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Russia to Ukraine: No gas-price rise for you!

Good news about fuel costs ends speculation about renewal of tension.
/ Source: Financial Times

Officials in Kiev and Moscow announced on Friday that prices for natural gas supplied to Ukraine would not rise on Saturday, the deadline for reviewing prices set in a January accord that ended a price dispute and gas supply shortages that shook Ukraine and Europe just after the New Year.

The announcement has cooled fears that both countries could be heading towards a new price war that could repeat gas supply shortages seen before the January accord, which nearly doubled the price Ukraine pays for gas at $95 per 1,000 cubic metres.

Gazprom officials have hinted in recent weeks that Ukraine might have to pay more for gas starting in July, but Alexander Ryazanov, deputy chairman of Russian gas giant Gazprom, told journalists that such a decision had been avoided.

Yury Yekhanurov, acting Ukrainian prime minister, said an agreement had been reached to keep the price steady for the third quarter at $95 after negotiations were held with Russian colleagues and Swiss-registered RosUkrEnergo, which monopolises the supply of gas to Ukraine from Russia and Central Asia.

But Mr Yekhanurov conceded that his country, which has raised gas prices for domestic consumers this year by more than 80 per cent, might have to pay more for imports in the fourth quarter.

The announcement follows days of heated price talks between Russia and Turkmenistan, a major gas supplier in the region in addition to Russia. Turkmenistan has threatened to cut off supplies to Gazprom in September if the company doesn't concede to an increase in the price from $65 to $100 per 1,000 cubic metres.

A delegation of Ukrainian officials was in Turkmenistan on Friday seeking to strike a gas agreement independently of Russia. Ukraine, which consumes more than 80bn cubic meters of gas annually, controls a pipeline network which transports most Russian and Turkmen gas supplies to Europe.

Economists in the country, which is heavily dependent on fuel imports from Russia and Central Asia, fear that additional fuel price rises could prompt inflation to surge this year above an expected 10-12 per cent target. A Ukrainian government adviser said prices were expected to remain stable into autumn, when price bargaining could shift into higher gear ahead of colder winter periods.

These talks come a week after three main political groups in Ukraine agreed to form a coalition government, setting the stage for the return as prime minister of firebrand politician Yulia Tymoshenko, who has pledged to review the January gas accord with Russia, which yielded RosUkrEnergo monopoly control over gas supplies to Ukraine.

Her candidacy for the top government post was originally scheduled to be brought to a vote in parliament this week but was delayed as the country's leading opposition party blocked the podium in the legislature. Coalition members yesterday agreed to hold discussions on July 3 with Mr Yanukovych, who has criticised Ms Tymoshenko's promises to review the January gas accord.