Russian, Ukrainian PMs meet to discuss gas issues

By NATALIYA VASILYEVA

YALTA, Ukraine

The prime ministers of Russia and Ukraine will meet Thursday to discuss their countries' uneasy relations in the energy sphere, which Europe worries could lead to another disruption of natural gas supplies this winter.

Russian Prime Minister Vladimir Putin has warned European countries that Ukraine may not be able to meet its commitments to Russia's state-controlled gas monopoly Gazprom and urged the European Union to lend Ukraine at least $1 billion to help it pay for the gas supplies.

EU nations receive 20 percent of their gas from Russia, most of it via pipelines crossing Ukraine.

Putin's counterpart, Yulia Tymoshenko, sought Wednesday to ease concerns about Ukraine's reliability as a transit nation, saying it has not missed a payment in the 10 months since signing a deal with Russia that restored gas supplies to millions of Europeans after a two-week shutdown in January.

The deal obliges Ukraine to pay in full for contracted gas volumes regardless of the amount used -- a provision which has become a powerful weapon in Moscow's hands as Ukraine has drastically cut consumption this year amid a severe economic crisis.

In what it described as a goodwill move, the Russian government has promised Ukraine not to use the contract obligation to impose fines. Some observers interpreted this as a gesture of support for Tymoshenko, who is running for president in January's vote.

At the same time, Moscow has not formally given up the provision and could demand millions of dollars in fines owed by Ukraine at any moment.

Ukraine is anxious for Russia to formally waive its right to fine it for lower intake, but some analysts said that the provision is too important for Russia to give away.

"This is a precious trump worth hundreds of millions of dollars if we judge from the volumes that Ukraine hasn't used," said Sergei Pikin, director of the Moscow-based Energy Development Fund. "If Russia makes concessions to Ukraine, then European customers will come out with the same plea -- this will require a redraft of all contracts."

Tymoshenko's rival, Ukrainian President Viktor Yushchenko, has sharply criticized the January gas deal with Russia, calling it a betrayal of national interests. He urged Russia on Thursday to re-negotiate the contract.

Russia has pushed for a stake in Ukraine's natural gas pipeline network, but Ukrainian officials have staunchly resisted the pressure.

In July, the European Commission brokered an agreement between Ukraine and international lenders to provide up to $1.7 billion in loans to help it pay its gas bills and modernize its pipeline network. Russia has been anxious to take part in the modernization, but the EU deal did not mention Russia's participation, which angered Moscow.

Russian Energy Minister Sergei Shmatko said earlier this week that a new deal between Ukraine and Russia would allow Russia to join in.

Observers said that Ukraine's approval of Russia's participation would be likely to see Russia acquire a role in running the pipeline network in the middle term.

"Russia is not making this public yet, but one needs to understand that modernization will entail some role (for Russia) in managing the system," said Pikin.

The Ukrainian constitution does not allow the national gas network to be sold to foreign states or companies.