'Gas Will Flow' Under New Deal

ReutersPrime Minister Vladimir Putin and his Ukrainian counterpart, Yulia Tymoshenko, meeting for talks early Sunday.
Prime Minister Vladimir Putin and his Ukrainian counterpart, Yulia Tymoshenko, said Russian gas would restart flowing to southern Europe on Monday, ending the worst supply disruption in European Union history.

The prime ministers, emerging from overnight talks in Moscow on Sunday, announced that they had settled a dispute that left Europeans shivering and industry cutting back on production since the New Year.

But the declaration, the latest glimmer of a solution in a turbulent week of high-level diplomacy, failed to prompt immediate praise from the EU.

"It now appears that these talks are bearing fruit," the European Commission, the executive arm of the 27-nation bloc, said in a statement. "But we have seen many false dawns in this dispute, and the 'test' in this case is whether or not the gas flows to Europe's customers. Until that point, the wait goes on for Europe."

Commission spokesman Johannes Laitenberger said Friday that the talks would be the "last chance" for the dueling countries, which accuse each other of the transit breakdown, to prove they are credible partners. Gazprom turned off the tap on EU-bound supplies Jan. 7, saying Ukraine was keeping all the gas to itself. Ukraine, whose supplies were shut off Jan. 1, denied the charge.

The United States called on Russia on Sunday to resume pumping gas to Europe through Ukraine at once, the U.S. Embassy in Kiev said.

Gazprom agreed to resume some of the deliveries Tuesday after the EU deployed monitors on gas metering stations that handle the transit, but the effort fell through. Ukraine said it was impossible to carry that small an amount of gas westward and offered solutions that Gazprom ignored.

Under Sunday's agreement, Ukraine will resume gas transit when its national energy company, Naftogaz Ukrainy, signs a commercial deal with Gazprom that will incorporate the terms of imports for Ukraine's domestic market, Tymoshenko said. The companies were given Monday as the deadline, she said.

"The Ukrainian side has assured us that the transit will be restored in the immediate future," Putin said at a news conference.

The prime ministers will oversee the signing of the agreement on Monday, Interfax reported late Sunday afternoon, citing an unidentified government official.

The terms of deliveries for Ukraine's consumption this year were a compromise, potentially removing a problem that triggered the current transit breakdown. Moscow agreed to give Kiev a 20 percent discount on the deliveries, provided that Ukraine's transit fees remain at last year's low level, Putin said.

As part of the deal, Gazprom will sell gas directly to Naftogaz, expelling middleman RosUkrEnergo from bilateral trade, Interfax reported. Tymoshenko has long insisted on this step.

"The talks were very uneasy, but the day passed, to my mind, rather fruitfully," Tymoshenko said.

RIA-Novosti / AP
President Dmitry Medvedev arriving for a news conference after a meeting on the gas crisis Saturday evening.

Next year, Russia and Ukraine will charge each other "European" prices for supplies and transit, respectively, Putin said.

It remained unclear Sunday from which price Russia would calculate the discount. Gazprom's latest price offer was $450 for 1,000 cubic meters of gas in the first quarter of this year.

The prime ministers, in their news conference, also sidestepped one more thorny issue in gas trade: the debts that Gazprom said Ukraine still owes it for last year's supplies.

A call to Gazprom spokesman Sergei Kupriyanov went unanswered Sunday.

Putin and Tymoshenko met for talks after they took part in a summit on Saturday that President Dmitry Medvedev called to give consumer countries, including EU members, a chance to talk to Russia and Ukraine and find a resolution to the standoff. EU member states largely boycotted the summit, being represented only by EU Energy Commissioner Andris Piebalgs, a minister from EU president Czech Republic, and a minister from Slovakia, one of the countries hardest-hit by the crisis.

Non-EU members Serbia, Bosnia Herzegovina and Moldova, which are also suffering from a lack of gas, sent their prime ministers to the summit. Turkey, Belarus, Kazakhstan and Armenia also dispatched senior government executives despite being unaffected.

The summit brought together officials from 10 countries, excluding Russia, while a Kremlin official said earlier that Moscow had sent invitations to 32 countries.

Supply was interrupted to a total of 18 countries, but most EU member states were little affected because of their gas reserves.

At the summit, Medvedev offered three options for Ukraine to guarantee payment for any gas that it might siphon off from transit flows. One proposal was for a "first-class" European bank to open an irrevocable letter of credit for Ukraine worth as much as $1 billion, Medvedev said. Gazprom would be able to draw money from the account if EU monitors registered theft on the transit route, he suggested.

Ukraine has said it needs 8 percent of transit supplies as "technical gas" to operate its pumping stations.

The letter of credit proposal may dovetail with an idea to establish a consortium of European gas producers to buy the technical gas, Kupriyanov, Gazprom's spokesman, said after Medvedev's speech.

Another option would be for Ukraine to borrow money internationally to pay for any gas it needs to service the transit, Medvedev said.

The third option, Medvedev said, had come from Ukrainian President Viktor Yushchenko, who said Ukraine might offer a state guarantee on paying for any gas it might take by dipping into transit supplies. A state guarantee represented a more complicated approach than a letter of credit, Medvedev said.

There were no reports Sunday that Ukraine had accepted any of these options.

In yet another attempt to dismantle the transit deadlock, Putin and several EU energy companies on Friday proposed the creation of the consortium that would buy the technical gas for Ukraine. The country would pay back the money later when it agrees on a price with Russia.

"We propose to share risks and create something like a consortium, invest money in it and supply the technical gas," Putin said in Berlin. "I think this can be done reasonably fast."

Under the proposal, Gazprom would sell technical gas to European companies including Eni SpA for resale to Ukraine. Ukrainian demands that Russia supply gas for running its transit system have been one of the roadblocks in the dispute. Italy's Eni, the largest user of Ukraine's transit pipeline, agreed to team up with European firms such as France's GDF Suez and Germany's E.ON Ruhrgas to form the consortium.

Putin was in Germany for talks with Chancellor Angela Merkel on the gas crisis. Merkel said Germany held "critical talks" with Ukraine about "the question of who is responsible for the technical" aspects of the problems.

Putin and Merkel agreed that independent experts should be dispatched to assess Ukraine's gas transit system and determine the optimal flows of gas for export to Europe.

Putin's diplomacy throughout the gas crisis once again projected him as being in the driving seat of his governing tandem with Medvedev. It is Putin's deal with Tymoshenko that appears to be paving the way for the resumption of supplies to the EU and giving Russia its long-sought "European price" for the gas, albeit with a temporary discount. It was unclear if Medvedev's proposals at the summit would materialize in the transit arrangements.

The gas dispute is continuing to boost Gazprom's proposed undersea pipelines that would lock transit countries out of EU-bound supplies, with Merkel reiterating her support for Nord Stream, which would carry gas under the Baltic Sea from Russia to Germany.

Gazprom also has talked up its South Stream pipeline that, if built, would carry gas to southern Europe, circumventing Ukraine. The pipeline under the Black Sea, backed by Eni and several Balkan countries, becomes "especially topical" after the dispute with Ukraine, Gazprom chief Alexei Miller and Eni chief Paolo Scaroni said in a statement late Thursday. Slovakia, which is considering joining the project, said it was still interested during a visit by Miller on Friday, Gazprom said in a statement.

Nadia Popova contributed to this report.