Ukraine does a deal to end its gas crisis

RUSSIA reached an agreement yesterday on restoring natural gas supplies to Ukraine, ending - for now - a dispute that harmed relations between the two former Soviet republics, worried European consumers of Russian gas and called into question Moscow's reputation as a reliable energy provider.

Nearly a week after negotiations collapsed amid accusations of blackmail, sabotage and thievery, Moscow and Kiev each claimed victory.

But it was no simple agreement: the five-year deal involves a complex pricing plan, gas from Central Asia and a Russian-Swiss trading business that had been under investigation in Ukraine.

"Two nations won - Russia and Ukraine - Europe won; it is common sense that won," the Ukrainian prime minister, Yuriy Yekhanurov, said in Kiev.

Vladimir Putin, the Russian president, said the deal would reflect positively on relations between Moscow and Kiev, and create "stable conditions for deliveries of Russian energy carriers to our western European partners many years into the future".

The heads of the countries' state-owned gas companies announced the deal in Moscow, three days after Russia stopped gas deliveries to Ukraine and two days after European customers reported a sharp drop in their own gas supplies, which cross the former Soviet state.

Russia's Gazprom will sell gas to the RosUkrEnergo company for the same price it had demanded from Ukraine - $230 (130) per 1,000 cubic metres. Ukraine will then buy gas from the company for $95 - nearly twice what it had been paying Gazprom. The deal also makes RosUkrEnergo the sole provider of gas to Ukraine.

Little is known about the firm, but it is owned by a Gazprom bank and a Swiss subsidiary of Austria's Raiffeisen Bank. RosUkrEnergo can pay and charge the different prices because it also buys gas from the Central Asian nations of Turkmenistan, Uzbekistan and Kazakhstan that will be added to the mix.

Last summer, RosUkrEnergo was investigated by Ukraine's state security agency.

The gas dispute was the most dramatic clash yet between Kiev and Moscow, whose relations chilled markedly after the 2004 Orange Revolution that brought the pro-western opposition leader, Victor Yushchenko, to power.

There were also implications for continental Europe, which gets about a quarter of its gas from Russia - some 80 per cent of that arriving in pipelines that cross Ukraine.

The European Union's energy commissioner, Andris Piebalgs, said news of the deal came as a great relief and he hailed the EU's role in resolving the dispute. "Our appeals for security of supply, for honouring the contract, are actually extremely important," he said.

More than half of the EU's gas imports come from Russia. While Britain is not so reliant on Russian gas at the moment, it will be in the future: some projections estimate that the UK will have to import 90 per cent of its gas needs by 2020.

The dispute has another element: in addition to harming Russia's reputation as a reliable energy supplier, it has also made Moscow look bad as it assumes the chairmanship of the G8 - a position Mr Putin had intended to use to boost the country's international prestige.