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RIA Novosti
March 25, 2009
EU looks for gas in Ukraine

MOSCOW. (RIA Novosti economic commentator Oleg Mityayev) - On March 23, Ukraine and the European Union signed a declaration on the modernization of Ukraine's gas transportation system. The choice of a cheaper route for the transit of Russian natural gas to Europe via Ukraine, instead of the planned Nabucco pipeline to deliver Caspian gas bypassing Russia, looks like a wise decision.

However, Russia insists that only a trilateral agreement between the EU, Ukraine and Russia will ensure the project's success.

Energy giant Gazprom is supplying 26% of Europe's gas requirements, 20% of them across Ukraine, whose gas transit system can pump 120-140 billion cubic meters annually.

Ukrainian Prime Minister Yulia Tymoshenko presented a master plan for modernizing the system at an investment conference in Brussels. According to it, the system's throughput capacity can be increased by 60 billion cu m, but Ukraine needs 5.5 billion euros ($7.5 billion) from the EU to implement the project.

The EU is prepared to invest 2.5 billion euros in the Ukrainian gas transit system, which was built during the Soviet period 40 years ago, by the end of 2015. Europe believes that money will be enough to maintain the system's capacity at its current level.

Under the agreements signed in Brussels, Ukraine must create a transparent gas market, including by ensuring the operators of the Russian gas transit to Europe an opportunity to work commercially.

The European Bank for Reconstruction and Development, the World Bank and the European Investment Bank have assured Ukraine that they will lend it money for modernizing the gas transportation system, but did not specify the terms.

It is difficult to say if these agreements are in line with the Russian-Ukrainian contracts on gas supplies to Ukraine and gas transit to Europe, signed until the end of 2019. It was thanks to these contracts that the Russian-Ukrainian gas conflict early this year, which kept a large part of Europe without gas for two weeks, was resolved.

Russian Prime Minister Vladimir Putin said in the evening on March 23 that it was senseless to try to negotiate Russian gas supplies without Russia. He said: "Have they consulted with us, do they know if we can transport such amounts, and if we are ready to do it?"

Tymoshenko tried to defuse tensions the same day. "Like the EU, Ukraine intends to attract Russia as a partner to a major program of modernization of the Ukrainian gas transportation system," she said.

If the EU, Ukraine and Russia negotiate the problem and sign a trilateral gas treaty, this will greatly change the EU's energy policy.

At the height of the Russian-Ukrainian gas conflict in January 2009, Europe decided to press for energy security by accelerating the economically questionable Nabucco project bypassing Russia, planned to deliver natural gas from the Caspian fields to Austria across Turkey.

The EU pledge to make multibillion investments in the modernization of Ukraine's gas transit system signifies that the vector of the EU's energy policy has been redirected to the tried and tested route - from Russia to the EU across Ukraine.