Ukraine appeals for EU membership to stop Russian gas pressure

Brussles (Platts)--11Jan2006

Closer cooperation with the European Union leading eventually to
Ukraine's membership is the most important political lesson of the
Ukraine-Russia gas crisis, Ukraine's ambassador to the EU, Roman Shpek, told
European Parliament members Wednesday.

     "Now everyone understands that it is impossible for Ukraine to be
economically independent outside of the EU," Shpek said. The EU should end its
"period of reflection" on integrating Ukraine, he said, the sooner the better.
Some of the EU's largest gas markets, including France and Italy, were
affected by gas shortages in early January after Russia's state-owned gas
company Gazprom cut gas supplies to Ukraine, a key transit country to western
Europe, over a price rise dispute. The two countries reached an agreement on
Jan 4, but the brief shortfall has focused policy makers' minds once again on
security of energy supply issues.

     Jerzy Buzek, a former Polish prime minister and now an MEP, said that the
gas crisis showed that it was "extremely important," though not easy, to have
a common European energy policy. EU leaders have asked the European Commission
to come up with ideas on this in a green paper for the spring European Council
in March. But EC official Hilde Hardeman told MEPs that getting everything in
place will take months and years rather than days. 

     "That's why it's important to get started now," she said. Buzek also said
that it was very important that Ukraine's gas transit pipelines remained
independent from Gazprom. While it was "obvious" that Ukraine must move to
market prices for gas, he said, the EU should offer financial support to help
Ukraine keep control of its pipelines. In the past Gazprom has suggested
Ukraine could use equity in its pipelines and storage facilities to pay off
its Russian gas debts.

     Hardeman agreed that the Ukraine would need help with investments, and
that there was funding from the European Investment Bank which would be
available as soon as the Ukrainian parliament ratified the loan.

     On the shift to market prices for domestic consumers, Hardeman said that
the EU's 2004 bilateral agreement with Russia on the same issue, intended to
smooth Russia's application for World Trade Organization membership,
illustrated the need for a gradual approach to change. 

     Russia agreed to gradually increase domestic gas prices from $27- 28/'000
cu m in 2004 to between $37-42 by 2006 and $49-57 by 2010. The EU believed
that all such moves should be phased in gradually over time, she said. 

     On Jan 4 Ukraine agreed to pay Gazprom joint venture intermediary
RosUkrEnergo $95/'000 cu m for domestic supplies, nearly double the previous
border price of $50. Gazprom is to get the $230/'000 cu m it wanted for its
Russian gas, and the price is reduced by mixing the Russian gas with cheaper
central Asian gas. For its part, Gazprom agreed to a transit fee of $1.6/'000
cu m per 100km, up from $1.09. 

     But the Jan 4 agreement only lasts for six months. The next step is for
the Ukrainian government to prepare an inter-governmental agreement to secure
Russian gas supplies for five years, said Shpek. Meanwhile, Ukraine would work
closely with the EU to ensure the peaceful transit of gas, he said. "We will
also work with the EC on a roadmap for deeper cooperation in the energy
sector."

		--Siobhan Hall, siobhan_hall@platts.com

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