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Russia, Ukraine Open Gas Valves

By Peter Fedynsky
20 January 2009

Russia and Ukraine have resumed the flow of natural gas to Europe, ending a mid-winter standoff that left millions of consumers on the continent without heat or power during 13 days of bitter cold.

An official at a metering station owned by Russia's Gazprom state energy company says the taps were opened at 10:24 am - 24 minutes later than scheduled. Officials on both sides of the Russian-Ukrainian border confirm gas is flowing toward Europe.

Gazprom and its Ukrainian counterpart, Naftohaz, signed a 10-year contract Monday, based on an agreement between the prime ministers of both countries.

The previous contract expired on December 31, prompting Russia to cut-off gas to Ukraine on New Year's Day. Both sides blame each another for halting deliveries to Europe on January Seventh, during an unusually cold winter.

Gazprom Chairman Alexei Miller says Ukraine will pay market price for gas with a 20 percent discount, through the end of this year.

Miller says the base price for the first quarter will be 360 dollars per thousand cubic meters. He says that gas prices are pegged to the price of oil, which means Ukraine's future costs will depend on price fluctuations for oil and oil products.

The price Russia will pay Ukraine for transit will remain at $1.70 per 100 kilometers of pipeline. Miller says the contract also stipulates 100 percent pre-payment, if Ukraine fails to pay for gas on time. Currently, payment is made a month after delivery.

Ukraine Prime Minister Yulia Tymoshenko praises the discount.

Ms. Tymoshenko says it gives Ukraine time to work on energy efficiency and diversification and to do everything to make the country feel that the global price of gas demands a different attitude toward energy use.

Ukrainian industry is considered among the most inefficient of any country.

Moscow and Kyiv also agreed to direct purchase of gas, eliminating controversial intermediary companies, which Ms. Tymoshenko said were a source of corruption in the energy trade. However, the spokesman for Ukrainian President Viktor Yushchenko is criticizing the new gas price, saying it is higher than that paid by European countries.

Europeans that rely on Russian natural gas were left without heat and power for nearly two weeks. Ukraine and Russia were criticized on the continent as unreliable, prompting calls for construction of alternative pipelines and energy sources.

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