Russia, Ukraine Sign Deal to End Gas Standoff, Restore Shipments to Europe

Vladimir Putin, far right, and Yulia Tymoshenko watch as the deal is sealed.
Vladimir Putin, far right, and Yulia Tymoshenko watch as the deal is sealed. (By Alexander Zemlianichenko -- Associated Press)
By Philip P. Pan
Washington Post Foreign Service
Tuesday, January 20, 2009

MOSCOW, Jan. 19 -- Russia and Ukraine signed a deal Monday to end their politically charged standoff over natural gas prices, promising to restore fuel shipments to Europe after a nearly two-week cutoff that has left more than 20 countries struggling with midwinter energy shortages.

The details of the deal were not disclosed, and previously announced agreements have collapsed at the last minute. But Russian Prime Minister Vladimir Putin and his Ukrainian counterpart, Yulia Tymoshenko, personally presided over the signing ceremony, suggesting a high-level commitment to resolve the dispute.

"Hard and protracted talks have produced agreements on the entire set of problems related to natural gas deliveries to Ukraine and the transit of Russian gas to Europe," Putin said. Tymoshenko said she expected gas deliveries to Europe to resume "within hours."

The European Union, which has condemned both countries for the disruption in gas deliveries, said it welcomed the deal but was waiting for results. About a fifth of the gas that Europe uses is delivered from Russia through Ukraine's pipelines, and several countries have been forced to turn off heating and shut down factories.

Russia suspended gas shipments to Ukraine on Jan. 1 after talks on more than $600 million in overdue bills and a price increase for 2009 collapsed. But analysts say the dispute has been more about politics than business, with Putin seeking to weaken Ukraine's pro-Western government and Ukraine's feuding leaders jockeying for advantage ahead of an election.

Putin has vilified Ukraine's President Viktor Yushchenko, but he went out of his way Monday to praise Tymoshenko, who has presented herself as the candidate better able to negotiate with Russia. "Faced with one of the hardest situations, she took on responsibility for making these important decisions that helped end the deadlock," he said.

Neither side commented on the issue of Ukraine's outstanding debt, but Putin and Tymoshenko said they agreed on a 10-year contract that would set prices with a market-based formula similar to those used in the rest of Europe.

For more than a decade, Ukraine has received gas from Russia at subsidized prices negotiated annually, a relic of the Soviet planned economy. But the European formulas are designed to set the price of gas slightly below the cost of oil and other energy sources and adjust it each quarter.

Russia agreed to give Ukraine a 20 percent discount this year before moving to a full market price next January. In exchange, Ukraine agreed to continue charging Russia far less to use its pipelines to deliver gas to Europe than the average European rate. The fee will then be set by a market formula next year.

Analysts said it was unlikely a durable long-term agreement had been worked out so quickly and predicted future disputes. But Russia appeared to succeed in its goal of moving Ukraine toward market pricing while Ukraine won another year of low-cost fuel as it faces an economic crisis.

Officials said Tymoshenko succeeded in eliminating from the gas trade a shadowy intermediary company, RosUkrEnergo, that she says is a vehicle for corruption for her political opponents. Getting rid of the middleman will lower the gas price further.

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