Ukraine Agrees to Sign New Russia Gas-Monitors Accord, EU Says

By Paul Abelsky and Peter Chapman

Jan. 12 (Bloomberg) -- Ukraine agreed to sign a new version of an accord to authorize monitoring of natural gas flows, paving the way to resume Russian gas shipments through the country to the rest of Europe, a European Union official said.

The new version followed a phonecall between Russian Prime Minister Vladimir Putin and European Commission President Jose Manuel Barroso, and will be separate from a handwritten declaration from the government of Ukrainian Prime Minister Yulia Timoshenko that hours earlier caused the Russian side to threaten to pull out of the deal.

“Barroso has spoken to Timoshenko and they have agreed to separate the two documents,” commission spokesman Ferran Tarradellas Espuny in Brussels said late yesterday. “On one side the declaration and on the other side the terms of reference.”

The EU brokered an accord that established independent verification of the gas shipments by Russian gas exporter OAO Gazprom, with monitoring teams arriving yesterday.

Gazprom, which supplies a quarter of Europe’s gas, had halted transit supplies through Ukraine on Jan. 7 in a dispute with Ukraine’s state energy company NAK Naftogaz Ukrainy over prices, transmission fees and debts.

Ukraine had complicated the pact by issuing a declaration yesterday afternoon, which the Brussels-based European Commission said was a mixture of a factual restatement of the agreed “Terms of Reference” already signed, and in some cases Ukraine’s interpretation of what has been agreed. While the European Commission said the declaration “does not add to and it does not subtract from the terms of the treaty,” the Russian side had objected to the late addition.

Declaration

The declaration had demanded 21 million cubic meters of gas a day to ensure gas flows, which amounts to an attempt to “legalize stealing,” Gazprom Chief Executive Officer Alexei Miller told reporters in Moscow yesterday. Ukraine denies charges of siphoning off Russian gas destined for European countries.

“The Commission considers that all conditions expressed by the two parties have been met and there is no reason to delay the restoration of gas supplies any further,” the European Commission said. At least 20 European countries have been affected by the gas stoppage, with the Balkans hardest hit.

Gazprom spokesman Sergei Kupriyanov said late yesterday that the company hadn’t received a final document that it was satisfied with.

Russian state-run broadcaster Vesti late yesterday showed Vladimir Chizhov, Russia’s envoy to the EU, holding a copy of the document signed by representatives of the Russian and Ukrainian governments, the EU, Gazprom and NAK Naftogaz Ukrainy, Ukraine’s state energy company. Next to the signature of Ukraine’s first deputy prime minister were the words “declaration attached,” Vesti said, adding that it was unclear what was meant.

Monitoring Teams

One observation team has been let into a Russian measuring station in Sudzha, the European Commission said. Other groups will travel to the Orlovka, Pisarevka, Sokhranovka, Beregovo and Tekovo stations in Ukraine after arriving in Russia’s neighbor.

“Ukraine is going to have to put its cards on the table,” Ronald Smith, chief strategist with Moscow-based Alfa Bank, said today. “It will be apparent who is telling the truth. With the monitors it will be very clear what’s going on. On the pricing side there’s no reason for Ukraine not to pay market-based prices for its gas.”

Russia’s Putin said Gazprom has lost about $800 million since the start of the dispute with Ukraine, the Interfax newswire reported, citing an interview to be broadcast on German television channel ARD on Jan. 14. Russia is ready to buy into Ukraine’s gas transportation network if the Ukrainian state agrees, he said.

Pipeline Supplies

Gazprom’s European customers receive 80 percent of supplies through pipelines that cross Ukraine. Gazprom’s overall deliveries to Europe fell by about 60 percent when it halted transit flows via Ukraine and supplies to Ukraine’s domestic market were suspended Jan. 1 pending a new contract.

Once gas starts to flow in Ukraine, it may take about 36 hours for it to reach EU states, where in some the situation is “serious,” Czech Prime Minister Mirak Topolanek said. The Czech Republic, which holds the European Union’s sixth-month rotating presidency, has called an energy council meeting for all EU members today in Brussels, Industry Minister Martin Riman said.

E.ON AG expects full deliveries of gas three days after the fuel enters Ukraine, Kai Krischnak, spokesman for the German utility’s Essen-based E.ON Ruhrgas AG gas division said yesterday.

Gas Price Talks

Oleh Dubina, the chief executive officer of Naftogaz, said yesterday talks on a price for supplies of gas to Ukraine from Russia this year had failed to produce a result. Gazprom offered a price of $450 per 1,000 cubic meters after it said Ukraine rejected an offer, subsequently withdrawn, of $250.

Gazprom’s prices to European customers under long-term contracts typically lag behind prices for crude and oil products by about six to nine months. Crude has fallen by more than 70 percent since reaching a record in July. Ukraine paid Russia $179.50 per 1,000 cubic meters for gas last year under a separate arrangement.

Ukraine and Georgia, both former Soviet republics, have strained relations with Russia in their efforts to join the EU and the North Atlantic Treaty Organization. The gas dispute has come as Timoshenko and Ukrainian President Viktor Yushchenko, who have clashed over economic policy, are facing a financial crisis that has forced them to seek a $16.4 billion International Monetary Fund bailout.

2006 Spat

In 2006, Russia turned off all gas exports to Ukraine for three days, causing volumes to fall in the EU, and also cut shipments by 50 percent last March during a debt spat.

The current spat has forced member counties of the 27-nation EU to consider how to develop alternative sources of energy and nuclear power. The Slovak government this weekend approved the restart of a nuclear reactor, in the face of EU opposition, to meet the country’s energy needs as the halt in Russian gas supplies continued.

Prime Minister Robert Fico told reporters the move would be for a “necessary” period until the gas market stabilizes. The reactor in Jaslovske Bohunice was closed Dec. 31 as part of the conditions imposed on Slovakia when it joined the EU.

To contact the reporters on this story: Peter Chapman in Brussels at pchapman10@bloomberg.netPaul Abelsky in St. Petersburg at pabelsky@bloomberg.net.