Russia, Ukraine Reach New Deal on Oil Transit

Russian President Vladimir Putin
(Click to Enlarge)

MOSCOW (AFP), Dec. 29, 2009

Russia and Ukraine agreed new terms Tuesday for oil transit to Europe, averting the threat of another year-end energy crisis after Russian Prime Minister Vladimir Putin accused Kiev of "abuse" on the deal.

"Yesterday night, everything fell into place. An additional agreement has been signed," Valentyn Zemlyansky, spokesman for Ukrainian state energy firm Naftogaz, said in Kiev.

A spokeswoman for the Russian Energy Ministry in Moscow confirmed that a new agreement had been concluded but declined to provide details.

Officials in both countries said the agreement only covered 2010.

The agreement came a day after the European Union announced that Russia had triggered an "early warning mechanism" advising European states of the possibility of disruption to Russian oil supply pumped via Ukraine.

The Ukrainian state oil pipeline monopoly, which is owned by Naftogaz, acknowledged Monday that it was seeking changes to terms of its 2004 oil transit contract with Russia.

Confirmation by both sides that a new agreement had been reached, however, put to rest fears of another possible disruption of Russian energy supplies to EU states.

A dispute between Russia and Ukraine on natural gas prices last year led to a cutoff of Russian gas supplies to Europe and severe shortages in some countries amidst freezing winter weather.

Earlier Tuesday, Putin accused Ukraine of "abuse" on the Russian oil transit deal.

"We are ready to deliver, we have a contract, but if any of the transit countries abuse, what can you do?" Putin said during a visit to Russia's Far East region.

Zemlyansky, the Naftogaz spokesman, told AFP the new deal foresaw a rise in transit fees of 30% in 2010 compared with this year.

The volume of oil to be shipped via the Druzhba pipeline will remain at the 2009 level of 15 million metric tons, he added.

A source close to the talks told AFP that the tariffs had increased to EUR6.6 ($9.5) a ton of oil from $7.8 in 2009.

End-of-year haggling over energy prices has become a familiar problem in bilateral ties between Russia and Ukraine, and the current dispute came amid intense campaigning for Ukraine's presidential election Jan. 17.

Analysts earlier played down the threat that the latest Russia-Ukraine energy argument could have become a full-blown oil supply crisis, citing Ukraine's heavy reliance on supplies of Russian oil.

Chris Weafer, a chief strategist with Uralsib Bank in Moscow, said earlier Tuesday the dispute was largely political, suggesting it may have been stoked to boost Ukrainian President Viktor Yushchenko's re-election bid.

"It is very possible that some in Ukraine would like to see another EU-Russia energy spat in the hope that it might add some support to the Yushchenko campaign," he said in a note to clients before the new deal was announced.

While the risk of oil supply cuts seems to have been averted for at least a year, Russia recently called into question Ukraine's ability to pay its December gas bill.

Alexei Miller, the head of the gas giant OAO Gazprom, said in televised comments last week the ex-Soviet nation, hit hard by the economic crisis, faced "very, very serious problems" in paying for Russian gas.

Ukraine has until Jan. 11 to pay its gas bill.

Ukrainian Prime Minister Yulia Tymoshenko, who is challenging Yushchenko for the presidency, denied her country would have any problem paying its Russia gas bills.

Copyright (c) 2009 Dow Jones & Company, Inc.


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