Russia and Ukraine announced a deal yesterday to end the bitter dispute that has blocked Russian natural gas from Europe for nearly two weeks.
The early morning agreement between Russian Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia Tymoshenko came after intense negotiations.
The deal on 2009 gas prices is not likely to be finalised until at least today when Tymoshenko returns to Moscow. If Russia turns on the taps immediately after the signing, it could take another day for the gas to travel hundreds of miles through Ukrainian pipelines to eastern Europe.
The European Commission welcomed the announcement cautiously.
“We have seen many false dawns and the test in this case is whether the gas flows to Europe’s consumers,” the commission said.
Russia stopped selling gas to Ukraine for domestic use on January 1 in a dispute over prices.
On January 7 Moscow then halted all shipments to Europe via Ukraine, alleging that Ukraine was siphoning off Europe-bound gas. Ukraine disputed this, claiming Russia was not sending enough “technical gas” to push the rest further west.
Europe gets about 20% of its total gas needs from Russia via Ukraine’s sprawling pipeline network but countries such as Bulgaria and Slovakia are totally dependent on Russian gas.
The Czech gas company RWE began sending emergency gas shipments yesterday to neighbouring Slovakia, where more than 1,000 businesses have been crippled by gas rationing. The conflict has been further complicated by geopolitical struggles over Ukraine’s future and over lucrative export routes for the energy riches of the former Soviet Union.
Under the terms announced yesterday, Ukraine will pay 20% less than the European “market price” price for gas this year, which Russia says is £305 per 1,000 cubic meters. That’s more than twice as much as the £121 Ukraine paid in 2008.
However, natural gas prices for Europe are expected to fall sharply later this year, due to the fall in oil prices.
By midsummer, Ukraine could be paying as little as £101 for 1,000 cubic meters, said Ronald Smith, a strategist at Moscow’s Alfa Bank.
Russia has won a key principle, however, that Ukraine must pay more for its energy supplies.
In the long term, it is not clear how Ukraine will pay for the huge amount of Russian gas needed to run its outdated factories and heating systems.
Neither Putin nor Tymoshenko made any mention of the more than £407million that Russia’s state-run gas monopoly Gazprom claims Ukraine still owes for 2008.
Sergei Kuriyanov, a Gazprom spokesman said documents on the agreement were being prepared. There was no immediate comment from Ukraine’s state-run gas company Naftogaz.