Russia, Ukraine in gas-for-influence tug of war

Vladimir and Viktor.jpeg

Russian President Vladimir Putin refused to lower the price of gas for Ukraine yesterday (12 July) during his first visit to the former Soviet republic since returning to the Kremlin in May, a meeting which Kyiv had hoped would resolve the energy stalemate.

Ukraine, which depends heavily on gas imports from Russia, has long wanted to revise a 2009 gas deal with Moscow which it argues set an exorbitant price for the fuel (see background).

But President Viktor Yanukovich's talks with Putin, just like those with the Kremlin leader's predecessor – and now prime minister – Dmitry Medvedev, failed to yield a breakthrough.

"There are issues where we have not reached an agreement but … we will aspire to do that," Putin told reporters when asked about the gas issue after talks in the Black Sea resort of Yalta.

In order to get a discount, Moscow insists that Ukraine must either let Russian energy giant Gazprom take over its gas pipelines – which carry Russian gas to Europe – or join a Russia-led Customs Union, a post-Soviet trade bloc.

Kyiv sees its gas pipelines as a strategic asset and has long sought a free trade deal with the European Union. It has so far refused both trade-offs.

However, the high price of gas is a heavy burden on the state budget and the economy, and is one of the main headaches for Yanukovich's government as it prepares for a parliamentary election in October.

On Thursday, Yanukovich said Ukraine was still looking at the Moscow-led customs union.

"We are not saying 'No', we are thoroughly and seriously studying these integration processes," he said.

Ukraine's free trade deal with the EU, already agreed in principle, was shelved after the imprisonment of Yanukovich's key political opponent, former Prime Minister Yulia Tymoshenko, last October in a trial which Brussels saw as politically motivated.

A Ukrainian court found Tymoshenko guilty of overstepping her powers as prime minister while forcing through the same 2009 gas deal with Russia which Yanukovich is now trying to renegotiate. 

Since Viktor Yanukovich was elected president of Ukraine in 2010, the country’s government has sought to negotiate a lower price on Russian gas but talks have produced no results so far.

Under a controversial 2009 deal under the former Prime Minister Yulia Tymoshenko, Kyiv is paying $425 (€340) per thousand cubic metres. Ukraine sees a fairer price at $250 (€200).

Ukraine's government says the high price of imported gas is a drag on the country's economy and state budget. Ukraine heavily subsidises gas supplies to households and heating companies.

Yanukovich is now under political pressure to deliver a solution to the gas issue as his Party of the Regions has been slipping in opinion polls ahead of the October parliamentary elections.

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