MEDVEDEV: A new era of gas supply stability

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By Alexander Medvedev

Last week in Moscow, Ukraine's Naftogaz and Russia's Gazprom signed a ground-breaking agreement, supported by both the Ukrainian and Russian governments, to put an end, once and for all, to the spectre of a year-end gas crisis in Europe.

The devastating situation of the last three weeks must never be allowed to happen again. Never must customers, European citizens, in countries from Germany to Greece suffer again. The deal we have agreed with our Ukrainian partners should consign to history annual gas disputes between Ukraine and Russia. Europe should welcome this deal. Let me explain why.

We now have agreement about two separate long-term contracts regulating both the supply of gas to Ukraine and the transit of Russian gas to Europe for the next ten years. Europe is currently dependent on Ukraine as a transit country. This agreement should set at rest any doubts that remain about those supplies.

Importantly, this agreement also introduces real transparency into the gas trade between Russian and Ukraine - something Gazprom and the European Union has insisted on for a long time. The agreement is based on open market principles - both for supply and transit.

Ukraine is firmly on the path to paying market prices for gas, like in Russia itself and our other ex-Soviet customers, and to charging Gazprom market rates for transit. This year will be the last one in which discounts will be given on each side. We believe this principle is crucial for future relations. Indeed, it is the European Union and other WTO countries that have insisted that the gas trade between Russia and Ukraine be governed by market principles. Finally, we have got there.

The agreement also removes any intermediaries. We are glad that we have finally managed to do this in our relations with Ukraine.

We have seen in the past weeks how political interests can defy commercial interest. With the deal agreed by all parties, this is in the past. There can be no reason why gas relations between Moscow and Kiev should become a political issue again.

We now have a legally binding framework that protects Europe's gas supply against political caprice and interference.

President Yushchenko still insists that Ukraine consider whether the agreement is in accordance with Ukraine's "national security and national interests." Any attempt to re-open our negotiations would end in failure and be at the expense of millions of Europeans citizens.

Together with our European partners and our partners in Kiev we must now also move quickly to draw the lessons from this crisis.

Vertical integration and long-term contracts are the best guarantee of uninterrupted supplies at predictable prices. The dispute shows the difficulties that can arise when transport and distribution links are not under the control of the supplier and or the main distributors.

Energy security is an important common good for both, Russia and Europe. If we believe in it, we must also implement the right strategy to deliver it. Rules to regulate the energy industry must be primarily oriented to protecting the consumer's interests.

As the largest supplier of natural gas in the world, Gazprom takes its responsibility seriously and believes it has a major role to play in any debate about energy security.

We have already committed money to projects which will bring more energy security to Europe. We are constructing direct pipelines that will bring gas direct to Western Europe. Nord Stream and South Stream deserve everyone's support.

This does not mean we will not continue to use transit routes through Ukraine and elsewhere. But diversifying routes is in Europe's interest.

Let me remind you that throughout the last three weeks, Russian gas supplies through Belarus to Poland and the Baltic countries, and through Turkey, have continued uninterrupted with maximum possible load.

Gazprom is a reliable energy supplier and is committed to stay one. Let us all fully implement the accord signed in Moscow.

Alexander Medvedev is deputy chairman of Gazprom and director general of Gazprom Export.