You're reading: Ukraine, Russia contract to avert New Year gas war

MOSCOW, Dec 31 (Reuters) - Russian gas will move via Ukraine without interruption this New Year as the ex-Soviet states have a 10-year supply deal in place, Russia's monopoly gas exporter said on Thursday, easing fears in Europe of a repeat gas war.

Gazprom has also dropped litigation in a Stockholm court against Ukrainian state energy firm Naftogaz, its chief spokesman said, while Ukraine’s crisis-hit economy is unlikely to face fines in 2010 related to under-consumption of gas.

"We have signed, in our opinion, a good contract with Naftogaz Ukraine. Therefore we can mark this New Year at home," Sergei Kupriyanov said in a radio interview on New Year’s Eve.

Russia and Ukraine signed the 10-year gas contract after a three-week standoff in January 2009 in a bid to avoid a repeat of the cuts along a route supplying one-fifth of Europe’s gas needs, which shook confidence among the continent’s consumers.

Analysts have said Moscow is unlikely to be tough on Kiev this year ahead of Ukraine’s presidential election in January in the hope Ukraine chooses a relatively pro-Russian leader.

Evidence that Moscow is softening its stance came when Prime Minister Vladimir Putin brokered a deal with his Ukrainian counterpart, Yulia Tymoshenko, allowing Kiev to import 35 percent less gas in 2010 than contracted.

Gazprom waived fines it could have imposed on Ukraine for under-consumption in 2009 and has cut the minimum gas volume Kiev must buy in 2010 to 33.75 billion cubic metres from 52 bcm.

"That means that the risk of fines arising is close to zero," Kupriyanov said live on Ekho Moskvy radio station.

There is still a risk, however, that supplies could be disrupted should Ukraine fail to keep up monthly payments. The next test will come on Jan. 11, 2010, by when Naftogaz is due to pay for December supplies of Russian gas.

Tymoshenko has admitted Ukraine has had difficulty meeting monthly payments, although the country has so far paid on schedule. Low temperatures could push Ukraine’s December bill to nearly $1 billion from the $770 million paid for November.

Gazprom Chief Executive Alexei Miller on Dec. 25 described the situation regarding December gas payments as "very alarming" and said reduced off-take confirmed Ukraine was facing "serious difficulties" with future payments.

Ukraine can, however, count on cash from the International Monetary Fund, which relaxed the conditions for its $16.4 billion bailout programme late on Wednesday by allowing the central bank to spend from its foreign currency reserves an extra $2 billion on debts, including the gas bills.

The decision, the IMF said, "did not involve any new disbursement" but it effectively gave Kiev the $2 billion it had been seeking to help plug its over-stretched finances.

The cash is likely to keep Ukraine’s finances stable as its political elite begin battle in the first presidential election since the 2004 Orange Revolution that brought pro-Western President Viktor Yushchenko to power.

OIL TENSION

Tension between Russia and Ukraine also spilled into the oil sphere this week, when Moscow warned European customers crude supplies could be severed. It took Russia’s agreement to pay higher transit fees in 2010 to avert a conflict.

In a further sign of improving energy relations between the countries, Gazprom has suspended its Stockholm litigation versus Naftogaz related to the 2009 dispute.

"We have suspended that process and are not pursuing it at the moment," Kupriyanov said.

The contract also demands that Ukraine pay more for its gas in 2010, eroding the discount previously enjoyed by Kiev.

Naftogaz has said it could pay $305 to $306 per 1,000 cubic metres of gas in the first quarter of 2010, about 47 percent more than the $208 it is paying this quarter. The exact price will be determined at the start of 2010.

Belarus, a less important but still a significant route for Russian gas to Europe, will, by contrast, pay only 12 percent more, or $168 per 1,000 cubic metres, after striking a deal with Gazprom on next year’s supplies of Russian gas.

Attention may now switch to the amount of cheap oil that Belarus, another ex-Soviet state lying between Russia and Europe, will be entitled to receive from Moscow in 2010. Belarus cut Russian oil flows to Europe via the Druzhba pipeline in January 2007. Though no new oil deal has been signed, the Russian ambassador to Belarus, Alexander Surikov, has said Russia was unlikely to stop deliveries.