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. Last Updated: 07/27/2016

Ukraine, Russia End $1.4Bln Gas Dispute

KIEV -- Ukraine and Russia on Thursday signed an agreement to restructure $1.4 billion in gas debts, ending a dispute that soured relations between the two countries for years.

"We have signed an agreement that will allow us to resolve the issue of our gas debts … taking into consideration national interests," Ukrainian Prime Minister Anatoly Kinakh said after a signing ceremony with Prime Minister Mikhail Kasyanov.

Kasyanov said at a joint news conference in Kiev that the debt was rescheduled over 12 years with a three-year grace period. He said the interest rate was set at LIBOR plus 1 percent.

The terms of the restructuring will give Ukraine vital financial breathing space, allowing the country to channel funds to support its economic recovery and modernize obsolete industries.

Ukraine and Russia have agreed the size of the debt at about $1.4 billion. Ukraine has said it would recognize it as corporate debt of state-owned gas company Naftogaz.

Kasyanov said Naftogaz would issue Eurobonds to cover the debt. He gave no further details.

The Russian gas deal terms are similar to an agreement reached in July with the Paris Club of creditor nations that restructured $580 million of debt over 12 years.

Gas debts have been one of the issues dominating relations between Kiev and Moscow for several years.

Ukraine built up huge debts over its decade of independence from the former Soviet Union and Moscow had accused Kiev of stealing its gas. Russia transports gas through Ukraine to its clients in Europe.

Ukraine has experience in restructuring its debt to Russia. In 1995 it rescheduled a total of $1.4 billion of its gas debts to Russian gas giant Gazprom by issuing hard-currency securities with maturities extending from 1997 to 2007.

Ukraine is heavily dependent on energy imports and covers over 80 percent of its fuel needs with supplies from Russia.

The country of 49 million people consumes up to 75 billion cubic meters of natural gas a year, which makes it the world's sixth largest gas consumer.

Kiev is also trying to reschedule its estimated $270 million $280 million gas debts with Turkmenistan.

Also Thursday, the two prime ministers signed a memorandum agreeing, in principle, not to apply customs restrictions on the import pf goods from each other's territories, the Ukrainian news agency UNIAN reported. It did not provide details.

The news agency also said that a third document was signed, providing amendments to a July 24, 1993, free trade agreement. The paper was signed by economic officials from the two countries. The new agency did not give more information about the amendments.