8 january, 2009 19:00  

"The most important thing today, one of the key issues, is to ensure the safety of supplies. That is why, realizing that such situations may arise in the future, Russia has long set the task of diversifying supplies of our energy. To this end, we launched the plan to build the North-Western pipeline system under the Baltic Sea and another system under the Black Sea (we tentatively call it the South Stream). For that purpose, we built the Blue Stream pipeline to Turkey on the bottom of the Black Sea."

Vladimir Putin Meeting with foreign media

Vladimir Putin: Ladies and gentlemen, I am told that we can speak Russian without translation. All the members of this meeting are fluent in Russian, which is particularly pleasant. I appreciate it very much. I would also like to wish you a Happy New Year and a Merry Christmas. For Orthodox Christians, the Christmas holiday is still on, so I wish all of those to whom it applies a Merry Christmas and all the best. The most topical issue today is gas. The talking points are either the situation in the Gaza Strip or the supplies of Russian natural gas to Europe via Ukraine.

I have asked you to come here today to brief you on the situation with the supply of our natural gas to the European Union countries through the territory of Ukraine and on our relations with Ukraine in the gas sphere - more precisely, the supplies of our natural gas to consumers in Ukraine itself.

I suggest that we keep these two topics separate from the start. I will discuss both, but we all understand that these are two different issues. One issue is the supply of gas to Ukrainian consumers and another issue is the supply of gas to European consumers through the Ukrainian transit territory.

A few words to fill you in on the background. Russia, and earlier the Soviet Union, and Europe have been cooperating in the gas sphere for decades. The gas transportation system from the Soviet Union to Western Europe was built in the 1970s. All this time, Russian gas companies have fully met their obligations without interruption in a timely manner and have fully honoured the contracts signed. This was the case even in the context of the Cold War and its related crises. Russian companies, the Soviet Union, and then Russia, never shut off gas supplies, but shut-offs did occur later, after the breakup of the Soviet Union. As everyone understood, this was connected with the emergence of new transit countries that began to present their claims and try to secure a place in the sun for themselves, and not always in a correct, civilised, and market-oriented way.

Let me say a few words about what happened after the disintegration of the Soviet Union in the energy sphere, including gas, in terms of the relations between Russia and the former republics of the Soviet Union. I would like to draw your attention to the fact that in all previous years Ukraine, for example, has been receiving gas at prices well below market levels. While we sold gas to Western Europe at $100, $150 and $200 per 1,000 cubic meters Ukraine received our gas at $40, $50 per 1,000 cubic meters. Thus, only in the gas sphere, the Russian Federation subsidised the Ukrainian economy to the tune of about $47 billion over the past years. On the whole, the republics of the former Soviet Union were subsidised about $75 billion in the gas sphere. You would agree, wouldn't you, that these are very serious and large subsidies? Not every country would render such assistance to its partners for free.

In 2002-2003, the process of normalising commercial market relations in the gas sphere began with all our partners on the eastern boundary of the European Union. We have always been aware of the complexity of that process both for consumers inside the country and for the transit countries, and we have been doing all we could to make this process painless and natural for them. A characteristic positive example of a peaceful and economically sound transition to genuine market relations is our interaction with the Baltic countries. You know that problems crop up from time to time with these countries in the political sphere, but we have never - and I stress, never - confused political problems and economic issues. The best example of this, I repeat, is our relations in the gas sphere with the Baltic countries: Lithuania, Latvia, and Estonia. As a result, we have managed to smoothly introduce a gas pricing system based on the European price formula, and the Baltics adopted the market system without economic upheavals and shocks. Keep in mind that as late as the year before last, we were selling gas to some Baltic countries at prices that were way below the prices that other European consumers paid.

For several years now Russia has been implementing a programme whereby supplies of gas to the domestic market inside the Russian Federation bring the same revenues as supplies abroad. Today, in spite of the economic and financial crisis, we have decided to raise domestic gas prices somewhat. We are planning to introduce European prices for our internal consumers in 2011-2012 and that, let me stress, was what we agreed upon with the European partners.

Gazprom does not fix the price alone and is not a monopoly in the European gas market. That is a very important circumstance. We have pointed it out repeatedly and I would like to point it out again. In addition to the existence of other gas suppliers to Europe, such as Norway and Algeria, there are internal mechanisms that prevent the European gas market from being shaken. The fears of a number of European politicians that we might raise energy prices are groundless. We build our work with all our Western partners on the basis of long-term contracts whereby the price changes automatically because it is pegged to the weighted average price for crude and petroleum products over several months from the time the gas is sold. That price does not depend on us; it is determined by the market and not by administrative decisions.

The need to adopt market principles in the sphere of gas supply and concern for Europe's energy security were our motive in January 2006 under the difficult conditions when Ukraine illegally siphoned off gas, yet we managed to separate the contracts for gas supply to Ukrainian consumers and for transit to Europe. I think it is a very important fact in terms of European energy security.

Today Gazprom and the Ukrainian gas company Naftogaz Ukrainy have a separate contract for gas transit to the EU countries that expires in 2013. In April 2007, a supplement to that contract was signed that determined the rate of transit via Ukraine. That supplement will be in force until December 31, 2010.

Ladies and gentlemen, we are not keeping it a secret. I have a copy of the agreement and a copy of the supplement. You are free to look at them. You are welcome, they are here.

It is well known that up until now, we have been and still are in contact with our Ukrainian partners. On October 2 last year I met with the Ukrainian Prime Minister in this very room and we signed a memorandum on gas cooperation. One of the key provisions of that document is the possibility of switching to direct long-term relations between Gazprom and Naftogaz starting January 1, 2009, with Gazprom allowed to sell gas directly to end users of Ukraine. The document confirmed the intent to phase in market, economically valid, and mutually agreed prices for gas for Ukraine itself as well as tariffs for gas transit through its territory. However, the memorandum set the condition that Naftogaz pay back all the debts for gas supplied earlier.

In October and November, the representative of Gazprom and Naftogaz held a series of meetings to discuss the terms and possibilities of implementing that Memorandum. As of mid-November last year the documents were at an advanced stage of preparedness. However, the Ukrainian side did nothing to settle the fundamental issue, payment for earlier supplies. At that moment, the debt amounted to $2.4 billion.

Throughout 2008, Gazprom has tried to settle the situation with Ukraine's debt for the gas supplied earlier and was as forthcoming as possible in helping the Ukrainian partners in working out the options for redeeming that debt. I will tell you a little later what additional proposals were put forward. During the talks with the Ukrainian side on the terms for 2009, Gazprom made a series of compromise proposals to Ukraine.

I would like you to take note of the following. Over the past years we ourselves have been buying gas from the Central Asian Republics - Turkmenistan, Kazakhstan, and Uzbekistan - carrying this gas through our territory, and selling it to Ukraine. It was a relatively cheap resource that of course did not make our Central Asian partners feel happy. Let me be blunt: so far, we have been able to buy their cheap gas, but it has become impossible this year. The Central Asian countries introduced European pricing in their relations with Russia.

I don't know if that is a commercial secret, but I can tell you that the situation differs from country to country, but the average price of Central Asian gas for Russia this year has been $340 per 1,000 cubic meters. If you include the cost of delivering it to the Ukrainian border it becomes $375 per 1,000 cubic meters. Nevertheless, Gazprom made an extremely favourable offer to Ukrainian partners. I even feel embarrassed to name the figure, but I will name it: $250 per 1,000 cubic meters. Why do I say that it is "embarrassing"? Because consumers inside Russia are sure to ask us: why? Nevertheless, Gazprom did it. And what happened? The proposal was rejected, and on the orders of President Yushchenko the Ukrainian delegation broke off the talks on December 31 and left Moscow.

By the way, on December 30, in spite of the earlier Ukrainian statements that it had no money to repay the debt, Ukraine did transfer $1.5 billion, but that still left a debt of $614 million for the gas delivered in December.

After the Naftogaz delegation broke off the talks in the evening of December 31 in spite of our favourable price proposals for gas supply to Ukrainian consumers, Naftogaz notified Gazprom on December 31 that it was not prepared to guarantee the transit of gas from Ukraine to Europe. I have a written copy of that notification here. What does that show? It shows that unfortunately, from the very beginning, the Ukrainian partners were aiming to blackmail us by threatening to block the supplies of our gas to the European consumers.

Needless to say, not having a contract for the supply of gas to Ukraine, Gazprom had to cut off supplies to consumers inside Ukraine as of 10:00 on January 1, 2009, though we suspended supplies only to Ukrainian consumers. As for consumers in Western Europe, far from reducing, we actually increased the volumes of transit by 20 million cubic meters a day. On January 1, the flow of transit gas through Ukraine amounted to 326 million cubic meters. In spite of our repeated offers to resume the talks, the Naftogaz delegation never came to Moscow. At the request of Gazprom, from the early hours since gas supplies were cut off to Ukrainian consumers, an independent international auditing company has monitored and is still monitoring the amount of gas at the entry to and exit from the Ukrainian gas transportation system. Together with the international observers, we are monitoring the amount of gas flowing from our territory and the amount that has later flowed from the Ukrainian territory. We have all these figures and all these documents.

I would like to draw your attention to another circumstance. When we asked that international observers be allowed to visit the gas measuring station, Ukraine refused in writing (I have that written answer here too). On January 2, Naftogaz officially stated (I have the written document as well) that it was beginning to siphon off 21 million cubic meters of gas from transit volumes allegedly for technological needs. Note that the current contract expressly obliges the Ukrainian side to provide transit with technological gas from its own reserves.

In connection with the start of unauthorised gas tapping, Gazprom increased gas supplies in other directions, specifically through the territories of Belarus and Poland and through the Blue Stream in the direction of Turkey, and started to tap its gas reserves in the storage facilities in Europe and began buying gas in the free market at its own expense in order to meet its contractual obligations to the European partners.

By January 5, the reductions of Russian gas supplies were felt in seven European countries: the Czech Republic, Turkey, Poland, Hungary, Romania, Bulgaria, and Greece. We were notified that supplies of Russian gas had dropped by 5-30%. By January 5, the volume of unauthorised gas tapping amounted to 65.3 million cubic meters. We called on our partners to stop that theft and to make up for the stolen amounts. There was no answer. As a result, we had to cut the supply by exactly the amount that had been stolen on Ukrainian territory. By the way, between January 1 and 6, 86 million cubic meters was stolen. In the morning of January 6, Ukraine cut off transit to the Balkans. I had telephone calls from the Prime Minister of Bulgaria, Mr Stanishev, and the President of Romania. No gas was flowing from the Ukrainian territory. Please note that on January 6, Russian gas was in the Ukrainian gas transportation system and was being fed to Central Europe. It was not supplied only in the direction of the Balkans. Other users were still getting gas, Ukraine was still transiting it.

So, it is ridiculous and simply foolish to say that Russia has suspended supplies. If this were the case, where did the gas in the gas transportation system come from if it was flowing to other European countries? In the Balkans, there was already a blackout. In the morning of January 6, Hungary, Bulgaria, Turkey, Greece, Serbia, Slovenia, Slovakia, and Romania stopped receiving Russian gas. Gas supplies to France, Austria, and Germany were reduced significantly.

Unfortunately, as you know, that was not the end of the story. At about 7 a.m. on January 7, Ukraine shut off the last, fourth, pipeline that carries transit gas to Europe. On that day, Naftogaz changed the operating mode of its gas transportation system and directed all the gas flowing from Russia to meet domestic needs.

After that technological switch took place on Ukrainian territory, we had a technical failure occurrence. However, Russia fixed that breakdown and resumed the supply to the Ukrainian gas transportation system in the morning. I have a report here on the readings of the gas meter taken by the independent international organization SGS. You can look at it, too. It reads: After the breakdown, operation resumed at 12:10, and when we saw during the day that gas was not flowing out of Ukraine in the direction of Western Europe, we shut off supply of gas to Ukraine at 17:40, as has been recorded by the international organization. At 17:40, two pipelines, Progress-1 and Progress-3, were stopped. In this context, we believe that it is necessary to pass on to normal, civilised, and transparent market relations as quickly as possible.

I would like to draw your attention to the following circumstances. While Ukraine's neighbours get natural gas at the price of about $470 per 1,000 cubic meters in the first quarter of 2009, the fact that this key resource is available to a neighbouring country at a lower price makes entire sectors of the economy in some European Union countries uncompetitive. Take chemistry for example. In such conditions, the Romanian chemical industry will become totally uncompetitive, as our Romanian colleagues have pointed out. Thus we believe that because Ukraine has failed to honour its previous obligations it has to pay the market price for gas and we are prepared to pay for transit at market prices. The market price of transit in Europe is $3-4 per 1,000 cubic meters per 100 kilometers. We are ready to pay for the market transit on the condition that the Ukrainian partners pay the market price for the product itself.

Now about the contract for the transit of our gas: I have already said that it was signed in 2006 and a supplement to it was signed in April 2007. It will remain in effect until December 31, 2010. Under the contract - which is governed by Swedish law - in the event of a dispute, it should go before the Arbitration Court in Stockholm. In accordance with this contract, Gazprom filed a law suit with the Arbitration Court of Stockholm asking the court to take prompt remedial action to forbid Naftogaz to take any actions aimed at reducing the transit of Russian gas to Europe.

Unfortunately, our Ukrainian partners, in spite of all the documents they have signed, ignore that court and, in violation of any obligations and international rules, have gone to the Kiev Economic Court. The Kiev Economic Court decided to ban the transit of Russian gas through Ukrainian territory. If we continue to operate in such a "civilised" manner, there will be no order in this area at all.

Of course, the issue today is not only ensuring supplies. The most important thing today, one of the key issues, is to ensure the safety of supplies. That is why, realizing that such situations may arise in the future, Russia has long set the task of diversifying supplies of our energy. To this end, we launched the plan to build the North-Western pipeline system under the Baltic Sea and another system under the Black Sea (we tentatively call it the South Stream). For that purpose, we built the Blue Stream pipeline to Turkey on the bottom of the Black Sea. By the way, it is operating today at full capacity, which goes some way to ease the situation. If we had built, if nobody had impeded our building of such a pipeline system under the Baltic Sea, that pipeline would already be in operation. We very much hope that the current events will encourage us all to adopt civilised market forms of cooperation.

As you know, a Gazprom delegation is in Brussels today. It has already met with the European Commission. We have proposed, or rather agreed with the proposal of the German Chancellor, Ms Merkel (she rang up yesterday), and we had a talk. In my opinion, she made a very good proposal: to send international observers to the gas pumping stations. We fully agree with that. We believe it should be done as quickly as possible. We are ready to have these observers on our territory. Of course, they should also go to Ukrainian territory, to the stations which pump our gas toward Europe via all the main pipelines: to the Balkans, to Central Europe, and to Western Europe.

Gazprom has proposed a protocol to the European Commission on the procedure of the functioning of such an auditing commission and its possible participants. On the Russian side, the document has already been signed by the Energy Ministry and by Gazprom. Unfortunately, Mr Barroso and the gentleman - I would hate to distort his name - the head of the Energy Commission... yes, Piebalgs, our partners from the European Commission have so far refused to sign the protocol because they say it calls for a mandate from all the European Union countries. I think this is in a way a moment of truth. Those who want to solve the problem look for ways to solve it, and those who are not ready to solve it look for excuses why this or that action is impossible.

I understand that European Union Foreign Ministers are meeting in Prague today. Tomorrow gas experts will have a meeting, and on Monday there will be a meeting of the energy ministers. Given the dramatic conditions, approvals could be obtained within two hours. I think the Protocol is necessary because - as I have told you - the Ukrainian side has refused to allow international observers on its territory. If they agree to this today, let them sign the document.

We believe that the work of such a control commission should involve the representatives both from Naftogaz of Ukraine and Gazprom, as well as representatives from the companies that are the main recipients of our gas and representatives of the European Commission. We hope that the issue will be resolved expeditiously. We don't want a group of men and women to come to Kiev and just sit in a hotel and sip horilka. We want them to be in the intersection points, at the points where our gas enters and leaves the territory of Ukraine in the direction of Western Europe. We are ready for this work and we await a decision by our European partners.

Thank you.

Now I am ready to answer any of your questions

You, please.

S. Canciani (RAI): Good evening, Mr Putin. Many analysts in the West speak about political pressure on President Yushchenko. Are you aware of this aspect of the crisis with Kiev? What is your reaction to this criticism?

Vladimir Putin: I have just given you a detailed account of how the dialogue went. If we buy gas from Central Asia at $340 per 1,000 cubic meters and offer to sell it at 250, what do you make of it? And yet Ukrainian partners refuse to sign that contract. Do you call that political pressure?

If you are interested in details I will tell you more, something that surprised me a great deal: $250 is expensive, we will sign up to $235. This is not a joke. This is serious. I told them: all right, let us do it this way: you sign up for $250, we will allow you to draw gas from storage facilities on Ukrainian territory and we will together sell it to the West at a high price. You will get an extra margin and the real price this year for you will thus be $235. They replied, no, because if we sign up for this it will be used against us in the internal political struggle in the run-up to elections in Ukraine.

So, if you want to speak about the political aspects of the problem, they are not international, but internal. That is the problem.

In my opinion, the current situation is that the incumbent Ukrainian leadership is incapable of organizing normal and transparent functioning of the economy on market principles and moreover, is causing heavy damage to the Ukrainian people and the prestige of the Ukrainian state by its actions. That is one more proof that we are witnessing a political collapse inside Ukraine. I regret to say that it indicates a high level of corruption in Ukrainian government structures, which today are fighting not over the gas price, but for the possibility to keep certain mediators in the game in order to use the dividends for personal enrichment and to raise the necessary funds for future political campaigns.

J.Rukk (ARD): You say that Ukraine has gone to a Swedish court over the issue, which is indeed funny. Could Russia also have gone to some international institutions in advance?

Vladimir Putin: Ms Rukk, you weren't listening attentively to what I said. I said that the transit contract is governed by Swedish law and if a dispute arises, the contract says (I have the contract here before me) that "disputes are subject to resolution at the Stockholm Arbitration Court". Gazprom has filed with that court.

J.Rukk: And a small follow-up question, if I may. I hope I understood you correctly. Belarus pays subsidised prices, you haven't mentioned it now. Clearly, Gazprom wants to switch to market prices with Ukraine. That is clear. And why not with Belarus?

Vladimir Putin: The answer is simple: we have bought 50% of the gas transportation system in Belarus. In a way, it is a form of settlement with Gazprom. That's number one. Number two: We are building our relations with Belarus as a Union State, and we do not take customs duties into account. We have a special regime, and besides, we have purchased 50% of Beltransgaz. By contrast, Ukraine has passed a law that bans the privatization and even the renting of the gas transportation system.

You know, several years ago, and we recalled it with Mr Schroeder yesterday, we signed a document - the German Chancellor, the former Ukrainian President, and I - envisaging the possibility of creating an international consortium to manage the gas transportation system that would include Naftogaz of Ukraine. That consortium was ready to simply take the gas transportation system on lease, not buy it and not privatize it, leaving it the property of the Ukrainian state. The document was signed but it was not implemented; the reason, I think, is political. It is unclear what motives drove those who passed the law banning the development of that gas transportation system.

Larisa Zadorozhnaya (Inter): Why wasn't a compromise reached overnight? We just had a short press release stating that a wide range of issues was discussed. Why has the Russian side in Brussels cancelled a tripartite meeting of the European Commissioner, Miller, and Dubina? That is my first question. And the second question: Naftogaz says that it is not a conflict of economic entities, but rather a political issue that can today only be solved at the level of Prime Ministers and Presidents. Have you initiated or do you intend to initiate a meeting with your Ukrainian counterparts? Or are they going to initiate such a meeting on their part? Thank you.

Vladimir Putin: We have repeatedly proposed to continue the negotiations. And secondly, we have never stopped them. It is not we who stopped the negotiating process but our Ukrainian partners. Thirdly, for the situation to become normal they must come to Moscow and sign a contract for the supply of gas to Ukraine, that's all. And they have to pay the market price for the product they receive. If Ukrainian neighbours in the European Union pay an average of $470 per 1,000 cubic meters in the first quarter, it is clear how much Ukraine has to pay if one subtracts from that price the cost of transit to the Western border of Ukraine. That is all.

Larisa Zadorozhnaya: Why wasn't an agreement reached at 3 a.m. What happened?

Vladimir Putin: The Ukrainian partners don't want to sign, they don't want to pay, it's as simple as that. If they signed today, gas would start flowing tomorrow - why tomorrow? It would start flowing today.

Larisa Zadorozhnaya: Were you talking in terms of $470, $450, or have you lowered the price a bit?

Vladimir Putin: I don't trade in gas, cucumbers, beer, lard, or anything. This is a commercial issue. They must agree amongst themselves, but of course it must be a market price. That is obvious. And for your benefit, Larisa, I can say more. Of course, the problems facing Ukraine are not all that dramatic. I will tell you why. First, it produces 50-60 million cubic meters of its own gas a day. About 50. But (our experts know the potential) it can be brought up to 60. A large amount of Russian gas has been pumped into storage. About 22 billion cubic meters of gas. About 200 million cubic meters can be taken out every day. So, its own production is 60 million, plus 200 million recovered from storage (that makes 260), while the average demand in Ukraine is 280 a day. With a bit of belt-tightening they can make it, but for Bulgaria it is zero. Some thought should be spared for the neighbouring countries.

L. Milicic (Politika): Serbia has zero.

Vladimir Putin: The reason I mentioned Bulgaria is because in other countries (perhaps less so in Serbia), such as in Greece, there is no Russian gas, but there is a chance to receive gas through the newly built pipeline from Turkey. Other countries have something, but some countries have nothing but our gas.

L. Milicic: My question. The situation is critical. They say that the whole energy system may collapse. Is there a possibility to receive something from Turkey, Belarus, and perhaps from your storage facilities in Europe? Because the situation is grave. That is one thing. And the second question: Can what is happening speed up the implementation of the South Stream project?

Vladimir Putin: I wish we would all become imbued with the drama of the ongoing events and proceed to diversify supplies of energy resources. We are all for it.

As for alternatives today, I have already said that Gazprom is taking the necessary efforts to redirect the flows through the so-called Blue Stream, via Turkey, and through the Belarus-Poland corridor and in other directions, it is taking gas out of storage facilities, including in Europe; it buys something in the spot market, in the free market.

What can be done today to put an end to the crisis more quickly? We must immediately form a verification mechanism and send observers to where our gas enters and leaves Ukrainian territory. As soon as that mechanism is in place, as soon as people appear on the ground and start working, gas will definitely be supplied.

Christopher Boyan (France Press): We know that Gazprom has offered Ukraine the price of $250 per 1,000 cubic meters, and at the same time has warned that if Ukraine turned that price down it would have to pay (I've seen the figure) $480.

Vladimir Putin: The figure mentioned was $418, $450.

Christopher Boyan: $400 or thereabouts, yes. I would like to ask you if Russia and you personally would settle for a compromise price of $250 with Ukraine in the light of what happened last week.

Vladimir Putin: Christopher, what country are you from?

Christopher Boyan: I am an American myself.

Vladimir Putin: You are an American, so you will understand me better than anyone else, because Americans are the most market-oriented people. If we buy at $340, should we sell at $250? What sort of business is that?

Christopher Boyan: Has the offer been made?

Vladimir Putin: Does America do it with anyone? With Belarus? I doubt it.

S. Scholl (ORF): I would simply like to know, are you not afraid that relations with Europe are being seriously affected by all this? Don't you have a feeling that it may greatly damage these relations? My second question: Austria has an interest in the Nabucco project, as you know. Don't you think that this episode will stimulate the project?

Vladimir Putin: If Europe takes an objective view of what is happening, the current unpleasant and even dramatic developments in the energy field should not aggravate relations with Russia because Russia is not to blame - it is not we who stopped supplying gas to Europe. This is not our doing. We have supplied gas to the Ukrainian gas transportation system even throughout January 7, when transit was shut off. Are we to continue supplying gas to Ukraine if it does not allow it to flow from its territory? What have we done wrong? That's number one. Number two: In terms of alternative routes of delivery, we are in favour of them. We are not taking part and will not take part in the Nabucco project, but we will not impede it. If there are resources to fill that pipe, if there are agreements, if there is a seller and a buyer, there is nothing to prevent the project from going on, as we have repeatedly said. In general, we believe that the more diversification, the better. We view the South Stream project and the building of the pipeline under the Baltic Sea in this context.

A. Stopar (Slovenian Radio and Television): I have a question about the monitoring protocol, the signature by the European Commission. Why do you think that the European Commission is not ready?

Vladimir Putin: Because they have refused to sign it.

A. Stopar: But they have no mandate.

Vladimir Putin: Given the wish... I had a call from your leader; Slovenia is in a difficult position. Whose interests should the European Commission protect? You should "get cracking". In such conditions, two hours would be enough, but instead, they are quibbling over details. They have no mandate? Let them get it.

A. Stopar: What do you make of it?

Vladimir Putin: You can make of it what you like. I don't know what to make of it. Mr Barroso will call me shortly and we will discuss it. We have agreed to have a telephone conversation. I understand that there are certain administrative restrictions, but we are ready to overcome them. We believe that our European partners must also move quickly in these unusual circumstances. Foreign ministers are meeting in Prague as we speak. Why not reach an agreement there and then? What is wrong with having observers at the entrance and exit points? This is not my proposal, it is the proposal of the German Chancellor. We have agreed with her. So, go ahead, we are for it.

B. Ottaviano (ANSA): You had a similar problem with Ukraine in 2006 and you were hammering out a mechanism. Apparently the mechanism did not work, but why not? And what can you do so that the next mechanism works?

Vladimir Putin: The mechanism is very simple, I have already mentioned it: it is a transit contract. I repeat, the contract is governed by Swedish law and in the event of a dispute should be considered by the Stockholm Arbitration Court. It is the most civilised and the most common method of resolving problems of this kind.

What is needed to pass on to such relations? We must get our Ukrainian partners to follow civilised rules, that's all. Let me remind you that Russia has not yet ratified the Energy Charter, but we have said so directly and we have presented our case. We recognize its principles and are ready to conduct a dialogue. Ukraine, by contrast, has not only signed, but ratified the Energy Charter. It is bound by that international legal document ratified by the Ukrainian Parliament to honour its transit obligations.

You are asking me what needs to be done? Everyone must honour their international obligations, that is all. And everyone, including our Ukrainian partners, must understand that if these civilised rules are broken, they will have no political support; that it is not a question of international politics, but a question of economic relations. There are certain rules and they are set in international law. They must be observed. That's all.

V. Radzivinovicz (Gazeta Wyborcza): Two questions. The conflict, this crisis, also poses a risk to Russia too. It undermines Russia's authority and its reputation as supplier. We know that Gazprom's clients face problems every year because of Ukraine and because of Belarus. Every year there is some kind of conflict. Today the press, especially in the West, writes that liquefied petroleum gas must be developed. How do you assess that risk for Russia? That is my first question.

And the second is an entirely Polish question: perhaps the time has come to resume the discussion of building a second line of the Yamal-Europe pipeline. It has been on the back burner, and yet it is relatively cheap and can be done relatively quickly.

Thank you.

Vladimir Putin: First, of course it creates problems for us. I look at Western European media and media in North America. I am sorry to say it, but I do not find an objective assessment of the events there. It is simply non-existent. I am convinced that all those sitting at this table understand what I am saying. I don't know what you are going to write and what directions you will get from your bosses. Everything points to the fact that there are some directions because the picture being presented is absolutely biased: Russia has cut off supplies.

We have not cut off any supplies. Our gas has stopped flowing out of the Ukrainian territory. The country is not meeting its transit obligations, even after signing and ratifying the Energy Charter, and despite having a contract for gas pumping. It does not want to pay for the gas. In fact, it links the demand for low prices for itself with the issue of transit to you. It makes Europe and Russia hostages to its own economic situation.

Of course we are aware of these risks. But we believe that these risks can be minimized in the future and brought to zero if we seek market relations today both in terms of transit and pricing. As soon as we do that, all these risks will be reduced to zero, but that is a goal to be achieved. Everyone should realize it and do it. Ultimately it will benefit the consumer countries, the producer countries, and the transit countries. It will build civilised relations throughout the chain.

As the building of another line in Belarus and Poland that you mentioned: theoretically, everything is possible, but it depends on the volume of consumption. Today, because of the economic crisis, consumption and hence prices in Europe are falling. But the main thing today is that consumption is falling, so, it is not practical to discuss the building of another line. We should complete the project that we are going to build under the Baltic Sea, and not because we want to bypass Poland or Belarus. The point I want to make is absolutely obvious: it is to provide direct access from Russia, from the producer to consumers in Western Europe without any transit countries. It diversifies the flows and eliminates transit country risks. What is there that is not obvious and what is there that can offend anyone? It creates a more balanced and stable system of energy supply to our main European consumers.

So, theoretically, if consumption increases we may in the future come back to this theme. At present, our relations with Poland in this area have been settled and everything is functioning normally: transit is secure and we have agreed on the rates for transit. Our relationship with Poland in that area is thus satisfactory.

Let us move over to this side.

Charles Clover (Financial Times): I am Charles Clover from the Financial Times. Mr Prime Minister, this is a very opaque situation in which two states make opposite claims. We don't know whom to believe. So far there is no proof.

Vladimir Putin: There is. Here it is. It is SGS, the international organization that monitors gas supplies, and it says here in black and white when gas supplies were stopped and when they were resumed.

Charles Clover: Are you sure that these international observers confirm the Russian version?

Vladimir Putin: If you are not sure, sign the protocol, send your own observers to the border between Russia and Ukraine and to the border between Ukraine and Western Europe. Go ahead. Sit there and watch from morning till night, eat salo (pig fat) and chase it down with horilka. They have excellent pig fat in Ukraine, I guarantee it. My friends send it to me from Ukraine.

A.. Osborn (Wall Street Journal): Two questions. The first question: A quarrel between Russia and Ukraine has become something of an annual event, rather like Christmas. Can you do anything to prevent a repeat of it in the future?

Vladimir Putin: We can't do it without your help, I truly mean it, I am serious. Europe must become aware that it has to guarantee transit for itself, and that is not our problem. It is the problem of the transit country.

A. Osborn: Another question. What do you think about the all-too-familiar accusations from the Ukrainian side and from others that Russia is using energy as a political weapon? There is already talk about it again.

Vladimir Putin: I understand. This is an old "cock and bull" story, as our people say. Speaking about political weapons, I do not know what a political energy weapon is. I know about the weapons that Ukraine supplied to the Caucasus when there were hostilities there. That I know about, and as far as I know the Ukrainian Parliament is conducting an investigation into the matter. I would, however, like to draw your attention to the fact that even today we are duly supplying gas to Georgia in spite of any political problems with that country. And I must give due to our partners in Georgia that they have notified us just recently that they are ready to resume supplying gas to South Ossetia. We do not link political and economic issues. Those who do it have only one purpose: to cover up their economic inability and their reluctance to fulfill their obligations.

L. Jurea (National Television of Romania): You know that we get Russian gas through some middleman firms. Bucharest wants to get gas directly from Russia. How realistic is that? That is my first question. And the second question: Is the option of hooking up Romania to the South Stream project under consideration?

Vladimir Putin: We are not against Romania taking part in the South Stream. Secondly, and this is what you started with, in as for the middleman companies in the Romanian market, the Romanian President raised this issue during our conversation. We are ready to switch to direct relations with state companies. By the way, we are ready to do the same with Ukraine - we are ready to sign a contract directly with Naftogaz of Ukraine. I will tell you something that may surprise you: I got the impression that we are being prevented from doing it because the terms that have been set - $250 per 1,000 cubic meters - were rejected by Naftogaz of Ukraine. Immediately, mediators came along who said, "We will sign and settle everything". This gives me grounds for saying that the situation in Ukraine is too corrupt, but I have a counterproposal to Romania that is hard to refuse. Please convey to your President that we can sell the equivalent of Ukraine's annual consumption to your government company and you can then sell it on to Ukraine. Is it a deal?

L. Jurea: I will convey it to the President.

Vladimir Putin: Jot it down.

S. Zekri (Süddeutsche Zeitung): I was somewhat surprised when I heard you say this: if it is a purely commercial conflict, why should Europe resolve it? That is my first question. And the second question: you said that Ukraine must get used to market prices. Russian consumers are known to be paying prices that are very different. Do you have plans to change the regime a little bit?

Vladimir Putin: First, Ms Zekri, Ukraine is not Russia. Why should we sell a product to a foreign state at internal prices?

S. Zekri: To make money.

Vladimir Putin: To sell the product to a foreign state at internal Russian prices?

S. Zekri: Vice versa. To earn more money here.

Vladimir Putin: Listen. We have domestic Russian prices. Are you telling us to sell to Ukraine at domestic prices?

S. Zekri: Vice versa. To sell here.

Vladimir Putin: At European prices?

S. Zekri: Not at European prices. But at higher prices. The prices here are very low.

Vladimir Putin: You were not listening to me attentively. I said that we have a plan to bring domestic prices in line with the European price formula. We are proceeding according to this plan and moving forward. Even in the current crisis situation, Russian prices will go up 16% this year. By 2011, we will have European price setting for the domestic consumer. We are ready to do it for our partners as well. We have proceeded in this way with the Baltic states: we made a work schedule and we have raised prices for them gradually every year to reach European price setting within three years. They have kept to this schedule, but Ukraine doesn't want it. However, if we are going to add $5 every time we will end up by selling gas domestically at European prices while still subsidising the price for the Ukrainian partners. They don't want to do it. They don't want to adopt the phased system of raising prices.

As to why, in my opinion, the European partners should try to influence the situation, the answer is simple. Transit has been shut down to European consumers. Doesn't it worry you? Why should the transit country seek preferential prices, putting the European consumers at risk and putting other European Union countries at a disadvantage in the European market? Romania has been mentioned here. The Romanian chemical industry will be totally unable to compete with the chemical industry of Ukraine if Ukraine buys gas at $250 and Romania at $470.

D. Dyomkin (Reuters): Have you discussed or are you planning to discuss the gas dispute situation with the Ukrainian Premier Yulia Tymoshenko? Secondly, if the measures Russia has taken fail to influence Ukraine, can it expect new and tougher steps on Moscow's part?

Vladimir Putin: What steps are you talking about?

D.Dyomkin: Shutting off gas.

Vladimir Putin: We have already shut it off. What else can be done? If there is no contract, we do not supply gas to Ukrainian consumers.

Dmitry Dyomkin: And negotiations with Tymoshenko?

Vladimir Putin: We have never avoided contacts with our Ukrainian partners, at any level. A European partner called me recently and we spent a long time discussing supplies to one of the countries to which Ukraine shut off gas transit. I asked him, listen, have you discussed this problem with the Ukrainian leaders? He says, no, Yushchenko does not answer the phone. He is a big boss, and Ms Tymoshenko said she was sick. I was then put through to her deputy who, I assure you, has no right to make any decisions. That's how they deal with partners.

But we are not avoiding contacts. I am available at any time. I talked with Mr Yushchenko at the end of last year, and yesterday, I think, he called Russian President Medvedev and they also had a conversation. We are fully available. We are open to these negotiations.

G.S. Biermann (Bloomberg): Can you say who owns Rosukrenergo, other than Gazprom and what interests -

Vladimir Putin: Mr Firtash, a major political figure of our times, it seems. Mr Firtash.

G.S. Biermann: Who does he work for?

Vladimir Putin: Ask those for whom he works. But he doesn't work with us. On our side, Gazprom directly owns 50% of Rosukrenergo. On the Ukrainian side, it is owned by some individuals. We don't know them, except that they once showed us Mr Firtash, with whom I had never met and who I had never seen before. We are ready to sign a contract directly with Naftogaz of Ukraine, but we are prevented from doing it.

G.S. Biermann: Regarding $250, is it the price related to oil and its products, or is it the price for the whole year?

Vladimir Putin: It is the weighted average price for the whole year. Of course, it is not connected with the price for petroleum products, it is a far more preferential price. Even if you take into account the sharp drop in the oil price, it is still higher than the price of gas, than $250 per 1,000 cubic meters during the whole of 2009. It can easily be computed already. Any questions from the left-hand side?

S. Canciani: Have you discussed the crisis with Mr Berlusconi, your counterpart?

Vladimir Putin: We are going to talk with him tonight, in a couple of hours.

Charles Clover: Mr Prime Minister, what will the political consequences of the crisis be for Ukraine?

Vladimir Putin: I don't know. I have no right to assess the internal political situations in Ukraine currently or in the future. But I would like to stress, though it may sound pretty harsh, that I feel that the current political leadership of Ukraine is proving unable to solve economic problems. The current situation shows a high degree of criminalization of power in Ukraine. As for what will happen there in the future, I don't know. The Ukrainian people themselves must give the answer. I think that it will be done someday.

J. Rukk: If I understood you correctly, you say that Russia is ready to pay for transit at market rates?

Vladimir Putin: Yes.

J. Rukk: Naturally, after Ukraine pays...

Vladimir Putin: The market price for gas.

J. Rukk: Yes. Can market transit rates be paid before the contract you have in front of you expires?

Vladimir Putin: That is subject to negotiations. The current contract is in force and the supplement to it will expire on December 31, 2010, and it must be complied with. If there are other proposals, we are ready to consider them.

J. Rukk: With your permission, a purely German question. Could you outline briefly what the topic of your visit to Germany will be?

Vladimir Putin: In Dresden or Berlin?

J. Rukk: Obviously it will be gas.

Vladimir Putin: I am going to visit the Green Week Exhibition there.

J. Rukk: Is that all?

Vladimir Putin: We shall see.

J.Rukk: Was your visit to Germany agreed upon before the crisis?

Vladimir Putin: Yes, of course.

J.Rukk: What other topics will you discuss?

Vladimir Putin: The main item is visiting the Green Week Exhibition in Berlin and a meeting with Mrs Merkel.

Christopher Boyan: I don't want to go into technicalities, but as I understood it, in order to spend 100 cubic meters of gas, one needs what is called technical gas in Ukraine, a different quality and quantity of gas in order to...

Vladimir Putin: Yes, but not the entire volume that we supply to Europe.

Christopher Boyan: No, I am just trying to understand, because I am afraid there will be a massive argument between lawyers in Stockholm over the interpretation of this treaty since Russia says that it is not its task.

Vladimir Putin: Listen, Mr Boyan: for technical purposes, they need 21 million cubic meters a day, and they have siphoned off 86 million. What happened to the remaining gas? And why aren't they letting through the gas? Secondly, under the terms of the transit contract, Ukraine should provide the technical gas out of its own resources, and it does have such resources.

I.Golovkova (France-2): If the situation reaches a stalemate, if Ukraine rejects what Russia offers and vice versa, what can be the consequences?

Vladimir Putin: The consequences will be dire.

I.Golovkova: For Russia, for example.

Vladimir Putin: Russia has gas, thank God. Energy people, including the Energy Minister, reported to me today that in Russia all the consumers get the full amount of gas.

I.Golovkova: Yes, but that means we won't sell a huge amount of gas?

Vladimir Putin: That is true. It will have serious economic consequences for Gazprom, of course, but Gazprom will cope with them, I am sure. We will work more actively in the Asian market. You know that we are already building a pipeline to the Pacific, and will build a pipeline to China and to the free Asian market in parallel. We will build liquefaction plants and a tanker fleet, we will work. We will, to Mr Boyan's joy, liquefy gas and send it to the North American market. Yes, really, the American partners have long been asking us to do it. We will do it. We have redirected the bulk of the output from the Shtokman oil field to the European market, but if things go as they are going now, we may redirect it to America...

S. Sholl: I would like to repeat the question that I asked you earlier: will relations with Europe suffer greatly in that case?

Vladimir Putin: No. Mercedes cars are sold everywhere. Why can't we sell gas all over the world? We are not taking anything away from anyone, you have the right to buy. In a free market economy, they buy and sell what they can and wherever they can at the best prices.

S. Sholl: Selling your gas in some other direction would be a way out?

Vladimir Putin: No, the way out is for everyone to act in a civilised way in the framework of market relations and international law.

Thank you all for your attention. I hope you will report this meeting objectively.

B. Ottaviano: The last question. Why don't you sign contracts in February, we have our Christmas at the end of the year...

Vladimir Putin: I can seriously tell you, and it has already been mentioned here, that it's the same story almost every year. We have tried to agree on this throughout the year, beginning from January of last year, and our partners always prolong it until December. Sometimes it is even impossible to catch them by the hand. This is not a joke or an allegory or an exaggeration, it is simply impossible to get them to sit at the negotiation table. They deliberately delay it until December to create a conflict situation, a situation that threatens a disruption of supplies to Europe, and then blackmail begins. It's the same story every year. An end must be put to it some day. All the best to you, and goodbye.