The committee on economic cooperation, to meet in Kiev tomorrow, will be co-chaired by Russian Prime Minister Vladimir Putin and his Ukrainian counterpart, Mykola Azarov. Eleven documents are to be signed in Kiev, but as of yesterday, their list and contents were still being coordinated in Moscow with a Ukrainian delegation led by First Deputy Prime Minister Andriy Klyuev.
Analysts think the prime ministers will focus on the establishment of a joint venture between Gazprom and Naftogaz.
A source with close ties in the Ukrainian company told this newspaper that Kiev needs to settle its debts with the trader Rosukrenergo and change the Russian natural gas pricing formula. Azarov said in August that they would discuss a new formula, but Putin didn't confirm that it was indeed so.
"We sell gas to Ukraine in accordance with the European gas pricing formula. We have recently agreed on a $100 discount [per 1,000 cubic metres of gas]. What more do they want? We think it's enough," the Russian leader said.
The situation changed in time for the premiers' autumn meeting. Before leaving to Moscow, Klyuev told Ukrainian news agencies that on October 27, the two prime ministers would discuss pricing, in particular "gas prices and possibly a change of the pricing formula." He ruled out the possibility of a new Ukrainian-Russian "gas war."
Ukrainian analysts point out that the pricing issue is extremely important to their country, because Naftogaz's finances remain constrained and the government is short on funds to make up for the company's losses.
There is also the issue of the 11 billion cubic metres of gas that belonged to Rosukrenergo until January 2009, but was re-registered as the property of Naftogaz when the country severed relations with its Russian trader. The Tymoshenko government claimed it was a perfectly legitimate deal that had been closed with the agreement of Gazprom, a co-owner of Rosukrenergo. The Russian energy giant had every right to sell the disputed gas to Naftogaz, because Rosukrenergo owed it considerable sums. However, Rosukrenergo filed a lawsuit against Ukraine and won.
The company would have been ruined if forced to return the gas. This is why Kiev has been trying to settle the problem politically. The Ukrainian court, which planned to hear the case this week, has announced that the hearing will be held after the prime ministers' meeting.
Vladimir Zastava, an expert at the Kiev Gorshenin Institute of Management Issues, said that according to his information, Putin and Azarov will search for a solution to the problem. "One of the possible pricing formulas includes the establishment of a Naftogaz-Gazprom joint venture," he said.
The possibility has been on the table for six months, but the sides have not yet agreed on a mutually acceptable form of cooperation. Volodymyr Omelchenko, a leading expert on energy programmes at Ukraine's Razumkov Centre, said there are organisational and legal obstacles to creating a joint venture. He said that neither Ukrainian nor Russian legislation encourages rapprochement in the gas supply sphere.
Ukrainian parliament speaker Volodymyr Lytvyn thinks that the gas problems can be resolved within a broader context. He pointed out that Ukrainian-Russian trade is expected at $40 billion this year, compared to $15 billion in 2009. Lytvyn said it is highly important that the new Ukrainian government has cleared "the ideological differences [in relations with Russia] that irritated not only politicians but also common people." However, he thinks cooperation should be promoted on the basis of parity.
Mikhail Pogrebinsky, director of the Kiev Centre for Political and Conflict Studies, is convinced that the two prime ministers' upcoming meeting has been well prepared. "I think agreements on cooperation in the nuclear sphere, aircraft manufacturing, and shipbuilding will be signed," he said. "As for gas, outstanding problems will be resolved, but we should not expect the establishment of a joint venture."
Vitaly Bala, head of Ukraine's Situations Modelling Agency, believes that the solution to these problems will be put off until a meeting between Ukrainian President Viktor Yanukovych and Russian President Dmitry Medvedev. He said that people living in southeast, western, and central Ukraine have different views about agreements with Russia.
Bala thinks this should be taken into account, because "the talks between Putin and Azarov will be held three days before local government elections in Ukraine."
The ruling Ukrainian Party of Regions would like to sign new agreements with Russia in time for the elections. Apart from economic deals, which were still being discussed yesterday, the two countries expect to sign documents on the deployment of the Russian Black Sea Fleet.
Russian Defence Minister Anatoly Serdyukov said the other day that they had signed a protocol of intent to supply information about the structure, number of personnel, and ship movement of the Black Sea Fleet to the Ukrainian Defence Ministry. He also said they planned to sign an upcoming agreement on the rearmament of the fleet.
It was reported ahead of the prime ministers' meeting that the Russian Black Sea Fleet will be reinforced with new warships and modernised bomber planes by 2020. The Ukrainian media outlets say the fleet will receive six Project 22350 frigates, six Project 677 diesel submarines, and two Project 11711 large landing ships. By 2016, the fleet's naval aviation group will be reinforced with modernised Su-24M fighter planes and Il-38 anti-submarine aircraft.
Ukrainian analysts think the prime ministers will also agree on cooperation in building new warships and aircraft for the Russian Black Sea Fleet.
It is good news that the fleet has started making overdue payments to the Ukrainian budget and state funds and is paying delayed wages to the personnel of the local ship repair yard.
Valery Saratov, head of the Sevastopol city administration, has recently mentioned a critical shortage of funds. Two weeks ago, 29 employees of the 172th Design Bureau of the Black Sea Fleet (22 of them Ukrainian nationals) announced a hunger sit-in strike in protest against wage delays. They have now stopped their strike.
The Sevastopol mayor also said there were some routine economic problems that need to be addressed. They include the method of calculating Russia's financial contribution to the city's socio-economic development, the procedure for registering the for-profit companies of the Russian Black Sea Fleet as VAT payers, and registration of foreign investment by the fleet's companies.
Kiev analysts think that Putin and Azarov will have little time to discuss all of these problems but will instruct their expert teams to tackle them. In general, analysts agree that Vladimir Putin's upcoming visit to Kiev will have substantial, although not sensational results.
"Developing a normal and mutually beneficial interstate relationship is a routine job that has no place for sensation," a Ukrainian official said.
By Tatyana Ivzhenko
