Russia's Gazprom, Ukraine, agree on gas terms

( dpa ) - Officials for the Russian energy conglomerate Gazprom on Thursday announced agreement with Ukraine on natural gas sales, lessening chances of a break of supplies to Europe.

Gazprom chairman Aleksei Miller and Oleh Dubina, director of Ukraine's state-owned energy company Naftohaz Ukrainy, signed an agreement in Moscow.

The deal set out terms of Russian natural gas sales to Ukraine planned for the remainder of 2008, and if enforced would go far towards ending long-standing conflict over energy between Kiev and the Kremlin.

Gazprom, using its own and gas bought from Central Asian producers, will sell Ukraine 49.8 billion cubic metres of gas, at a fixed price of 179.50 dollars, the Interfax news agency reported.

The fuel would be sold directly by Gazprom to Naftohaz Ukrainy, ending 17 years of Gazprom gas being transported to Ukraine via middleman companies, some of which have been accused of funnelling proceeds to organized crime syndicates.

The terms are a clear victory for government of Ukrainian Prime Minister Yulia Tymoshenko, who came to office on promises of making Russian gas sales to Ukraine transparent, while at the same time avoiding price hikes by Gazprom, and by upstream Central Asian producers.

Moscow however scored a major concession by obtaining Kiev's agreement to pay up outstanding debt owed to middleman companies, partially owned by Gazprom, for gas used in January and February 2008 - a reversal of Tymoshenko's long-held position that she would "not to pay a kopeck more" to the middleman companies.

The deal further obliges Kiev to pay the middleman companies for those two months' of supplies at a rate of 315 dollars per 1,000 cubic meters, making the total bill agreed to by Ukraine roughly 600 million dollars.

Naftohaz Ukrainy will repay part of the debt by transferring some of its gas reserves to Gazprom's ownership, according to the report.

Tymoshenko in February repeatedly rejected 315 price demanded by Gazprom as "extortion," and even ignored an instruction by Ukrainian President Viktor Yushchenko to settle the account immediately.

A potentially ground-breaking term of the agreement allows the Russian energy giant to sell, for the first time, gas directly to Ukrainian consumers with a maximum annual quota of 7.5 billion cubic metres, or some 10 per cent of Ukraine's domestic gas market.

The condition marks a dramatic reversal of years of Ukrainian government policy aimed at keeping Gazprom out of Ukraine's domestic markets at all costs, because of worries Ukrainian energy security is threatened by the Russian corporation.

Tymoshenko in late-evening television comments on Wednesday nonetheless pitched the agreement as a "victory for the Ukrainian people," pointing to a fixed low price and exclusion of middleman companies as proof she had achieved her aims in the negotiations.

Some 80 per cent of Gazprom's exports, and 30 per cent of the European Union's natural gas, travels to market via pipelines crossing Ukraine.

A late 2005 disagreements between Moscow and Kiev on gas sold to Ukraine have halted the flow, spiking prices as far away as France. Gazprom temporarily cut off supplies to Ukraine again last month, during the most recent round of price negotiations.

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