KIEV: Ukraine, struggling to pay its gas bill to Russia, signalled on Tuesday that final agreement would not come before the New Year in talks seen as important to securing gas supplies to Europe and likely to lead to shared control of Ukraine's transit pipelines.
Moscow has indicated it will cut the price of gas for Ukraine, as Kiev has requested, if the former Soviet republic, which lies between Russia and its biggest gas customers, agrees to sell a 50 percent share of its pipelines to Russian export monopoly Gazprom.
As the negotiations have worn on, Gazprom has said there is no reason for Europe to fear a repeat of the cuts to European supply seen during pricing disputes with Ukraine in two winters past. Such disruptions could risk the company's standing in Europe, its main export market.
Russian and EU leaders will meet for a summit in Brussels on Thursday. A Ukraine-EU summit is scheduled for Dec. 19 in Kiev.
Officials in Ukraine, which was accused of stealing gas destined for Europe in previous crises, also fears blame if the outstanding price issue leads to a cut in flows to Europe. They have sworn they will pay up, even as they struggle with rising debt and a gaping trade deficit.
According to officials, the price of Russian gas will rise to $485 per thousand cubic metres in the first quarter of 2012 from about $400 today.
On Tuesday, Ukrainian Prime Minister Mykola Azarov was quoted as saying that Kiev would likely continue paying the price stipulated in its current contract until 2012.
Ukraine's government has put off the 2012 budget approval hoping for a new gas deal with Russia but Azarov said on Tuesday the document would be submitted to the parliament next week.
"We will see later what the price is," Interfax quoted Azarov as saying. "If we have to pay $400 (per thousand cubic metres) we will pay, we have no choice."
Ukraine's weakening fiscal position, however, leaves room for concern. Kiev depends heavily on Russian gas imports and the government subsidises gas and heating prices for households, widening a budget deficit.
While Gazprom's clients in Europe complain they are losing money buying Russian gas at contract prices linked to costly oil and selling more cheaply at market prices, Ukraine's state energy company Naftogaz is expected to lose $2.3 billion through outright subsidies this year.
That amounts to about 1.4 percent of Ukraine's gross domestic product.
Facing payment arrears in addition to losses, Naftogaz borrowed $550 million from Gazprom's banking arm to pay for supplies last month and has since negotiated an extension of the monthly payment deadline to avoid coming up short on its November bill.
Under its 2010 agreement with the International Monetary Fund (IMF), Ukraine pledged to balance the Naftogaz budget this year by eliminating energy subsidies. But the government has kept them in place, prompting the Fund to halt lending under the $15 billion programme.
Eliminating the subsidies and bringing the prices for households up to the market level would mean political suicide for President Viktor Yanukovich's Party of the Regions as it prepares for October 2012 parliamentary elections, analysts say.
Making a deal with Moscow that could rescue Ukraine's finances has proven to be a tough task for Yanukovich's government, however.
Despite Kiev's financial difficulties, many in Ukraine would regard a move to cede control of the pipelines as betrayal of national interests.
Ukraine had previously insisted on setting up a three-party consortium instead that would also include the European Union. Azarov said earlier they were contemplating a 40-40 split between Russia and Ukraine with a European company as a third partner with 20 percent. But Russian and Ukrainian media reports said that Moscow and Kiev were now discussing a deal to divide control of Ukraine's pipelines 50-50 between themselves, excluding European participation.
Joint control of the transit pipelines is seen as a way to preclude their use as a bargaining chip in price conflicts between Russia and Ukraine.
The European Union, however, will hardly welcome a deal giving Gazprom control over Ukrainian gas pipelines as it seeks to stop gas producers from monopolising shipping infrastructure.
European Commissioner for Enlargement and European Neighbourhood Policy Stefan Fuele, who was in Kiev on Tuesday, said in a statement he had discussed the issue during a meeting with YanukReuters
"We also had useful exchanges on issues.including on the necessity for Ukraine to secure a fair and market-oriented price for gas and to ensure full compliance with its commitments and obligations as a member of the energy community," Fuele said.
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