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Russia, Ukraine end gas row

Vladimir Radyuhin

MOSCOW: Russia and Ukraine on Wednesday resolved their bitter dispute over natural gas prices, ending a standoff that led to gas shortages in Europe.

Under an agreement signed in Moscow on Wednesday, Ukraine during will buy Russian and Central Asian gas at a flat price of $95 per 1,000 cubic metres in 2006.

This price is nearly 56 per cent higher than the average price of $61 Ukraine paid for its gas imports last year, but is far lower than the $250 demanded by Russia.

Russia's Gazprom natural gas monopoly stopped selling gas to Ukraine on January 1 after the latter rejected a four-fold price increase. European customers immediately reported a sharp fall in gas supplies, as Ukraine started siphoning off Russian gas from transit pipelines running across its territory.

Under a complex price scheme agreed between the two countries, Russia's Gazprom state-owned gas monopoly will sell its gas to a Russian-German trading company at $250 per 1,000 cubic metres.

The trading company, Rosukrenergo, will also buy cheaper Central Asian gas and sell the mix to Ukraine's Naftogaz at $95 per 1,000 cubic metres.

The compromise agreement has allowed Ukraine to keep the gas price hike to a manageable level.

Gazprom has also made some important gains. It has delinked gas sales to Ukraine from gas transit fees.

Until now, Gazprom has paid for the transit of its gas across Ukraine with barter supplies of gas to Naftagaz.

This enabled Ukraine to tap onto Russia's Europe-bound gas during the latest gas price war, claiming that it was the transportation fee.

Henceforth, the fee will be paid in cash and the price has been fixed for the next five years.

Gazprom has also succeeded in fixing, if only on paper at this stage, the price of $250 per 1,000 cubic metres of Russian gas for Ukraine.

A spokesman for the Russian company said this will be a base price for future deals with Ukraine.

Russian supplies meet about a third of Ukraine's gas needs, with two-thirds coming from Turkmenistan, Uzbekistan and Kazakhstan.

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