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Moscow Times
April 30, 2009
Kiev Lets Gazprom Upgrade Pipelines
By Anatoly Medetsky / The Moscow Times

Ukrainian Prime Minister Yulia Tymoshenko on Wednesday invited Gazprom to take part in efforts to upgrade her country's sprawling gas pipelines, but that didn't fully heal the wounds that bilateral ties suffered from Ukraine's recent pipeline deal with the European Union.

Prime Minister Vladimir Putin said after talks with Tymoshenko that Russia needed more time to study Ukraine's request for a $5 billion loan to buy Russian gas. In an apparent reference to Ukraine's deal with the EU, he sarcastically suggested that Ukraine could always turn to Brussels for a speedier response if it wanted money.

"Here's what we say about pumping gas to [Ukraine's] underground storage facilities: Go to Brussels, get $5 billion and pay Gazprom. That will be it. The whole problem is worth nothing," he quipped at a joint news conference with Tymoshenko.

Tymoshenko signed a deal with EU President Jose Manuel Barroso last month that set the guidelines for upgrading and operating the country's gas pipelines without any mention of their principal user, Gazprom. Moscow said it was unacceptable because it had the potential to disrupt Gazprom's long-term supply contracts with EU members.

Striking a conciliatory note, Tymoshenko said Gazprom was welcome to join any work to improve the pipelines.

"We invited Russia as one of the main partners," she said.

Ukraine wants delivery of some 20 billion cubic meters of gas to store, Putin said. As an alternative to the loan, Ukraine could take Gazprom's future transit fees as payment for the gas, Tymoshenko said.

Putin pointed out that the Ukraine-EU deal stipulates the creation of a separate company to operate the transit, which hampers the option of advance payments.

"How would we get the money back?" he said.

"You put all those things in the document and we, since we saw that, have been scratching this," he said, explaining by scratching his head.

Putin also made steps toward improving ties, which were also frayed by a gas war in January that disrupted transit to Europe for two weeks. He reiterated that Gazprom would not demand a $2 billion fine from Ukraine for buying less gas than it had agreed, defusing a potential bomb that could hurt supplies to Ukraine and Europe again. The size of the fine was based on Ukrainian imports this year through April, which declined substantially because of the country's slumping economy.

"We understand Ukraine," Putin said. "Ukraine's economic conditions have seen better times."

Putin also raised the prospect of resurrecting the idea to create a consortium of Russian, Ukrainian and European companies that would lease gas pipelines from Ukraine to upgrade and operate them. Gazprom and Ukraine's national energy company, Naftogaz Ukrainy, set up a similar consortium in 2003, planning that Germany's E.On and Gaz de France would join. It remained on paper because Ukraine objected to ceding control of the entire gas network, insisting that the group take over just a section.

In other energy issues, Putin and Tymoshenko agreed to cooperate on building two reactors at Ukraine's Vinnitsa Nuclear Power Station, according to a transcript on the Cabinet's web site. Moscow and Kiev will prepare an agreement on the $4 billion project in the near future, they said.

Russia could consider issuing a loan to Ukraine for the construction, Putin said.