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. Last Updated: 07/27/2016

Gazprom, UES Seal Key Gas Supply Deal

Gazprom and power utility Unified Energy Systems sealed a key deal Tuesday that would allow UES to meet growing electricity demand while Gazprom benefits from higher gas prices.

Gazprom and United Energy Systems said in a joint statement that their CEO's, Alexei Miller and Anatoly Chubais, respectively, had agreed that gas supplies to UES would gradually rise throughout 2010 under long-term deals.

Gas was previously supplied in response to government-approved requests from UES at state-capped prices.

Volumes were the subject of heated debates between the two firms, with Gazprom saying it was losing money on domestic sales.

The government has repeatedly called on UES to limit the use of gas and switch to coal to let Gazprom supply more fuel to lucrative European markets, where it covers one-quarter of gas needs.

But the government later approved a plan for UES to increase gas purchases at higher prices under a broader power sector reform plan to help the company meet Russia's growing power demand.

The statement said UES's gas purchases would rise to 186 billion cubic meters by 2010 from 162.9 bcm this year, of which Gazprom would supply 103 bcm each year with the rest coming from independent firms.

UES's long-term gas purchases deals will be based on a "take or pay" condition, something that UES has long opposed.

The condition would be a copy of Gazprom's clause in long-term deals with European customers, who must pay fines if they fail to buy agreed volumes.

The statement also said the two CEOs agreed to cooperate closely in working out UES's final restructuring plan, which is due to be completed by mid-2008.

Gazprom has large minority stakes in both UES, and its subsidiaries and Russian media have reported that Gazprom opposes the most recent restructuring plan, which is due to be discussed at a Kremlin meeting Wednesday.

Gazprom said Tuesday that U.S. major ConocoPhillips was still interested in becoming its partner in the giant Shtokman gas field.

"Conoco has confirmed its readiness to continue talks in the light of new conditions for cooperation and will submit its proposals to Gazprom in the near future," Gazprom said in a statement after Miller met Conoco CEO James Mulva in Moscow.

Gazprom has slated $1 billion in investment for the Arctic Yamal Peninsula in 2007 as it speeds up exploration to replace declining Siberian production.

The company said in its corporate magazine that it would invest 26.2 billion rubles ($998.5 million) in the Bovanenkov and Kharasavei fields on Yamal and another 3.1 billion rubles in a railway on the peninsula.