Russia and Ukraine close to resolution of gas debt dispute (10/14/01)

Russia and Ukraine close to resolution of gas debt dispute

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Russia and Ukraine may have finally resolved their two-year-old dispute over how much Kyiv owes Russia for natural gas after a meeting between the two countries' prime ministers that took place in the Ukrainian capital on October 4-5.

Although the two countries agreed late last year on the public portion of the debt Ukraine owed Russia, there remained the problem of the private debt, particularly what the nearly bankrupt Naftohaz Ukrainy owes. Naftohaz Ukrainy, a national joint stock company, is a privately run entity that has Ukraine as a majority stockholder. The quasi-public firm is one of the largest buyers of natural gas marked for Ukrainian consumption.

The agreement reached by Prime Ministers Mikhail Kasianov of Russia and Anatolii Kinakh of Ukraine restructures the method of repayment, spreading the company's $1.4 billion debt over 12 years with a three-year grace period at an interest rate pegged at the rate of inflation plus one percent.

"The gas problem that has been a problem between Russian and Ukrainian society for two years has nearly been resolved today," said Mr. Kasianov.

The Ukrainian prime minister explained that his use of the word "nearly" was intentional because the agreement is not valid until the Verkhovna Rada ratifies it.

Mr. Kasianov said Ukraine has agreed that payments by the Ukrainian side could be subtracted from Moscow's compensation to Kyiv for natural gas transit through the country to Europe should Naftohaz Ukrainy fail to make a timely payment.

Eurobonds that Ukraine will issue to the government-controlled but privately run Russian natural gas company, Gazprom, which sells Ukraine the overwhelming majority of its gas, will secure the debt. Ukraine's Finance Ministry said on October 8 that it is likely the Eurobonds will be traded freely on European markets.

The two sides signed a total of three agreements, including an intergovernmental agreement on additional measures aimed at ensuring the transit of Russian gas through Ukraine's territory. A decision also was made that Ukraine would not export natural gas purchased in Russia until it has developed sufficient reserves of its own.

After the signing, Ukrainian Prime Minister Kinakh said that both sides were satisfied with the deal.

"There is no winning side or losing side in this agreement. It is a victory for both of us," explained Mr. Kinakh.

The two ministers also said they had agreed to begin work on an extensive agreement on principles by which to open a free-trade regime between the two countries. Mr. Kasianov said initial discussions would begin in Kharkiv in November, where the two prime ministers are next scheduled to meet along with the business leaders of both states.

The Russian prime minister said he hoped that an agreement on free trade would "bear a spirit of wide-open constructive cooperation" between the two neighboring countries.

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