Gas Debts to Top Agenda at Ukraine-Russia Talks

Ukraines gas debts will be at the top of the agenda as Prime Minister Mikhail Kasyanov meets with Ukrainian Prime Minister Viktor Yushchenko on Friday.

The Kiev brokerage Alfa Capital estimates Ukraines debt for Russian gas at $2 billion to $2.5 billion, of which $80 million is owed to Itera.

Yushchenkos estimate is $1.4 billion.

The talks will take place after private gas company Itera, the primary supplier of gas to Ukraines private sector, threatened to cut off gas deliveries to Ukrainian power generation companies. Also this week, officials at natural gas monopoly Gazprom accused Ukraine of siphoning off about 7.5 billion cubic meters of gas.

Rumors were circulating that Yushchenko would resign if Itera cut off deliveries to the power stations.

He was saved from that eventuality after Ukrainian President Leonid Kuchma intervened.

Speaking in the light of allegations of corruption and inpreparedness for winter in the power sector, Kuchma said Wednesday that no top officials would resign soon.

Kuchma had telephoned Itera president Igor Makarov on Wednesday and managed to restructure the debt and give the stations some breathing room, Kommersant reported.

This year, Itera has delivered 22 billion cubic meters of gas to Ukraine, of which 4.3 billion cubic meters were provided to thermal power stations, most of which are privatized.

Artur Somov, an oil and gas analyst for the Kiev brokerage Prospect, said Thursday that in winter the Kiev government has no choice but to quickly reach a compromise with Itera.

"Itera is in a good situation, because the Ukrainian government must supply heat to its citizens," Somov said.

During the course of the consultations, Kasyanov is expected to propose that Yushchenko sign an agreement promising that the Ukrainian government will never siphon off Russian gas.

However, Valery Antonov, director of research at Alfa Capital, said that such an agreement would be meaningless and would not deter Ukraine from continuing to siphon gas in the future.

"Would you sign an agreement with a thief?" Antonov asked.

He said the question of what part of Ukraines debt to Russia is state-owned is controversial.

Ukrainian officials maintain that only 60 percent to 70 percent of the debt is state-owned.

By insisting that nearly all of Ukraines gas debt is state-owned, it is easier for Russia to demand payment for the debt.

The key energy issues to be discussed by Yushchenko and Kasyanov include the shipments of gas from Turkmenistan to Ukraine and the privatization of Ukraines pipelines system.

Itera and Gazprom have been pressuring the Ukrainian government to provide them with a controlling stake in the countrys pipeline system as a form of payment for the countrys debts.

The Ukrainian government is likely to hold on to a 51 percent stake in the pipeline system. Itera is believed to be the strongest contender in the auction for a 49 percent stake, which should take place next summer.

Yushchenko will begin his visit to Moscow on Friday with a news conference on the subject of Ukrainian-Russian relations and their prospects.