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Putin and Yanukovich agree on lower gas price

December 18, 2013, 12:05 UTC+3

Ukraine strongly needed financial assistance

1 pages in this article

MOSCOW, December 18. /ITAR-TASS World Service/. Russian President Vladimir Putin met with his Ukrainian counterpart Viktor Yanukovich on Tuesday. The main result of the talks for Ukraine is reduction in Russian gas price from $408 per 1,000 cubic meters to $268.5 per 1,000 cubic meters. Russia will also place $15 billion in Ukrainian securities and will provide material support for Ukraine without any integration-related preconditions.

Ukraine strongly needed financial assistance, its GDP in the third quarter of the year shrank by 1.3%, its national debt as a share of the GDP reached 36.6%, its foreign exchange reserves have been reducing at a fast pace and as of December 1 declined to $18.8 billion as against $24.5 billion in the beginning of the year, the Vedomosti business daily reports.

However, Putin warned that a gas decision was temporary. “The gas price will depend on how events will develop,” Vedomosti cited Naftogaz chief Yevgeny Bakulin as saying. “As Vladimir Vladimirovich has said further positive movements are possible.” The deal does not specify duration of the discount. Ukrainian Deputy Prime Minister Yuri Boiko said the new gas price would enter into force as of January, 2014.

“Although Gazprom lowered its gas price for Naftogaz (Ukraine’s state energy firm), the gas giant should not be harmed,” an official close to the Russian gas monopoly said. Naftogaz might increase gas supplies in such a way as to compensate for the lower price with higher imports, while Gazprom’s losses could be compensated by the Russian budget, he said.

Russia’s support for Ukraine will not be restricted with a gas discount. Russia will place $15 billion from its National Welfare Fund in Ukrainian securities. The terms of placement of Ukraine’s Eurobonds had not been finalized yet, but their issuance will begin already this year, Finance Minister Anton Siluanov said.

The National Welfare Fund was designed to resolve Russia’s pension problems in the future, but its funds were being invested into risky assets, said Alexander Morozov, chief economist for Russia and the CIS at HSBC Holdings Plc. Russia’s assistance will only stave off the threat of a default within the upcoming two years, but will not tackle Ukraine’s problems.

The Kremlin had assessed the scale of political tensions on Kiev’s central Independence Square and a week ahead of the talks persuaded Ukraine that this time Moscow would not discuss prospects for its accession to the Customs Union of Russia, Belarus and Kazakhstan, RBK daily reported. “Not in this state of minds,” Russian presidential advisor Sergei Glazyev said. Russia’s generosity exceeded even Ukraine’s boldest expectations, the daily wrote.

On Tuesday, the two countries adopted an action plan to regulate trade restrictions for 2013-2014, the so-called a trade roadmap, Rossiyskaya Gazeta reported. The action plan seeks to simplify protection measures and anti-dumping procedures, Putin explains. “I am confident that its implementation will allow increasing export of Ukrainian products to Russia and other member-states of the Customs Union multifold. Moreover, the workload of Ukraine’s plants and factories will significantly grow and new jobs will be created,” Putin added.

Viktor Yanukovich returned to Kiev from Moscow, having resolved his country’s most pressing macroeconomic problems for 2014, Kommersant wrote. “It is still unobvious what Russia will get from this deal as well as the answer to the question whether there are enough funds for Ukraine to avert the financial and banking crisis remains unclear,” the daily asked.

The daily called President Vladimir Putin’s words on Russia’s readiness to invest into Ukraine’s external debt as “a sensational part of the agreements.” The newspaper calculated that $15 billion made up 19% of the money stored at the Russian National Welfare Fund.

Valentin Badrak, head of Kiev’s Research Centre for the Army, Conversion and Disarmament Problems, told Nezavisimaya Gazeta that Ukraine’s integration to the European Union or to the Eurasian community reflected the struggle between the West and Russia for the Ukrainian territory that was of strategic importance for both of them. “We speak not simply of signing a deal with the European Union. This is a broader issue — the western community, where the United States remains the key player, on the one hand, and Russia on the other hand are taking geopolitical fight for Ukraine. Moscow acts more decisively and actively uses its economic and information leverages. The West places a focus on politics, values and ideology,” the expert said.

Badrak said Moscow would give money to Kiev and sign agreements ensuring orders to Ukraine’s defense plants. “The defense complex is a cogent argument,” he said. “Western companies are also ready to cooperate with Ukraine in this sphere, they are interested in unveiling high-tech productions on the territory of Ukraine and there are many confirmations to this fact. But they are ready for this under the condition that there will be European rules of the game on the Ukrainian market. Russia likes everything as it is. Moscow sees an opportunity to engage Kiev through economy into a future military and political union.”

“Whatever goals the Russian authorities pursue, the ways to achieve them, envisaging the financing of Ukrainian projects, allow the Yanukovich team to feed his country’s industrially developed regions, to resolve urgent economic problems and to retain power, at least until the presidential election in 2015,” Nezavisimaya Gazeta wrote.


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