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. Last Updated: 07/27/2016

Russia Relieves Ukraine of Gas Debt

MINSK, Belarus - Russia on Friday agreed to give Ukraine a 10-year reprieve in paying off its mammoth natural gas debt in exchange for a promise to end the siphoning of Russian gas supplied to the West via Ukrainian territory.

The deal should remove a major irritant in bilateral ties.

The agreement, which Presidents Vladimir Putin and Leonid Kuchma reached during a five-hour meeting that started late Thursday, also provides for Russia to continue supplying gas even if Ukraine cannot immediately pay for the deliveries.

Russian Prime Minister Mikhail Kasyanov, who announced the agreement, said that Russia would grant Ukraine a low-interest, 10-year deferment on its gas debt to Russia, which he estimated between $2 and 3 billion.

Russia also agreed to give Ukraine an eight to 10-year break on payments for half of the future gas supplies on condition it pays for the rest in cash and stops siphoning off Russian gas.

?We have made a well-considered decision on the deferment in payments, bearing in made its difficult financial consequences for Russia,? Kasyanov told reporters after the talks. ?We will benefit from the fact that the Ukrainian government will no longer allow the unsanctioned borrowing of Russian gas.?

Kasyanov also said that Russia could use that debt to purchase Ukrainian enterprises that are being privatized. The debt, which has been run up by Ukrainian companies, will be now guaranteed by the Ukrainian government, he said, according to Russian news reports.

Ukrainian Prime Minister Viktor Yushchenko said that he and Kasyanov would sign a memorandum in a few days that would formalize the agreement. He wouldn't comment on the terms of the agreement, but mentioned the 10-year debt relief as well as guarantees for the safe transit of Russian gas via Ukraine.

The Ukrainian government has previously put its gas debt to Russia at $1.4 billion.

Ukraine, which uses about 78 billion cubic meters of gas annually, is one of the world's biggest energy consumers. That has made it especially dependent on Russia, the closest source of gas.

But Moscow is likewise dependent on Ukraine for use of the pipelines that carry Russian gas to European consumers.

According to Kasyanov, Ukraine itself produces 18 billion cubic meters of gas a year and will get about 30 billion cubic meters from the former Soviet republic of Turkmenistan in Central Asia. Russia will provide the remaining 30 billion cubic meters, he said.