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The new intergovernmental agreement between Russia and Ukraine will stipulate for Russia's participation in upgrading the Ukrainian gas transportation system, Russia's Energy Minister Sergei Shmatko stated. The Ukrainian Fuel and Energy Ministry, in turn, explained that Russia would be able to join on the same terms as European corporations.

According to Sergei Shmatko, work on the new intergovernmental gas agreement with Ukraine started back in April 2009 when the arrangements reached earlier required renewal. The new deal calls for a number of approvals, however, including from the Ukrainian side, the Russian minister noted. The agreement is to be finalized by March 2010.

Although the deal will admit Russian companies, they will take part on the terms set forth in the Brussels declaration for European bidders – without any preferences whatsoever. Russia will be able to contribute both financial resources and equipment. The system’s property status for the modernization period will remain subject to Ukrainian law, however, which says it can not be disposed in any way, Ukraine’s Fuel and Energy Ministry said.

Yet, candidate for the Ukrainian presidential post Arseny Yatsenyuk believes that Russia's participation in the modernization implies co-ownership, and he condemned the incumbent authorities for “surrendering” the system. He even said that Ukraine could be altogether shut out from the gas transit scheme within a few years. Another candidate, Sergei Tigipko, warned that in light of Russia's commitment to building the South and Nord Streams, Ukraine risks turning into a mere gas consumer from the largest transit country for Russian gas. The only way to preserve the value of the Ukrainian gas transportation system is to return to the idea of a gas transport consortium, he explained.

The gas transportation system clearly requires investment, but Ukraine has no money for the purpose, Arbat Capital analyst Vitaly Gromadin pointed out. Drawing in foreign investors is, therefore, natural. However, as head of the Kiev-based Energy Research Center Konstantin Borodin observed, there can be various forms of participation. One can just lend money, or simultaneously become a co-owner of separate pipeline stretches, which is not prohibited by law.

Under Ukrainian law, all facilities built and operating at the budget’s expense are state property. “But if you have to replace any part of the pipeline, anyone investing money could have a share in it,” the expert stressed. With this in mind, it can be perfectly legal to arrange a few such construction sites and penetrate Ukraine’s gas transportation system.

Indeed, the modernization and other clauses in the new agreement are no more than a smoke screen obscuring the main condition, which overrides all previous agreements, Borodin maintained. The current gas contract from November 19, 2009, which is unprofitable for Ukraine, contradicts a whole string of provisions of existing intergovernmental agreements, meaning that it could be canceled on these grounds – something Russia is highly reluctant to accept.

Ukraine’s government approved the gas transportation system modernization outline for 2009-2015, with a total budget of $2.57bn, in October. The project will be financed with Naftogaz of Ukraine’s resources as well as with the money promised by the European Union. In March 2009, the EU and Ukraine signed a declaration to this effect and drew an outcry from Russia.

Analytical department of RIA RosBusinessConsulting