- The Washington Times - Wednesday, December 31, 2008

Ukraine agreed to pay as much as $2 billion to settle arrears for natural-gas imports from Russia, potentially averting a threat by OAO Gazprom to halt supplies and clearing the way for a deal on gas shipments in 2009.

Ukraine has paid in full for imports in November and has made an advance payment for December’s supplies, President Viktor Yushchenko’s office said in an e-mailed statement Tuesday.

The government of Ukraine, which transports 80 percent of Russia’s gas exports to Europe, ordered two state-run banks to lend energy company NAK Naftogaz Ukrainy as much as $2 billion to settle the debts. Gazprom threatened to cease supplies on Jan. 1, echoing a cut amid a similar dispute in January 2006, as it said a supply contract for next year couldn’t be signed with the debt outstanding.

“All the obstacles to signing a mutually advantageous and constructive agreement with Russian partners on natural-gas supplies to Ukrainian consumers in 2009 have been removed,” Mr. Yushchenko’s office said.

VAT Oshchadbank and VAT State Export-Import Bank will provide Naftogaz with loans, the government said in an order posted on its Web site. Naftogaz was to transfer the money as early as Tuesday, spokesman Dmytro Marunych said.

“Gas prices in Europe are at their highest point ever, reflecting summer’s run up in oil prices,” Ronald Smith, head of research at Alfa Bank, said in Moscow. “There is a strong incentive for Gazprom, at this particular moment, not to risk missing out on any sales to Europe. If Ukraine is able to follow through and pay most of its debt, it may be enough to either extend negotiations or get them over the hump.”

Gazprom’s supply cut to Ukraine on Jan. 1 three years ago provoked shortfalls in shipments to European countries, including Austria and Hungary. Gazprom, which supplies a quarter of Europe’s gas, blamed Naftogaz for the shortages, while Ukraine said it took Turkmen gas from the pipeline that it had secured under a contract with the Central Asian country.

This time Gazprom’s offer to pay fees in advance for shipping gas to Europe via Ukraine provided the country with a way to pay its debt and avoid a repetition of the 2006 disruption.

Gazprom has yet to receive the payment, said Sergei Kupriyanov, a spokesman for the state-run company.

Ukrainian Prime Minister Yulia Tymoshenko told representatives of the European Union on Tuesday that “compromises and just decisions” must be found in her country’s talks with Russia.

Ms. Tymoshenko held a telephone conversation with German Chancellor Angela Merkel, EU foreign policy chief Javier Solana and EU Energy Commissioner Andris Piebalgs, according to a statement posted on the Ukrainian government’s Web site on Tuesday.

On Dec. 27, she held a telephone call with Russian Prime Minister Vladimir Putin to discuss energy supplies, after Russian President Dmitry Medvedev threatened on Dec. 24 to sanction Ukraine if the debt wasn’t paid “to the last ruble.”

Ukraine, like other emerging markets, has been shaken by a lack of credit, a weakening currency and plunging demand for its products due to the global financial crisis. Last month, Ukraine received approval for a two-year, $16.4 billion International Monetary Fund loan to help support its banking system and widening current-account deficit.

The Ukrainian economy is in danger of its worst decline since the mid-1990s aftermath of the Soviet Union’s collapse. Its gross domestic product, which has expanded at an average annual rate of 7 percent since 2000, may shrink 5 percent next year, Oleksandr Shlapak, deputy chief of staff to the country’s president, said last month.

Earlier Tuesday, Gazprom said second-quarter profit almost tripled as Russia’s largest energy producer reaped higher prices before oil prices tumbled from records. Operating expenses also rose.

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