the need to find new routes for gas but experts say any solution would take years to build and Gazprom says EU dependency on Russian gas is forecast to increase over the coming years.


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