Page last updated at 16:30 GMT, Monday, 23 March 2009

EU moves to secure Ukrainian gas

By Oana Lungescu
BBC News, Brussels

Ukraine's Prime Minister Yulia Tymoshenko and President Viktor Yushchenko in Brussels, 23 Mar 09
Ukraine's leaders have had a bitter row over gas exports

Ukraine has signed a deal with the EU in Brussels paving the way for $3.4bn (£2.4bn) of Western investment to upgrade Ukraine's gas pipelines.

The agreement comes after a price dispute between Ukraine and Russia in January led to a shutdown of gas supplies to much of Europe for weeks.

Ukraine has now promised to root out corruption from its gas sector and ensure reliable supplies.

Despite their rivalry, Ukraine's president and PM were both in Brussels.

They took part in an international conference with the European Commission, the World Bank and other key lenders.

The EU gets 80% of its gas supplies from Russia via a network of more than 13,000km (8,060 miles) of Ukrainian pipelines, some of which are 40 years old.

Key among Ukraine's promised reforms is the independence of the authority in charge of the pipelines from the state-owned energy company Naftogaz, which one Western banker described as a big black box where money just disappears.

President Viktor Yushchenko said Ukraine was determined to root out all kinds of corruption.

Observers say his rivalry with Prime Minister Yulia Tymoshenko worsened January's energy crisis.

Without naming names, the president of the European Commission, Jose Manuel Barroso, asked all political leaders to unite to restore the reliability and transparency of Ukraine's gas transit system.

But Mrs Tymoshenko insisted the network was reliable and told investors that its capacity could be substantially increased for just over $7bn - a fraction, she said, of the price needed for new pipeline projects that would bypass Ukraine.

Later, Russian Energy Minister Sergei Shmatko said the agreement was unilateral and gave it cause for concern.

Gas pipelines affected Gas network in Europe

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