- The Washington Times - Monday, January 19, 2009

MOSCOW Russia and Ukraine announced a deal Sunday to end the bitter dispute that has blocked Russian natural gas from Europe for nearly two weeks and deeply shaken Europeans’ trust in the two as reliable energy suppliers.

The early morning agreement between Russian Prime Minister Vladimir Putin and his Ukrainian counterpart, Yulia Tymoshenko, came after intense negotiations.

Still, relief for millions of frustrated consumers and businesses could be days away. The deal on 2009 gas prices is not likely to be finalized until at least Monday, when Mrs. Tymoshenko returns to Moscow. If Russia turns on the taps immediately after the signing, it could take another day for the gas to travel hundreds of miles through Ukrainian pipelines to Eastern Europe.

The European Commission welcomed the announcement cautiously.

“We have seen many false dawns in this dispute, and the test in this case is whether the gas flows to Europe’s consumers,” the commission stated.

Russia stopped selling gas to Ukraine for domestic use Jan. 1 in a dispute over prices. On Jan. 7, Moscow then halted all shipments to Europe via Ukraine, contending that Ukraine was siphoning off Europe-bound gas. Ukraine disputed this, claiming that Russia was not sending enough “technical gas” to push the rest further west.

Europe gets about 20 percent of its total gas needs from Russia via Ukraine’s sprawling pipeline network, but countries such as Bulgaria and Slovakia are totally dependent on Russian gas. The Czech gas company RWE began sending emergency gas shipments Sunday to neighboring Slovakia, where more than 1,000 businesses have been crippled by gas rationing.

The conflict has been further complicated by geopolitical struggles about Ukraine’s future and over lucrative export routes for the energy riches of the former Soviet Union.

Under the terms announced Sunday, Ukraine will pay 20 percent less than the European “market price” price for gas this year, which Russia says is $450 per 1,000 cubic meters. That’s more than twice as much as the $179.50 Ukraine paid in 2008.

However, natural gas prices for Europe are expected to fall sharply later this year because of the fall in oil prices. By midsummer, Ukraine could be paying as little as $150 for 1,000 cubic meters, said Ronald Smith, a strategist at Moscow’s Alfa Bank.

Russia has won a key principle, however, that Ukraine must pay more for its energy supplies. In the long term, it is not clear how Ukraine will pay for the huge amount of Russian gas needed to run its outdated factories and heating systems.

Ukraine hopes to offset some of the cost by charging transit fees for Russian gas that crosses its territory.

Moscow and Kiev, which spent the past two weeks blaming each other for the energy debacle, managed to wound both their images.

“The best part for Russia is they get the gas to the customers. This has been pretty damaging” to Russia’s reputation as a reliable energy partner, Mr. Smith said Sunday. “[Ukraine] probably lost as well, because the European Union was looking at them as a possible member and may now be wondering if it’s worth the effort.”


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