Russia and Ukraine reach gas agreement

MOSCOW - The prime ministers of Russia and Ukraine announced a deal early today to settle the gas dispute that has drastically reduced supplies of Russian gas to Europe for nearly two weeks.

Russian Prime Minister Vladimir Putin said Ukraine will pay 20 percent less than the European price for the gas this year. This means a substantial increase for Ukraine in the first quarter, but the price could fall significantly later in the year as gas prices are expected to drop.

Ukraine Prime Minister Yulia Tymoshenko said natural gas supplies would resume once the two countries' gas companies sign a contract. It was not clear how soon this would happen. Russia's Gazprom and Ukraine's Naftogaz, both state controlled, were told to prepare the documents.

The two leaders reached the agreement in talks that stretched into the early hours of the morning after a meeting yesterday with leaders from the 27-nation European Union ended without a resolution.

The EU normally receives about one-fifth of its gas supplies through Ukraine. Nations in eastern Europe that rely on Russia have been left with virtually no new supplies.

The EU threatened to review its relations with both countries if their dispute was not resolved this weekend. EU spokesman Ferran Tarradellas said yesterday that the EU delegation was "encouraged by the discussions" because Russia and Ukraine were seeking solutions rather than just blaming each other, but "what matters are results."

The two countries also reached a deal yesterday on the price Russia will pay Ukraine for transporting gas to Europe through its pipelines.

Ukraine had insisted that if it paid more for gas, Russia should pay market prices for transit.

But Putin said yesterday the discounted transit price would remain in place for 2009. Beginning on Jan. 1, 2010, however, Ukraine will pay full price for gas and Russia will pay market prices for transit, he said.

Before flying to Moscow for the talks, Tymoshenko acknowledged that her country's image had been damaged by the dispute. But she said reaching a deal would be extremely difficult.

Putin, in Germany early yesterday, reiterated accusations that Ukraine has stolen gas and is trying to use its control over pipelines to "blackmail" Russia into selling Ukraine gas at an unreasonably low price.

Geopolitical struggles over Ukraine's future and export routes for the energy riches of the former Soviet Union underlie the commercial dispute.

Russia and Ukraine have been at odds since Ukraine's 2004 Orange Revolution brought President Viktor Yushchenko to power. His push for Ukraine to join NATO and the EU has angered Moscow.