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. Last Updated: 07/27/2016

Gas to Cost Ukraine 40% More

ReutersFradkov, left, shaking hands with Yanukovych at a meeting in Kiev on Tuesday.
KIEV -- Ukraine will pay nearly 40 percent more for Russian natural gas next year, Ukrainian Prime Minister Viktor Yanukovych said Tuesday, but the price remains considerably lower than that paid by other countries.

Yanukovych's announcement, the culmination of months of negotiations, promises to end uncertainty over Russian gas supplies to Ukraine and ensure smooth transit to European customers over the coming winter.

Speculation has swirled that the Kremlin would make political demands before reaching an agreement; Prime Minister Mikhail Fradkov made it clear Tuesday that Moscow expected concessions, particularly on Ukrainian President Viktor Yushchenko's pro-Western ambitions.

"Talks in Russia are coming to an end. We have received telephone confirmation ... about gas volumes to Ukraine of at least 55 billion cubic meters, at a price no higher than $130 per 1,000 cubic meters," Yanukovych told reporters as he stood next to Fradkov.

Ukraine now pays $95 per 1,000 cubic meters, and officials said the country could absorb the increase. The 2007 budget was calculated assuming the price would be about $135 per 1,000 cubic meters.

Gas trader RosUkrEnergo, a joint venture between Gazprom and two Ukrainian businessmen that is the exclusive supplier of gas to Ukraine, said it had contracted to provide 55 billion cubic meters in 2007.

Clashes between Kiev and Moscow over prices early this year briefly disrupted supplies to Europe, causing alarm as the continent depends on Russia for one quarter of its gas.

Ukraine consumes about 70 bcm of gas per year, with about 15 bcm produced domestically.

Fradkov offered no comment on 2007 prices, saying the issue had been decided by two state companies: Gazprom and Ukraine's state oil and gas firm, Naftogaz.

But Ukraine, he said, should respect Russia's position on issues like cooperation with NATO, the European Union and the World Trade Organization.

Moscow is unhappy about former Soviet republics like Ukraine and Georgia seeking NATO membership, and sees their applications to join the WTO as an obstacle to its own such bid.

Fradkov said a partnership assumed not only "the ability to look into the future but also special relations of trust.

"If it is NATO, then let it not damage Russia. If it is the WTO, then Russia's relations with [the] WTO should be considered. We need to consult more, exchange more and I would say directly to synchronize our talks on the WTO entry."

In his remarks, Yanukovych pledged smooth shipments so that "European partners will feel no discomfort."

Russia sends up to 80 percent of gas destined to the European markets via Ukraine.

But Ukraine's hopes for a long-term deal appeared to have foundered as the prices were to apply only for next year.

"From the Ukrainian perspective, this is a little disappointing, as the hope would have been that this price would be fixed for three years," Tim Ash, an economist at Bear Stearns in London, said in a research note.

"As it is, Russia has agreed only to fix the price for 2007. The assumption is that Russia will be seeing what is delivered by the Yanukovych administration with respect to its broader political and economic agenda," he said.