You're reading: Russia ignores Ukraine’s gas plea, talks customs union

Russian Prime Minister Vladimir Putin sought on Tuesday to put pressure on Ukraine to move closer to a Moscow-led customs union or even join it after Ukraine asked for supplies of cheaper gas.

Putin told Ukrainian Prime Minister Mykola Azarov that entry into the union, whose other members are Belarus and Kazakhstan, would bring cash-hungry Ukraine billions of dollars in revenue and up to two percent in additional economic growth.

But there was no sign that Ukraine was prepared to back down on plans to finalise a free trade deal with the European Union this year instead.

Earlier, Azarov had called again on Putin to initiate a review of a 2009 agreement which Kiev says set an unfairly high price for Russian gas supplies and which now weigh heavily on Ukraine’s economy.

"I consider it necessary to accelerate work for preparing a new gas agreement," Azarov told Putin who was in Kyiv for a regular meeting of an inter-governmental commission between the two countries.

"The price of gas delivered to Ukraine under the contracts does not reflect the market price which has been set in EU countries and significantly exceed the price for alternative types of fuel," Azarov said.

The January 2009 agreement, signed by Russia’s Gazprom <GAZP.MM> and Ukrainian gas holding Naftogaz under a preceding Ukrainian administration, set prices for Russian deliveries on the basis of the prices of oil products which have since rocketed.

It also set a base price of $450 per 1,000 cubic metres, the highest in Europe.

PUTIN SILENT ON GAS REVIEW

Putin failed to respond to Azarov on the question of gas prices.

In the past Moscow has said it is prepared to consider a review of the January 2009 agreement within the context of a possible merger between Gazprom and Naftogaz, something which Ukraine has rejected.

Putin instead pressed the case for Ukraine joining the three-member customs union despite Ukraine already saying it would prefer a more relaxed free trade deal with the union instead.

For Ukraine, joining the customs union would rule out signing a free trade agreement with the EU, an essential step towards deeper European integration.

"If it goes along this road (with the customs union), the direct gain for Ukraine would, according to our data, be from $6.5 billion to $9 billion per year," Putin said.

Ukraine would immediately gain 1.5-2 percent in additional GDP growth just from the removal of duties and other trade restrictions on entry into the union, Putin said.
Ukrainian President Viktor Yanukovich said last Thursday that Ukraine would rather stay out of the customs union.

He said Ukraine wanted to finalise the free trade deal with the EU this year, a move that would make joining the ex-Soviet trading bloc impossibe.