Russia 100419 Basic Political Developments

Reuters: PREVIEW-Russia, Ukraine to bargain hard on gas price

http://uk.reuters.com/article/idUKLDE63I0AI20100419
Mon Apr 19, 2010 7:42am BST

(repeats piece first issued on April 18)

* Cheaper Russian gas needed by Ukraine for IMF deal

* Two presidents to meet in Kharkiv on April 21

* Ukraine may have to make economic, political concessions

By Richard Balmforth

KIEV, April 18 (Reuters) - Ukraine expects this week to persuade Russia to cut the price of vital supplies of gas, a key element in stabilising its chaotic economy, but attention will focus on what concessions Russia will press for in return.

Ukraine's new leadership needs a lower price for strategic imports of Russian natural gas to help it nail down the detail of a 2010 draft budget and secure a resumption of credit from the International Monetary Fund. [ID:nLDE63D0J7]

Russia said on Friday it had agreed to revise the present gas deal with Ukraine, "including on price parameters", on the basis of proposals made by President Viktor Yanukovich. [ID:nLDE63F1BB]

Newly elected Yanukovich, who meets Russia's Dmitry Medvedev in Kharkiv on April 21 when the outline of a new deal should emerge, says the present 10-year gas supply agreement signed with Russia early in 2009 exacts an unfair price.

Ukraine's key export markets of steel and chemicals have been hard hit by the global financial crisis and it badly needs to secure new IMF credit to stabilise its finances and restore investor confidence.

Ukrainian officials say they want the country's total annual gas bill to be lowered by $4 billion and are seeking an average price of $240-260 per 1,000 cubic metres for 2010 to help them balance their books. Ukraine has so far paid an average of $305 in the first quarter and $330 in the second quarter.

The European Union, which receives a fifth of its gas from Russia via Ukraine's pipeline network, has a stake in the outcome since a pricing dispute preceding the 2009 deal left customers without gas for nearly three midwinter weeks.

BLACK SEA FLEET

Any agreement in Kharkiv on a new price will be hailed by the new government as a triumph for Yanukovich, who took power in late February only after a bitter campaign that highlighted the sharp east-west division in the ex-Soviet republic.

Since then, he has moved swiftly to repair ties with Moscow which went into cold storage during the presidency of Yanukovich's predecessor, the pro-Western Viktor Yushchenko.

But analysts said that while Prime Minister Mykola Azarov's government will be able to quickly flesh out a draft budget -- a requirement for new IMF credit -- it remains to be seen how hard a bargain Moscow will drive, politically and economically.

One sensitive issue is the status of Russia's Black Sea fleet in Crimea, which is part of Ukraine. Analysts say this will be discussed as part of a package of measures, including economic relations.

Russia would like an extension of the lease of the fleet's base in Sevastopol beyond 2017. Yanukovich, who has endeared himself to Moscow by taking NATO membership for Ukraine off the agenda, has hinted he is ready to discuss this -- though Ukrainian officials say they want to raise the rent.

"Ukraine has many trump cards to play against Russia. One of these is the rent for the Black Sea fleet," Hanna Herman, deputy head of Yanukovich's administration, told the Shuster Live TV talk-show at the weekend.

UKRAINE SOVEREIGNTY

A wrong move on the issue could, however, draw fire from the political opposition and leave Yanukovich open to accusations of damaging Ukraine's sovereignty.

"For us, the price of concessions is important ... It is clear that the concessions from the Ukrainian side will be fairly large," said Vladimir Fesenko of the political analysis centre Penta.

Kiev has already signalled its readiness to change legislation that forbids the privatisation of its pipelines, which would allow Russia and the European Union to co-manage and upgrade the outdated system. [ID:nLDE6310DD]

In addition, it could allow Russia's Gazprom (GAZP.MM) to double its share of the Ukrainian gas market to 50 percent and to supply its major industrial enterprises in the steel and chemical sectors.

As additional incentives, it could propose co-ownership of future nuclear power reactors to be built by Russian loans, ease restrictions on Russian firms seeking to take advantage of privatisation opportunities in Ukraine, and provide guarantees for Russian investment. (For a FACTBOX on Russia-Ukraine issues: [nLDE63F0MM] For a FACTBOX on Ukrainian gas imports: [nLDE63F1GE])

(Additional reporting by Yuri Kulikov, editing by Mark Trevelyan)

(Writing by Richard Balmforth)

Moscow Times: Sechin Discusses Lower Gas Prices for Ukraine

http://www.themoscowtimes.com/business/article/sechin-discusses-lower-gas-prices-for-ukraine/404151.html
19 April 2010

Combined Reports

Deputy Prime Minister Igor Sechin said Saturday that Russia was considering cutting the price of gas for Ukraine in exchange for participation in the country's energy sector.

"We are preparing the decision," Sechin said. "The parameters are under final discussion now," he said, adding that a decision could be made Tuesday, when Ukrainian Fuel and Energy Minister Yuri Boiko returns to Moscow for additional talks.

Moscow and Kiev are due to resume talks on gas supplies Tuesday, a day before President Dmitry Medvedev meets his Ukrainian counterpart, Viktor Yanukovych, in Kiev. A deal should pave the way for Ukraine to approve its 2010 budget and secure more financing from the International Monetary Fund.

"One of the questions we are indeed discussing is a price discount," Sechin told reporters in Murmansk. "The Ukrainian side proposes an exchange. We have many interests, particularly in the energy sector — in particular hydropower generation, the nuclear industry and many others."

The Russian government said Friday that it had agreed with Kiev to approve agreements reached by Gazprom and its Ukrainian partners, but it gave no details.

Gazprom CEO Alexei Miller met Boiko in Moscow to discuss contracts for supply and transit, Ukraine's government said in a statement.

"We recorded some progress in reaching agreement on the review of gas contracts," the Ukrainian government said.

Meanwhile, Medvedev told reporters in Brasilia that he would make an unscheduled visit to Yanukovych next week and that gas talks were continuing.

"As far as gas is concerned... our Ukrainian colleagues believe that gas prices are quite heavy for the current economic situation in Ukraine," Medvedev said on the sidelines of a summit of leaders of Brazil, Russia, India and China.

He said he hoped that the deal could be signed during his visit to Ukraine, although he added that it was "not a closed subject."

Kiev has already signaled its readiness to change legislation that forbids the privatization of its pipelines, which would allow Russia and the European Union to co-manage and upgrade the outdated system.

Prime Minister Vladimir Putin said last week that Moscow might lend $5 billion to $6 billion to Ukraine to construct two nuclear reactors.

Elected president in February, Yanukovych has moved swiftly to repair ties with Moscow. But he has said a 10-year gas-supply deal signed in January 2009 exacts an unfair price from his country.

Ukraine paid $305 per 1,000 cubic meters in the first quarter and wants its total annual gas bill to be lowered by $4 billion, with an average price of $240 to $260 per 1,000 cubic meters for 2010.

Kommersant reported on Friday that Ukraine planned to offer Russian companies its gas-storage facilities for rent and stakes in the Kremenchug refinery and future nuclear reactors, in exchange for a $4 billion discount on gas purchases this year.

(Reuters, Bloomberg)