Reuters: Russia, Ukraine PM to talk gas, property rows

Reuters: Russia, Ukraine PM to talk gas, property rows

* Putin, Azarov to meet on Thursday afternoon

* Kiev ready to share pipelines with Russia

* Moscow keen to resolve property rows

MOSCOW, March 25 (Reuters) - Moscow will likely tell Kiev on Thursday to share gas pipelines and return property taken from Russian firms and tycoons by Ukraine's former leaders if it wants to see a cut in its huge Russian gas bill.

Russian Prime Minister Vladimir Putin will meet his counterpart Mykola Azarov, a close ally of Ukraine's new President Viktor Yanukovich, who Moscow hopes will help rebuild ties after years of frosty relations with Ukraine's former pro-Western leaders.

Yanukovich and Azarov have said cutting Russian gas prices was a top priority to support the economy in difficult times and that they were prepared to change legislation that forbids pipelines privatisation.

That would allow Russia and the European Union to co-manage and upgrade the outdated system and possibly allow Kiev to persuade Moscow not to build the expensive South Stream pipeline to bypass its territory.

The idea of new pipelines to bypass Ukraine emerged after two gas pricing disputes between Moscow and Kiev which disrupted Russian gas flows to Europe. The continent receives one fifth of its overall gas needs from Russia via Ukrainian pipelines.

Putin's office said in a statement that gas would be one of the key topics on the agenda together with prospects for Russian investments in Ukraine.

"Ukraine is a key country for capital investments by Russian business," it said in a statement.

Kommersant business daily cited unnamed sources on Thursday as saying Putin would tell Azarov that Moscow wanted more concessions than just a deal on pipelines.

"Moscow is now seeking a revision of the results of the property shake-up in Ukraine which took place during the leadership of (former President) Viktor Yushchenko, when many Russian oligarchs lost assets in the country," the daily said.

One of the main issues involves Russian mid-sized oil firm Tatneft (TATN3.MM), which sued Ukraine for around $1 billion over lost crude and the ownership rights to a major Ukrainian refinery [ID:nLM234211]

Kommersant also said another property rights issue involved Russian tycoon Viktor Vekselberg's gas trading firms and that the two sides will also discuss cooperating on nuclear power station construction.

(Reporting by Dmitry Zhdannikov)

March 24, 2010

NY Times: Seeking Lower Fuel Costs, Ukraine May Sell Pipelines

By ANDREW E. KRAMER

To prevent such blowups in the future, Ukraine’s new Moscow-friendly president, Viktor F. Yanukovich, has proposed an improbable solution. This week he opened negotiations with the Kremlin to sell control over the pipelines’ operations to a consortium including Ukraine’s usual antagonist in these disputes, Russia’s natural gas giant Gazprom, and an unspecified European company.

Russia has already negotiated similar agreements with Belarus and Armenia, where Gazprom owns stakes in the pipeline systems with implied vetoes over strategic energy decisions and in exchange sells gas at steep discounts. Belarus, for example, now pays $168 for 1,000 cubic meters of gas compared with $305 in Ukraine.

If Ukraine had the lower price, it would save about $3.7 billion a year, supporters of Mr. Yanukovich’s proposal say.

From Russia’s perspective, the deal would be a coup in the long-running quest for supremacy of the Eurasian pipeline network, sometimes called a modern version of the Great Game, after the 19th century struggle between Russia and Britain for colonial possession in Central Asia.

Even partial control of the Ukrainian pipelines, which carry about 80 percent of Gazprom’s exports to Europe, could eliminate the need for Russia to build a costly new pipeline under the Black Sea from Russia to Bulgaria around Ukraine, called South Stream.

But the idea — illegal under existing Ukrainian law — is controversial even though it would help put debt-strapped Ukraine back on its feet. Kiev spends billions every year subsidizing gas prices for consumers, and the International Monetary Fund has made reducing such outlays a condition for resuming lending halted last fall.

Ukrainians now pay about 30 percent of the true cost of heat and electricity, according to Olena Bilan, chief economist for Dragon Capital, a Kiev investment bank. The I.M.F. has suggested a variety of austerity measures, including politically unpopular steps like raising fees for residential heating. That would not be necessary, however, if Mr. Yanukovich could swiftly close a deal with Moscow to lower the gas price.

The idea of transferring pipeline control to a Russian-European consortium may comfort some European consumers, but it sends chills through many Ukrainians, who remain fearful of creeping Russian influence after spending centuries as part of Moscow’s empire.

“When the Kremlin loans money, it doesn’t want interest, it wants political concessions,” Sergiy Terokhin, a former minister of the economy, said in a telephone interview from Kiev.

Iryna M. Akimova, Mr. Yanukovich’s chief economic adviser, said Mr. Yanukovich was merely fulfilling a campaign promise by negotiating with the Russians on gas, and if it helped meet international lending requirements, all the better.

“The new president considers it very important to build good economic relations with partners in the West and the East,” Ms. Akimova said.