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Russia, Ukraine agree to restore gas supplies

Ukraine and Russia reached agreement to restore gas supplies to Ukraine, averting the risk of cuts in deliveries to western Europe, Russian gas giant Gazprom and Ukraine’s state company Naftogaz said on Wednesday.

But the two sides still have to work out the difficult details of a scheme of how supplies are to be organized for the rest of the year, particularly the use of intermediaries. “Transit of Russian gas through Ukrainian territory is proceeding in full,” said a joint statement, read out in Kiev by Naftogaz spokesman Valentyn Zemlyansky. “All restrictions for use by Ukrainian consumers have been lifted.”

Russia had cut gas supplies to Ukraine in half on Tuesday over a protracted payment dispute, sparking concern in Brussels and Washington about the security of energy supplies. A quarter of Europe’s gas comes from Russia, most of it through Ukraine. The joint statement said the deal was clinched in talks conducted by telephone by the heads of Naftogaz and Gazprom -- Oleh Dubyna and Alexei Miller -- after the presidents of the two ex-Soviet states had spoken on Tuesday. It said Naftogaz would make payment “as quickly as possible” for about 6 billion cubic meters of gas consumed in the first two months of the year worth about $1 billion. Ukraine denied throughout the dispute that it had siphoned off any Europe-bound supplies to meet its own needs, as Moscow alleged, saying it maintained all its commitments to the West.

The two sides agreed that supplies provided until March 1 would be considered “according to the existing scheme.” That referred to a deal clinched after a 2006 pricing dispute under which gas from Russia is sent to Ukraine and distributed to consumers by joint venture companies serving as intermediaries. “Issues concerning supplies of Russian gas will be resolved,” the statement said. “Talks on other issues of cooperation in the gas sector are to be continued.”

Ukrainian Prime Minister Yulia Tymoshenko, frequently at odds with President Viktor Yushchenko since returning to office late last year, has demanded the elimination of intermediaries. The row mirrored the 2006 dispute between Ukraine and Gazprom, chaired by Russian president-elect Dmitry Medvedev, when Russian gas supplies to Europe were briefly disrupted in the New Year. The EU and the United States had called on the two sides this time around to find a peaceful solution to the dispute. Gazprom reduced supplies to Ukraine by 50% on Tuesday -- after starting with a 25% cut the day before – and threatened further cuts unless a debt of $600 million was settled and a 2008 contract signed. Gazprom said its observers had not registered any disruptions to gas flows coming out of Ukraine.

Yushchenko, who is on a tour of Central Asia, insisted on Wednesday that Ukraine would not disrupt gas supplies to Europe because it would use stored gas to make up its commitments. He ordered premier Tymoshenko to resume talks with Moscow urgently, criticizing her government’s conduct of negotiations. Yushchenko had reached an agreement with Russian President Vladimir Putin in Moscow on the dispute last month, but that deal appeared to unravel during subsequent talks conducted by Tymoshenko in the Russian capital. “There is a lack of coordination in Ukraine between the Prime Minister and the new president,” said Konstantin Batunin, an oil and gas analyst at Alfa Bank in Moscow. “This won’t have any impact on Medvedev in particular. This is just an economic dispute and Medvedev hasn’t come into power yet.” Medvedev takes power in May. (Reuters)