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News // Russia

Russia, Ukraine fail to agree new gas deal

28 October 2010 , 15:20Reuters2274

In January 2009, a pricing row between Moscow and Kiev resulted in a stoppage of Russian gas flows to Europe for about two weeks, tarnishing Russia's image as a reliable exporter and spurring a European quest for new suppliers.

The two ex-Soviet nations will continue gas talks, senior Russian officials said on a visit to Kiev on Wednesday, indicating Moscow continues to seek control over Ukraine's transit pipelines as a condition of a price discount.

Ukraine depends heavily on imports of Russian gas, governed by a 10-year deal struck in 2009. But Kiev, which tranships 80 percent of Russian Gazprom's gas bound for Europe, says the current agreement is unacceptable.

Ukrainian Prime Minister Mykola Azarov had said he would raise the issue during Russian Prime Minister Vladimir Putin's visit on Wednesday but did not mention it after the talks.

Putin, in turn, cited a discount already granted by Russia to Ukraine last April and said discussions would go on.

"We are ready to continue dialogue on all issues and I am sure we will always find solutions that satisfy both sides," Putin told reporters.

Russian Energy Minister Sergei Shmatko was more straightforward, saying no deal had been done but adding Ukraine had "improved" its price expectations.

"At the moment, the issue has been elevated to the political level. We say there is no political argument because we apply the same principles to all our neighbours," he said.

"But if you are looking for a discount you need to sit down and talk between economic agents."

Gazprom has said it could give Ukraine a discount if it gets a stake in the country's gas pipeline network -- a trade Kiev has so far been reluctant to make because it will take away its bargaining power.

After coming to power last February, President Viktor Yanukovich pledged to improve ties with Russia and secure stability of transit shipments.

A deal last April between Ukraine and Russia gave Kiev a gas price discount of $100 per 1,000 cubic metres in exchange for an extension of lease for the Russian navy in a Ukrainian Black Sea port.

It was not enough, however, to maintain domestic consumer gas prices at an artificially low level, and the government had to raise them by 50 percent in August, bowing to pressure from the International Monetary Fund, its main creditor.

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