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Russia, Ukraine Reach Interim Deal on Gas Prices

Ukrainian Prime Minister Viktor Yanukovych and his Russian counterpart, Mikhail Fradkov, say they have reached agreement on the price Kiev will pay Moscow for natural gas. But the two leaders failed to secure terms for 2007, raising concerns of possible renewed price hikes.

In his first foreign visit to Russia as Ukraine's new prime minister, Viktor Yanukovych was tasked with discussing gas prices, one of the most sensitive issues facing Moscow and Kiev since their so-called gas war broke out at the start of this year. At that time, Russia halted supplies to Ukraine during an especially grueling winter in order to exact higher fuel prices, a move the United States later criticized as political blackmail.

The move also caused widespread disruption in Europe, which receives more than 25 percent of its natural gas supply from pipelines passing through Ukraine. Shortly thereafter, pressure mounted on both sides to come to terms for the benefit of long-term stability.

In a joint press conference with reporters following their talks in Sochi, Prime Minister Fradkov said Russia has a strong desire to resolve the pricing issue, though he says it will not be easy.

Mr. Fradkov also echoed President Putin's long-standing view that Russian oil and gas prices must be market-based.

Some had hoped that Mr. Yanukovych, who hails from Ukraine's pro-Russian east and whose unsuccessful bid for the presidency in 2004 was widely supported by Moscow, might be able to secure more favorable terms for Kiev, including a possible lowering of prices. But there was no immediate indication of that from Mr. Yanukovych.

In comments broadcast on Russian television, Mr. Yanukovych said, without elaborating, that a rough price had been struck through the end of this year.

Both leaders also stressed that future pricing would be what they described as "transparent." It was also agreed that Russia and Ukraine will pump 24.5 billion cubic meters of natural gas reserves into underground storage facilities in Ukraine to ensure unhindered supplies.

Now paying two times more than before, or roughly $95 per 1,000 cubic meters, Ukraine still pays the lowest price for Russian gas of all the former Soviet Republics, with the exception of Belarus.

If gas prices rise to the current market price of $230 (per 1,000 cubic meters), there could be serious risks to Ukraine's economy, as well as to Mr. Yanukovych's newly-restored political clout.