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Weapons of Mass Destruction (WMD)

Russia, Ukraine agree on $40 bln gas-for-fleet tradeoff - media

RIA Novosti


MOSCOW, April 22 (RIA Novosti) - Ukraine secured a 30% discount for Russian natural gas, expected to cost Russia $40 bln in the next 10 years, in exchange for extending the lease of a Russian naval base, a business paper reported on Thursday.

The accords on reducing the price of natural gas for Ukraine and extending the lease for the Russian Black Sea Fleet until 2042 were reached between Russian President Dmitry Medvedev and his Ukrainian counterpart Viktor Yanukovych at the last moment during their meeting in Kharkov in east Ukraine on Wednesday, Vedomosti said.

Yanukovych, who was inaugurated in February, vowed during his campaign to improve relations with Russia and renegotiate the January 2009 deal on gas supplies, which increased the price Ukraine paid for Russian gas, straining the country's troubled finances.

The discount will apply to 30 billion cubic meters of Russian natural gas to be supplied to Ukraine in 2010 (compared with Ukraine's overall gas purchase plan of 36.5 billion cu m this year) and 40 billion cubic meters in 2011-2012 (compared with the contracted volume of 52 billion cu m), the paper said.

Considering that Ukrainian's previous forecast was based on an average gas price of $334 per 1,000 in 2010, the ex-Soviet republic will be able to save up to $3.5 billion this year at the expense of the Russian budget and up to $4.4 billion in 2011-2019, bringing total savings to $40 billion in 10 years, the paper said.

However, some of the $40 billion losses for the Russian budget will be compensated after 2017 when accrued discounts will be counted towards Russia's payments for the lease of the Black Sea Fleet base.

The lease agreement extends Russian naval presence in the port of Sevastopol for 25 years after the current lease expires in 2017, and may be further extended by another five years.