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Russia Slams Ukraine-EU Pipeline Deal

By Peter Fedynsky
24 March 2009

Russia is postponing scheduled consultations with the government of Ukraine pending review of Monday's agreement between Kyiv and the European Union to improve the Ukrainian gas pipeline system. Earlier, Moscow also threatened to reassess its relations with the EU over the deal, which would allow for greater movement of Russian gas to Europe through Ukraine.

Russian President Dmitri Medvedev told a meeting of the Russian Security Council in Moscow Tuesday that next week's scheduled consultations between the prime ministers of Russia and Ukraine should be postponed until Moscow understands the ramifications of Kyiv's pipeline agreement with the European Union.

Mr. Medvedev said the deal raises a number of questions, which Prime Minister Vladimir Putin elaborated.

Mr. Putin says the key factor as stated in the agreement is the volume of gas pumped through the Ukrainian pipeline system. The prime minister also says it is obvious that gas for the pipeline cannot come from anywhere except the territory of Russia, which he says, is a question that nobody asked Moscow about.

Despite Mr. Putin's statement, Russian Energy Minister Sergei Shmatko was present at the conference in Brussels, where the EU-Ukraine deal was signed.

In a rare show of unity at that meeting, Ukraine's feuding leaders, Prime Minister Yulia Tymoshenko and President Viktor Yushchenko, presented the EU with a $7.5 billion gas modernization plan. European officials welcomed the proposal as a way of securing the continent's energy needs and helping the Ukrainian economy.

Vladimir Feigin, the director of Moscow's Institute for Energy and Finance, told VOA that Europe's active interest in the Ukrainian pipeline system comes as a result of January's gas war between Moscow and Kyiv, which disrupted European fuel supplies in the dead of winter.

Feigin says European leaders, who generally maintained a passive position with regard to Ukrainian pipelines, began to feel the matter is important to voters concerned about lengthy fuel disruptions. He adds that funds for the proposal will be approved, because it is clear the issue is tied to European security, jobs, industries, and people's lives.

About 80 percent of the gas Russia sells to Europe goes through Ukraine, and increasing capacity would likely raise the percentage. Volodymyr Omelchenko, energy expert at the Razumkov Center in Kyiv, says such an increase would run counter to Moscow's plans for the Nordstream and Southstream pipelines that circumvent Ukraine.

Omelchenko says it makes no sense to build Nordstream, Southstream and to also increase Ukrainian capacity, because first of all, there won't be enough gas to use the new capacities, and secondly, Europe will not need that much gas.

When completed, Nordstream and Southstream are expected to have a combined capacity of 85 billion cubic meters per year, compared to 120 billion, which Ukraine currently has.

On Monday, just hours after Kyiv and Brussels signed the pipeline agreement, Mr. Putin threatened to reassess Russia's relations with the EU, calling its deal with Ukraine ill-considered, unprofessional and not serious.

Mr. Putin says Russia recently made proposals to the European Union at various levels to combine efforts in order to provide joint credits to Ukraine. He says the European Commission responded that it does not have money for Ukraine. This prompts the prime minister to ask if somebody is not trying to use the current global economic difficulties to take control of Ukraine's gas transport system.

But Volodymyr Omelchenko says Kyiv is seizing the opportunity for productive cooperation with a suddenly pro-active Europe, partly out of fear of giving Russia's Gazprom state energy monopoly more influence in Ukraine, and partly because of the global economic crisis.

Omelchenko says when there are no funds and no money to pay government employees and Ukraine finds itself in a very deep economic hole, then you do not think about tomorrow or about politics.

The agreement between the EU and Ukraine does not include precise financial figures. However, it establishes common rules for producers and consumers in the gas trade. It also seeks to reform the management of Ukraine's gas companies to reduce red tape and corruption in order lower the risk for foreign investors.

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