Ukraine will not sell its gas pipeline network to Russia in exchange for supplies of cheaper gas, Ukrainian Energy Minister Yuri Boiko said on Friday, ruling out a solution long suggested by Moscow.
He pledged, however, to honour the existing deal, which Ukraine considers unfair, if talks on revising it fall through.
Ukraine, which depends heavily on Russian gas supplies, has sought for over a year to renegotiate a 2009 deal with Moscow, which it says sets an exorbitant price for the fuel. But talks have failed to produce any results so far.
"The issue of (a pipeline network) sale has never been on the agenda. We dismissed it immediately," Boiko told reporters. "If we find a model that satisfies both sides, we will make a deal. Otherwise we will work under the existing contract."
Boiko appeared to be setting out the Ukrainian position ahead of a fresh round of talks, which are due to begin on Jan. 17 in Moscow.
Ukraine under the present 10-year agreement is set to pay $416 per thousand cubic metres in the first quarter of this year, but is hoping to get Russia to agree to a price of no more than $250.
Previous disputes between the two briefly disrupted the shipments of Russian gas to Europe in 2006 and 2009, prompting a search for alternative suppliers and transit routes.
On Friday, Ukrainian Prime Minister Mykola Azarov said arguments over price and volumes would not escalate into a fresh "gas war" or threaten transit shipments.
"Why should we fight a war with our Russian brothers?" Azarov’s office quoted him as saying.
"We are not even talking about it and never will."
SEEN AS BETRAYAL
Moscow has long said a discount is possible only if Russian gas giant Gazprom gets a stake in the Ukrainian pipeline network, ensuring safe passage of its fuel to Europe.
For Kiev, such a move would mean giving up whatever leverage it still has over Moscow. The bulk of Russian gas bound for Europe goes through Ukraine and transit volumes rose to 104 billion cubic metres (bcm) last year from 98 bcm in 2010.
Selling the pipelines would also be seen as betrayal of national interests by the Ukrainian public, hurting the popularity of President Viktor Yanukovich and his Party of the Regions ahead of the October 2012 parliamentary elections.
Ukraine has little to offer Russia aside from the pipelines, meaning that a new deal may never be made.
Preparing for the worst, the Kiev government has announced plans to reduce its dependence on Russian gas by boosting domestic gas output and switching to other energy sources such as coal.
Ukraine also wants to import 5 bcm of liquefied natural gas (LNG) a year from Azerbaijan. But it needs to build an LNG terminal on its Black Sea coast first, which will take at least two years.
Yanukovich said on Friday Ukraine was casting its net wider for fuel suppliers.
"We are looking for alternative gas supply sources now," Yanukovich said at a meeting with regional governors on Friday.
"Of course, we are looking for lower prices because with such high prices (on Russian gas)… our products cannot compete on global markets, this is killing our domestic producers."
Boiko said earlier this week Ukraine would cut Russian gas imports to 27 bcm this year from 40 bcm in 2011, but Gazprom protested that this would be below contracted amounts, saying the agreed volume for this year was 52 bcm.
