Ukraine Gets Russian Gas Discount for Chemicals, Azarov Says

Russia agreed to supply natural-gas for Ukrainian chemical producers at a discount, Ukrainian Prime Minister Mykola Azarov said.

The countries in February agreed to trade 4 billion cubic meters of gas, or about a tenth of Ukraine’s annual imports, for $170 per thousand cubic meters this year, Azarov said today in an interview in Sanya, China. Ukraine’s price for the fuel rose to $293 from $264 last quarter. As the cost follows that of crude oil, it may climb to as much as $347 in the fourth quarter, the government estimated last month.

Russian gas shipments to Europe through Ukraine halted for two weeks in 2009 before then-Premier Yulia Tymoshenko signed a 10-year contract with Russia. Last April, Russia agreed to reduce the price it charges Ukraine in exchange for the extension of a lease on a Black Sea naval base. Azarov today reiterated that he wants to review the accords.

"Germany and Poland import Russian gas for $330 and $320 respectively," he said. "If you take into account distance, the price offered to Ukraine should be about $200 per 1,000 cubic meters."

The discount price will affect companies including AT Azot, purchased by Ukrainian billionaire Dmitry Firtash last month. Firtash also has a 50 percent stake in gas trader RosUkrEnergo AG, which was the country’s sole importer of the fuel from 2006 to 2009. Russian gas monopoly OAO Gazprom has the other 50 percent in the company.

Economic Rebound

Ukraine’s economy shrank by almost 15 percent in 2009 as the global financial crisis cut demand for its exports including metals and chemicals. Gross domestic product rebounded last year, growing 4.2 percent and will probably expand 5 percent in 2011, Azarov said. The biggest problem for Ukraine is the stability of export markets, Azarov said.

"It comes down to stability of demand and prices for Ukraine exports," he said. "It comes down to the stability of oil and gas prices, and food prices."

The government seeks to cut the budget deficit to about 3 percent of GDP this year from 7.2 percent in 2010 and aims to keep inflation below 10 percent, he said.

Azarov said he supports creating of a so-called grain pool with Russia and Kazakhstan. Russia banned grain exports this marketing year, while Ukraine imposed quotas after drought damaged crops last summer.

"Together with Russia and Kazakhstan, we have 30 percent of the world’s grain market and we shouldn’t be rivals," Azarov said. "It is better to agree on prices and the conditions of grain trading."

To contact the reporters on this story: Regina Tan in Beijing at rtan87@bloomberg.net; Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; Gregory Turk at gturk2@bloomberg.net

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