Business Leap Frontier

Cut off for almost two weeks by a dispute between the ex-Soviet states, Ukraine and Russian Federation (Russia) signed a 10-year gas supply deal on 19, January Monday to clear the way for the resumption of supplies to a freezing Europe. Vladimir Putin, Russian Prime Minister, said Ukraine will purchase Russian gas in 2009 at 20 percent discount compared with European market prices at the signing ceremony. But the exact price was not revealed. The agreement was signed by the chief executive of Russian gas export monopoly Gazprom, Alexei Miller, and the head of Ukrainian state energy firm Naftogaz, Oleh Dubyna.

In a joint news conference with his Ukrainian counterpart, Yulia Tymoshenko, Mr. Putin said “Gazprom received an order to start deliveries through all routes indicated by our Ukrainian partners and in full volumes.” On the other hand, Tymoshenko, who flew back to Moscow, the capital city of Russia, to attend the ceremony after clinching a weekend deal with his Russian counterpart Mr. Putin, said gas transit to Europe would resume after Russian gas reached Ukraine. Earlier Gazprom had said gas supplies would resume in Europe immediately after the signing. Experts say it will take around 36 hours for the first Russian gas to cross Ukraine and enter Europe.

Earlier on 1 January Russia cut supplies to Ukraine as Kiev would not pay higher prices for its gas. After six days, export flows to Europe through Ukraine ceased amid Russian accusations that Kiev was “stealing” gas intended for export. As a result, the wrangle between Moscow and Kiev enraged the European Union (EU) and raised question the credibility of Russia and Ukraine as gas suppliers to Europe. However, Ukraine’s pro-Western leaders denied the Moscow’s accusation, and countered that Moscow was trying to blackmail European consumers by halting gas supplies.

Ukraine said it could not afford to pay higher prices as it is heading into its worst recession in a decade. According to analysts forecast its economy will shrink by up to five percent in this year. Additionally, both countries have agreed not to use intermediaries in the gas trade. Previous deals have been complicated by the use of Swiss-based intermediary Rosukrenergo. Experts says the new deal strong the bond between two countries.