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Last Updated: Tuesday, 24 October 2006, 15:19 GMT 16:19 UK
Russia and Ukraine near gas deal
Russian Prime Minister Mikhail Fradkov (left) and Ukrainian counterpart Viktor Yanukovych
Russia and Ukraine have not always seen eye to eye over gas
Ukraine is close to renegotiating its controversial gas deal with Russia, which would see it pay much more for imports from its neighbour.

The two have agreed, in principle, for Ukraine to pay about $130 per 1,000 cubic metres - up from $95 now.

The arrangement, yet to be officially agreed by the two countries' state gas firms, follows months of negotiations by senior government officials.

Russia turned off Ukraine's gas supply in January amid a bitter price dispute.

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The row sent shockwaves across Europe, as much of Russia's gas exports to EU countries are transported across Ukraine.

Ukrainian Prime Minister Viktor Yanukovych and his Russian counterpart Mikhail Fradkov said a deal had been reached in principle.

Analysts said the agreement looked, on paper, a good one for Ukraine which had feared having to pay even more for Russian imports.

Coming from previous experience, I can guess that the balance of compromises will not be in Ukraine's favour
Valery Chaly, Razumkov Centre

But they speculated that Russia could exert increased influence over Ukraine's economic policy in return, including its plans to join the World Trade Organization and build closer links with the EU.

"We received confirmation that the talks in Russia are drawing to a close," Mr Yanukovych said.

"The amount of gas to be supplied to Ukraine is being confirmed - at a price no higher than $130 per 1,000 cubic metres."

Mr Fradkov said that Ukraine's pro-western stance under President Viktor Yushchenko had implications for its economic ties with Russia.

Both countries are vying to be the first to join the WTO and Mr Fradkov said they should "synchronise" their efforts in that area.

'Frozen out'

Relations between the two countries hit a low earlier this year when Russian gas monopoly Gazprom temporarily turned off supplies to Ukraine amid a dispute over what Ukraine should pay.

Moscow said Ukraine's terms were well below European market rates but the Ukrainian government said it was getting a worse deal than other countries in the region who were close Russian allies.

Gas extraction plant in Ukraine
Ukraine gets the bulk of its gas from Russia

The re-emergence of ex-presidential candidate Mr Yanukovych - seen as being more sympathetic to Moscow than his former rival - as prime minister in August has led to progress in the talks.

But analysts said Ukraine could pay a broader economic price for securing better-than-expected gas terms.

"It is not clear what compromises Ukraine should take and which Russia should," said Valery Chaly, from the Razumkov Center, a Kiev-based economic and political think-tank.

"Coming from previous experience, I can guess that the balance of compromises will not be in Ukraine's favour."

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