Monday, November 29, 1999

Gas merger hard sell for Medvedev in Kiev

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Russian President Dmitry Medvedev visits Kiev this week on an almost impossible mission: talking Ukraine into surrendering control of its cherished gas pipeline system to Russian energy giant Gazprom.The proposal by Russian Prime Minister Vladimir Putin last month was far from welcomed in Ukraine, which is eager to retain control of a network that serves as a conduit for 80 percent of Russian gas supplies to the European Union."It (Putin's offer) was an unexpected step for Ukraine and it does not mean that this question will be considered by Ukraine and resolved," Ukrainian President Viktor Yanukovich's press service quoted him as saying earlier this month.Striking a more conciliatory tone, Medvedev told Ukrainian television Russia also wanted to merge some gas and gas transmission assets, but that would require the agreement of both ex-Soviet neighbours."This seems completely possible to me, taking into account both parties' wishes," Medvedev said in comments recorded on Saturday.Yanukovich's reluctance is a sign the rapprochement between Kiev and Moscow has its limits, though the two leaders are expected to sign agreements on border demarcation, nuclear cooperation, aircraft development and other matters.Since Yanukovich's election in February, ties with Moscow have rapidly improved with accords on gas pricing and a lease extension for a key Russian naval base on Ukraine's Crimea peninsula already signed.CROWN JEWELRussia has long coveted Naftogaz's pipeline network, which is part of the Soviet-era system that supplied natural gas to Eastern Bloc allies as well as clients on the other side of the Iron Curtain.The issue has become more acute in recent years after Russia cut or reduced gas supplies on several occasions during pricing and storage disputes with the state-owned Ukrainian gas company.Earlier this year, Yanukovich's government proposed the creation of a gas consortium with Russia and the European Union that would modernise the ageing pipelines, though this has yet to come to fruition.But Putin's proposal to merge Gazprom and Naftogaz appears to be a step too far for Ukrainian politicians.Ukrainian First Deputy Prime Minister Andriy Klyuev has also ruled out any energy deals with Russia during Medvedev's visit next week."No sensations are expected," Ukraine's presidential chief of staff, Sergiy Levochkin, told reporters in Kiev when asked about the possible outcome of the Russian-Ukrainian talks.The head of Kiev-based political think-tank Penta, Volodymyr Fesenko, told Reuters that Yanukovich was not keen on Russia's proposals and instead promptly proposed the involvement of European Union in the possible deal. [ID:nLDE64C1JB]Medvedev urged Ukraine to be cautious in seeking to join the European Union, given the bloc's current economic woes."If the Ukrainian people want to push for EU membership, that is your choice," he said."In any case I would carefully track what happens in the EU because one should aim towards things that are good and calm. And now our European colleagues still need to cope with those difficulties they are experiencing, including the euro zone."While the chance of a gas merger looks remote, progress on nuclear cooperation is likely during Medvedev's visit to Kiev.Putin has separately suggested unifying assets in the nuclear energy industry and said Russia might lend $5-6 billion to its ex-Soviet neighbour to build two new nuclear reactors at its Rivne and Khmelnytsky plants."We are now working on these contracts. The conditions are a straightforward loan and no transfer of property," Ukraine's first deputy prime minister Klyuev said on May 12.
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