Nov. 20 (Bloomberg) -- Russia agreed to waive fines on Ukraine for consuming less gas than contracted and said it would renegotiate volumes for next year, easing a threat to shipments of the fuel to Europe.

“We made a decision not to impose penalties, and I want to confirm it in public,” Russian Prime Minister Vladimir Putin said at a meeting with his Ukrainian counterpart Yulia Timoshenko yesterday in Yalta, Ukraine. “Despite agreements reached earlier on volumes, to avoid sanctions next year it was decided that OAO Gazprom and NAK Naftogaz Ukrainy will agree on new volumes.”

A row between Ukraine and Russia over gas prices and transit fees disrupted Gazprom’s supplies to 20 European countries for almost two weeks in freezing temperatures this year. The dispute ended after Ukraine agreed to pay double for first-quarter imports compared with the average 2008 price. Russia signed a 10-year supply and transit contract with Ukraine, which carries 80 percent of its gas exports to Europe, in January.

“It is very important that we abide by this contract and that you as a stronger country meet Ukraine halfway to take into account the conditions of economic crisis,” Timoshenko said. The prime minister said she stands by Ukraine’s 10-year gas agreement with Russia and pledged her country, which depends for more than 50 percent of its fuel needs on Russia, will pay on time and in full.

Fuel Payments

Putin warned Europe this month about the potential for gas cuts after Ukraine’s Deputy Prime Minister Hryhoriy Nemyria said his country may have to postpone fuel payments if it doesn’t get an International Monetary Fund tranche in time. Putin urged the European Union to lend Ukraine at least $1 billion on Nov. 2.

Under the January accord, Ukraine has kept the fee for Russian gas transportation unchanged this year and will increase it by 60 percent next year, said Putin. Russia plans to ship 116 billion cubic meters of gas through Ukraine next year, according to Russian government documents distributed yesterday. That will generate additional revenue for Naftogaz, said Timoshenko.

Ukraine’s state-run energy company Naftogaz may have insufficient funds to prepare for next year’s heating season, potentially threatening “the reliability of gas shipments to Ukraine and transit to other European states,” President Viktor Yushchenko said earlier today on his Web site, in a letter to Russian President Dmitry Medvedev.

“We appreciate the step which the Russian government, Mr. Putin and Gazprom made deciding not to impose penalties today for 2009,” Timoshenko said at a joint press conference.

Gas Flows

Ukraine may take only 28 billion cubic meters of gas from Russia this year instead of 42 billion, Yushchenko told reporters in Kiev yesterday.

Yushchenko, who has publicly feuded with Timoshenko, criticized the January contract, saying it may lead to interruptions in gas flows to Europe.

Still, Russia will supply more gas to Ukraine next year than in 2009, Russian Deputy Prime Minister Igor Sechin said at the Yalta meeting yesterday, noting shipments this year were depressed by the economic crisis.

Ukrainian Energy Minister Yuriy Prodan said in an interview yesterday that Ukraine would seek to buy about 30 billion cubic meters of gas in 2010.

Ukraine faces its first recession in a decade after the global financial crisis cut demand for steel exports, dried up investments and weakened the currency.

Uranium Output

The country also is prepared to sign a “strategic” agreement with Russia in the nuclear industry in the coming months, Timoshenko said, welcoming joint efforts with Russia to develop a uranium enrichment center. She said Ukraine has increased significantly uranium production and enrichment in recent years.

Ukraine is also seeking to cooperate with Russia in completing two generators at the nuclear power plant in Khmelnytskyi, Timoshenko said. Both countries will supply fuel for the generators.

It wants to boost cooperation between the countries’ aerospace companies and is considering an exchange of minority stakes.

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To contact the reporter on this story: Daryna Krasnolutska in Yalta at dkrasnolutsk@bloomberg.netAnna Shiryaevskaya in Yalta at ashiryaevska@bloomberg.net

Last Updated: November 19, 2009 19:00 EST