Turkmen President Saparmurat Niyazov has signed an agreement with the head of the Russian company Gazprom to resume supplying Russia with gas.

Under the agreement, Turkmenistan will supply 20 billion cubic metres of gas next year.

After hours of negotiations between President Niyazov and Gazprom president Rem Vyakhirev in the Turkmen capital Ashgabat, the parties agreed on a price of $36 per 1,000 cubic metres, 40% of which will be paid in cash and the remainder in food and consumer goods.

The deal was less favourable than Turkmenistan had hoped.

It had wanted $42 per 1,000 cubic metres, with 50% payment in cash.

"It was a painful process making the agreement, but it resumes Turkmenistan-Russia cooperation in a most important sphere," President Niyazov said.

Debts

The Turkmens cut off supplies to Russia two years ago, saying they were owed hundreds of millions of dollars by former Soviet republics.

However, the decision to stop supplying gas to Russia has caused severe damage to Turkmenistan's economy as it has few other means of exporting one of its most important commodities.

A pipeline to Iran was opened in December 1997, and Turkmenistan hopes to build a pipeline under the Caspian Sea and on through Azerbaijan and Georgia to Turkey, which would give it access to markets bypassing Russia.

Turkmenistan has invited Gazprom to take part in projects to explore and develop gas reserves in the Amu-Darya basin in eastern Turkmenistan.

They also hope to set up a permanent commission to deal with fuel and energy issues.

President Niyazov also asked Mr Vyakhirev to consider taking part in the Transcaspian pipeline project, a route which would be a direct challenge to Turkmenistan's use of Gazprom pipelines for its gas exports.

"We need regular cooperation, not competition," President Niyazov said.

No gas for Ukraine

However, talks on resuming gas supplies from Turkmenistan to Ukraine have been postponed indefinitely.

Turkmenistan has refused to start negotiations until Ukraine pays off in full a $30m debt for gas already supplied.

Ukraine had hoped to receive 5 billion cubic metres of Turkmen gas a quarter in 2000, according to Ihor Didenko of the state energy concern Naftohaz Ukrainy.