Ukraine would welcome Russia’s role in new gas production company

KIEV, September 5 (Itar-Tass) —— Ukraine would welcome Russia’s participation in a new gas production company, Prime Minister Nikolai Azarov said.

He said the company could obtain a license for the production of about one trillion cubic metres of natural gas.

“We hope that the necessary compromise with Russia will be found. Long-term interests should prevail over short-lived considerations,” the prime minister said, commenting on the overall status of gas talks between the two countries.

President Dmitry Medvedev said he expected beneficial commercial gas offers from Ukraine.

He said his recent talks with Ukrainian President Viktor Yanukovich had focused mainly on gas and integration.

“We talked for three hours. And I thought Russia was making good offers,” he said.

Asked about a gas war with Ukraine, Medvedev said, “We have no zero hour with Ukraine. If they do not have offers that can interest us, we will stick to the existing contract that must be complied with.”

“They [in Ukraine] are asking for an indulgence,” he added.

“If they want a discount for gas, they should become a part of the integration space or make an offer that will be very interesting to Russia. For example, sell your gas transportation system. But they do not want either and offer sixpence,” Medvedev said. “That’s not fair. It’s sad because this is freeloading and a lack of understanding of the law of political life and communication between states.”

“But I still hope that we will come to agreement,” the president said.

If Ukraine has no offers that can interest Moscow, the Russian leadership will act in accordance with existing gas agreements, he said.

Azarov said earlier that Ukraine would reduce Russian gas purchases three times in the next several years, as it is less costly to use its own coal than imported gas.

“We all remember our boiler houses being switched from coal to gas, but gas now costs 400 U.S. dollars per 1,000 cubic metres, and our colleagues say that it can cost even more. We have no choice but go back to what we have. And we have set ourselves such a task, we will do it,” he said.

High gas prices can undermine long-term cooperation between Ukraine and Russia, Azarov said.

“Sooner or later, an unequal agreement will undermine the foundation of such long-term cooperation,” he said.

“No matter now beneficial the agreement may be for one side at a certain point in time, the existence such unequal agreement will sooner or later undermine the foundation of long-term cooperation very seriously,” Azarov said.

The prime minister said the current price of natural gas was not a market one. “We do not need discounts. We need do not need preferences. We want fairness,” he said.

Ukraine continues to insist on a revision of the gas agreements with Russia.

According to Azarov, “a fair gas price for Ukraine would be about 200 U.S. dollars per 1,000 cubic metres of Russian gas”.

“The current gas price is 320 U.S. dollars per 1,000 cubic metres for Poland and 330 U.S. dollars for Germany,” Azarov said. “If the transport component and some other expenses are excluded from this price, a fair gas price for Ukraine, consistent with contracts with Western partners, would be about 200 U.S. dollars per 1,000 cubic metres.”

Azarov noted positive steps in the “gas dialogue” with Russia and said that Kiev and Moscow had agreed in February that four billion cubic meters of gas would be supplied to Ukraine at a price of 170 U.S. dollars per 1,000 cubic metres for the needs of the chemical industry. Such agreement on the eve of the spring sowing campaign allowed us to make fertilisers at an acceptable price and meet the needs of the Ukrainian agro-industrial sector”.

Ukrainian partners have repeatedly raised the question of gas prices. “I promised that we would look at the pricing parameters by the country. On the whole we have the same pricing principles for all of our partners,” Russian Prime Minister Vladimir Putin said.

The prime minister stressed that if Ukraine thinks that effective gas contracts contain some inaccuracies, “we are ready to consider them”.

On January 19, 2009, Russia and Ukraine made 10-year contracts until 2020 for the transit of Russian natural gas to Europe through Ukraine and for gas supplies to Ukraine on the basis of the European pricing formula. Under these agreements, Russian gas is supplied to Ukraine at a 20 percent discount, while the transit rate remained at the 2008 level of 1.7 U.S. dollars for 1,000 cubic metres per 100 kilometres.

On January 1, 2010, the sides switched to market gas prices. According to Russia’s Gazprom, 94.6 billion cubic metres of gas were transported through Ukraine in 2010. The transit rate for the Russian gas in 2010 was 2.7 dollars for 1,000 cubic metres per 100 kilometres on the average. In the first quarter of 2011, it was raised to 2.94 U.S. dollars, and Ukraine started talking about new increases for Russia.

Under the agreement reached on October 27, 2010, the price of Russian gas was about 264 U.S. dollars per 1,000 cubic metres in the first quarter of 2011, 295.6 U.S. dollars in the second quarter and 355 U.S. dollars in the first quarter. The average price of gas for Ukraine in 2011 will be 280 U.S. dollars per 1,000 cubic metres, as was projected.

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