19 january 2009

Prime Minister Vladimir Putin held negotiations with Ukrainian Prime Minister Yulia Tymoshenko in Moscow, following which Gazprom and Naftogaz Ukraine signed a contract for the sale and purchase of natural gas for 2009-2019

Vladimir Putin

Negotiations with Ukrainian Prime Minister Yulia Tymoshenko

"Russia and Ukraine have agreed to go over to the European market gas pricing formula beginning from January 1, 2009. I am sure that it will allow us to normalise relations in the gas area in the long term."

Vladimir Putin's statement to the media:

Ladies and gentlemen,

Following long and difficult negotiations we came to an agreement on all issues concerning natural gas supplies to Ukraine and Russian gas transit to Europe. The most important issue in these past days, especially for European consumers, has been resuming gas transit. I hope that all transit supplies to Europe will be resumed very soon.

Gazprom has been instructed to start gas supplies along all the routes suggested by our Ukrainian partners, and to meet a day's demand of European consumers in full. Gazprom will undertake all necessary technical measures to achieve that. We expect our Ukrainian partners to promptly restore their gas transportation system capacity. Gazprom and Naftogaz specialists are already working on this now.

I would like to once again express sympathy with European consumers, everyone who fell prey to the current crisis, which did not arise through Russia's fault.

Prime Minister Tymoshenko and I have also coordinated the key aspects regarding cooperation in Russian gas supplies to Ukraine. I would like to reiterate that it is a separate issue, and it is not connected with gas transit to Europe. That is what we have agreed.

I would like to highlight the main point: Russia and Ukraine have agreed to go over to the European market gas pricing formula beginning from January 1, 2009. I am sure that it will allow us to normalise relations in the gas area in the long term.

In addition, all intermediaries have been excluded from the gas payment scheme. The entire gas relations chain will become absolutely transparent and predictable.

From the very start, we have tried to develop relations with our Ukrainian partners on business principles that would eliminate various risks and subjective factors. I would like to stress that this is a long-term agreement, signed for a period of ten years. The second ten-year agreement, which deals with Russian gas transit to European consumers, is also calculated in accordance with the European formula.

I hope that this approach will allow us to build stable long-term relations both with our European consumers and our Ukrainian partners, which will help improve Ukraine's gas transportation system.

I would like to express gratitude to Prime Minister Timoshenko, who took the responsibility for critical decisions that led us out of the impasse. Also, I would like to highlight the significance of the Moscow conference on Russian gas supplies to Europe, initiated by Russian President Dmitry Medvedev.

The forum's participants openly and constructively discussed ways of settling the present crisis and averting such problems in the future, which is also of vital importance. I hope that we have closed the chapter on the gas crisis today.

From our point of view, it is necessary to diversify energy supply routes to Europe as far as possible. We shouldn't limit ourselves to using the existing transit facilities; I have already mentioned that we are ready to consider working with our Ukrainian partners on improving Ukraine's gas transportation system.

We also need to eliminate risks and diversify these routes, as well as build new pipelines, namely the North Stream along the Baltic seabed and the South Stream along the Black seabed, in the Balkan direction. Finally, we need to create new infrastructure to liquefy natural gas and transport LNG to end consumers.

I would like to remind you that in a compromise, we made concessions that both parties found acceptable. I am referring to a 20% discount on gas supplies to Ukraine and keeping reduced tariffs on gas transit to Europe in 2009.

In my opinion, these agreements are optimal and are in line with the interests of both Russia and Ukraine.

Thank you for your attention.

Yulia Tymoshenko's statement:

Ladies and gentlemen,

The negotiations that have finished today were very important for both Russia and Ukraine, and not only because we have agreed on all price and organisational aspects of gas supplies and transit for 2009.

What matters even more is that we have created an absolutely objective basis for gas price and transit tariff formation, which will last for many years-something we did not achieve in the 17 years of Ukraine's independence.

This formula-based approach rules out all personal factors and allows us to expect no end-of-year debates and controversies in the future. What we will have will be a regular and perfectly predictable formation process for gas prices and tariffs of Russian gas transportation to Europe.

That is very important. It is part and parcel of Ukraine's energy independence and of progress to good relations in all the other spheres, because the gas issue has always been a drag on us. It has restrained our progress and dampened our mutual confidence and all-round partnership.

I believe that today is truly a landmark. It ushers in ten years of calm and predictable relations in the system of gas supplies to Europe and Ukraine.

At the same time, I am grateful to Mr Putin and his team, as they have found an opportunity to grant Ukraine preferential terms in 2009, with gas prices reduced by 20% against global. It gives Ukraine a year's breathing space to develop energy-saving techniques, diversify fuels and realise that world gas prices demand a new attitude to energy consumption.

At the same time, the existing transit tariff is acceptable and economically viable for Ukraine because we will be purchasing gas at lower prices. So we have met each other halfway, and that is essential.

I am sure the Ukrainian gas transportation system will function smoothly. We will maintain and modernise it properly, and will remain Russia's reliable partner for gas transit to the European Union. The system was used to the full in 2008, with a record-setting amount of Russian gas transported to Europe, and I am sure it will stay reliable because we will enjoy mutual confidence and remain good partners.

Today's stride, I think, will allow us to make further progress in the many fields of our partnership-I mean cooperation and the development of principal industries it involves. Mr Putin and I will discuss a wide range of economic problems very soon to help Ukraine and Russia stay afloat during the hard economic crisis.

I think we have had a very successful day. Thank you all. We will resume gas transit as soon as gas for Europe reaches Ukrainian pipelines. Ukraine will not hold it up, and will handle its mission the way it should-smoothly and reliably.

Vladimir Putin: I have only one addition to make. If we start implementing the documented agreements immediately, we will not need any auxiliary monitoring now because Ukraine will itself receive all the Russian gas it needs for domestic consumption. I firmly rely on the smooth and effective work of the arrangements we have arrived at during our talks of the past few days. I rely on them to work in both the short and medium term.

I would like to stress by way of conclusion that Russia's relations with its CIS partners have been base on market principles for a long time, Ukraine being the only exception. It was the last country with which we had no market relations. Now, Ms Tymoshenko's Government has agreed to a settlement based on transparent market principles. I see it as a breakthrough in our energy partnership, which is an essential part of all economic links-and we all know that interstate relations always base on the economy.

I want to add that we will do everything in our power to support Ukraine. We have much to discuss in the present problem-laden economic and financial situation, considering developed cooperation between our economies. Today's resolution will unblock many other economic matters. As we step up cooperation, we will weather the current turbulent time in the global economy and finance.

I thank all my Ukrainian colleagues once again for taking part in the work on today's decision.

Yulia Tymoshenko: This is mutual. Thank you.