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Russia eyes Ukraine's vast pipeline network

Russia eyes Ukraine's vast pipeline network

In the confrontation between Russia and Ukraine over natural gas shipments to Europe, the grand prize may yet be control of Ukraine's sprawling pipeline network, Moscow's main conduit for pumping the fuel to its most lucrative markets.
Although the dispute appeared close to an end after Sunday's announcement of a deal, the terms of the accord could eventually put pressure on Ukraine and force it to cede some control over the labyrinthine network.
The agreement calls for Ukraine to pay roughly twice as much for natural gas as it did in 2008, a potentially severe blow to an economy already reeling amid the global economic troubles.
Russia stopped shipping gas to Ukraine for domestic use on Jan. 1 over a price dispute and Kremlin accusations that Ukraine was siphoning off Europe-bound gas. It turned off the taps completely on Jan. 7 _ leaving much of Europe without power.
The standoff has led to at least a dozen confirmed deaths, hundreds of factory shutdowns that could cost billions in lost productivity _ and snapped heating to millions of people in the depths of winter.
Ukraine boasts one of the largest gas networks in the world.
Some 37,800 kilometers (23,500 miles) long, the network earns Ukraine $3 billion in annual revenue from transit fees from Russian gas giant Gazprom and has capacity to export some 175 billion cubic meters annually.
It is a prize that Moscow has eyed since the 1991 Soviet collapse.
Under former Ukrainian President Leonid Kuchma, Russia came close to brokering a deal with Ukraine and Germany to lease the country's pipeline system, but the deal proved politically contentious and was later abandoned. Some analysts also say the 2006 gas crisis, when Russia shut off gas Ukraine for several days, leading to supply disruptions in Europe, was chiefly about control of the pipelines.
Since then, Ukraine has tried to shield its pipelines from Russia's grasp, including passing laws to block its sale and efforts prevent the bankruptcy of debt-riddled Naftogaz Ukrainy, which owns the system.
Ukrainian Prime Minister Yulia Tymoshenko said this month the pipeline network is not for sale. The government has also made clear that leasing the system is out of the question because that would put the pipelines effectively under Russian control.
Nevertheless, Russia continues to covet this major energy corridor.
In an interview earlier this month on Germany's ARD television, Russian Prime Minister Vladimir Putin said Russian companies would consider leasing Ukraine's pipeline system along with European partners.
"We may take part in privatization if Ukraine wants it," said Putin. But, he added, Ukraine considers the pipelines "its national treasure, almost God-given, and not subject to privatization."
Russia, which boasts the world's largest natural gas reserves, depends on gas revenues from Europe, where it charges far more than it does domestic customers. Approximately four-fifths of its exports flow through Ukraine's pipelines. A smaller amount is piped through Belarus and the Blue Stream pipeline to Turkey.
The planned Nord Stream pipeline, connecting Germany and Russia through the Baltic Sea, would help break Ukraine's grip on gas shipments. Critics fear the project would give Russia too much political power over its neighbors _ and some experts see Russia using the current dispute to pressure Europe into endorsing Nord Stream.
Russia has acquired vital pipelines elsewhere in former Soviet space. It owns 50 percent of Belarus's pipeline network, another fractious neighbor that has resisted higher gas prices.
Ukraine remains vulnerable to a drawn-out conflict. Its banking system has been humbled, its national currency has collapsed, and the International Monetary Fund extended the country a $16.5 billion emergency bailout late last year.
In a move that could put further pressure on Ukraine's troubled economy, Russia decided to hike steel import tariffs earlier this week. Ukraine is a major steel exporter to Russia.
"I think there is a real attempt to undermine Ukraine both politically and economically," said Julian Lee, an analyst at the London-based Center for Global Energy Studies. "They will continue to squeeze Ukraine economically."
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Stewart reported from Moscow; AP writer Yuras Karmanau in Kiev contributed.


Updated : 2021-10-19 17:30 GMT+08:00