Russia and Ukraine aim to sign gas deal

MOSCOW/KIEV (Reuters) - Russia and Ukraine aim to sign an agreement on Monday to restart gas flows after finally agreeing a price for 2009, potentially ending a dispute that has severed supplies to a freezing Europe for nearly two weeks.

The ex-Soviet neighbours, whose pricing dispute left parts of southeast Europe without gas in the middle of winter, agreed an outline deal on Sunday they say will quickly restore supplies both to Ukraine and across its territory to Europe.

Russian gas export monopoly Gazprom and Ukrainian state energy firm Naftogaz were working on a detailed agreement ahead of a signing ceremony scheduled for Monday.

"Gas transit, the Ukrainian side assured us, will be restored very soon," Russian Prime Minister Vladimir Putin said after weekend talks to end the dispute with his Ukrainian counterpart, Yulia Tymoshenko.

Putin said Moscow had agreed to give Ukraine a 20 percent discount to the price paid by European consumers, on condition Kiev holds 2009 tariffs for Russian gas transit across Ukraine at last year's level: $1.7 per 1,000 cubic metres over 100 km.

Prices and transit tariffs next year would be "in line with European levels," without any discount, he added. However, it was not clear which European market prices would be applied.

Tymoshenko left Kiev for Moscow with the intention of signing the deal, the Ukrainian government's press service said.

"Gas supplies to Europe will be resumed immediately after the signing," a Gazprom spokeswoman said. It would take 36 hours for the first Russian gas to cross Ukraine and enter Europe, Naftogaz officials said.

The failure of Moscow and Kiev to agree a price for Russian gas has enraged the European Union and brought into question the credibility of Russia and Ukraine as gas suppliers to Europe.

While Putin has full authority to seal an agreement, it remained unclear whether Tymoshenko's domestic political rival, President Viktor Yushchenko, would respect the deal.

Czech Industry Minister Martin Riman, speaking for the EU, said: "We remain realistic. Over the past few days we have seen several similarly hopeful moments. The only thing that counts for the EU is the resumption of gas supplies. For the time being, it is not clear when this resumption takes place."

PRICE TALKS

Russia cut supplies to Ukraine on January 1 because Kiev would not pay higher prices for its gas. Six days later, export flows to eastern Europe through Ukraine ceased amid Russian accusations that Kiev was "stealing" gas intended for export.

Ukraine, heading into its worst recession in a decade, says it cannot afford to pay higher prices. Analysts are forecasting its economy will shrink by up to 5 percent this year.

"Talks are continuing. The method of calculation has been agreed and the price will be in the contract," Putin's chief spokesman, Dmitry Peskov, said on Monday.

Gazprom wanted Ukraine to pay European-level prices of up to $450 per 1,000 cubic metres (tcm) of gas for 2009, up from $179.5 in 2008. A 20 percent reduction on Gazprom's latest European price assessment would give a price of $360 per tcm, while Ukraine has said it could afford only $201.

But gas prices, which traditionally lag oil prices by around six months, are widely expected to fall. This may ease the pain for Ukraine even if it has to shoulder high first-quarter costs.

"With oil trading at around $40 per barrel, by summer the equivalent Ukrainian (gas) price will likely be below the $179.5 it was paying in 2008," Alfa Bank said in a research note.

"I doubt that it is realistic to expect Ukraine to pay a price higher than $250 per tcm," said Jonathan Stern of the Oxford Institute for Energy Supplies.

Ukraine and Russia also agreed not to use intermediaries in their gas trade, a Russian government source said. Previous deals have been complicated by the use of Swiss-based intermediary Rosukrenergo, an opaque 50-50 joint venture between Gazprom and two Ukrainian businessmen.