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Ukraine-EU gas deal angers Russia

Published on 24/03/2009

Brussels — Ukraine agreed to clean up corruption in its gas export industry in return for Western investment in a deal with the EU on Monday that sparked a sharp warning from its powerful neighbour, Russia.

Moscow warned it would "review" its relations with the European Union if Russia was left sidelined by the discussions here, which followed a winter dispute between Kiev and Moscow that disrupted gas supplies to Europe.

Ukraine’s President Viktor Yushchenko told government and industry officials in Brussels that he would "restore order" and "reject all corruption" in Ukraine, which needs billions of euros to upgrade its aging gas infrastructure.

At a conference here on modernising Ukraine’s gas infrastructure, it signed an agreement with the European Commission, the World Bank, the European Investment Bank and the Bank for European Reconstruction and Development.

Under the deal, the Ukrainian gas transport company must prove its legal independence from outside influence, offering access to its pipeline at transparent prices that respect European norms.

However, Ukraine has no intention of giving up ownership of the major strategic asset, through which passes 80 percent of the gas sent by Russia to the European Union.

Putin slammed the agreement as "unprofessional," in comments reported by Russian news agencies after the Brussels meeting, and warned Moscow could review its ties with the bloc.

"If the interests of Russia are going to be ignored then we will be compelled to begin to review the principles of our relationship," Putin was quoted as saying in the southern city of Sochi.

European confidence in Ukraine as a gas-transit partner country suffered a blow in January when Moscow cut off deliveries to Ukrainian consumers and transit supplies amid a row with Kiev about new prices and debts.

Several EU states were left without Russian gas for two weeks.

"We cannot allow our citizens to face fuel shortages in the depth of winter again," EU External Relations Commissioner Benita Ferrero-Waldner told the conference in Brussels.

"All of us… have an interest in ensuring Ukraine provides a reliable and secure transit route for gas in decades to come."

The agreement lays out the commitments that Kiev is to make to pave the way for much-needed foreign investment in its gas pipeline network.

Yushchenko said he intends to have metering stations set up along transit pipelines in Ukraine and open up access to the country’s substantial underground gas storage facilities.

Putin scorned the new agreement. "It seems to me that this document … is at the very least not thought-out and unprofessional," he said. "To discuss questions of supplies without the main supplier is simply not serious."

Moscow is currently involved in several gas pipeline projects with European companies, such as the Nord Stream project which aims to bypass Ukraine with a pipeline beneath the Baltic Sea to Germany.

The EU wants to tread carefully with Kiev and Moscow as it seeks to diversify its sources of gas shipments by backing the Nabucco pipeline that will bring gas from the Caspian through Turkey.

Ukrainian Prime Minister Yulia Tymoshenko said building new pipelines bypassing Ukraine would be much more expensive than updating Ukraine’s network.

Ukraine is seeking more than 5.5 billion dollars (4.1 billion euros) to expand its gas pipelines, but refuses to give up ownership of the infrastructure.

The Russian foreign ministry had already warned in a statement that the agreement could push up gas prices for Ukrainian and European consumers and disrupt supplies.

"If this is just a little technical hitch in the already quite complicated trilateral relations between Russia, Ukraine and the European Union then no matter," Putin said on Monday.

"But if this is the start of an attempt to systematically ignore the interests of the Russian Federation then that is very bad."