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Ukraine, Russia may sign new gas deal in December

Ukraine, Russia may sign new gas deal in December

5 December 2011

Ukraine and Russia could sign a new gas deal this month, Russia’s ambassador to Ukraine said yesterday, according to Interfax. Talks are scheduled to intensify this week and are expected to culminate in a new intergovernmental agreement on the bilateral gas trade, according to the diplomat. Gas transit between the two countries will not be affected, he said. Vitaliy Vavryshchuk: Following Russia’s election yesterday, we believe the Russian government will step up efforts to hash out a new gas deal with Ukraine. In our view, the deal could see a sizable discount in price for Ukraine in exchange for a stake in the country’s gas transportation system, similar to a recent deal between Russia and Belarus. A gas price discount is the most straightforward and least painful way for Ukraine to deal with a growing external financing gap (and related FX market pressures) and Naftogaz’s (NAFTO) hefty deficit. Cheaper gas imports could also alleviate the need for a substantial hike in household gas tariffs, currently a key requirement by the IMF. Government representatives have confirmed Ukraine is committed to striking a new deal by end-2011; it remains to be seen what’s at stake apart from the gas pipeline – Russia holds a much stronger hand in the current environment.

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