UKRAINE TO MODERNIZE GAS TRANSIT SYSTEM

20 March 2009, Associated Press

Ukraine will overhaul its gas transit system, after a dispute with Russia led to a shutdown in supplies and left Europeans freezing this winter, EU and local officials said Friday.
The European Union has outlined a $2.5 billion program for modernizing the ex-Soviet republic's sprawling pipeline network. EU customers get about 20 percent of their natural gas supplies from Russia through pipelines that cross Ukraine.

Ukrainian and EU leaders plan on Monday to sign a joint declaration on implementing the EU program, under which Ukraine would reform its debt-ridden energy company Naftogaz and upgrade gas compressor stations, underground storage facilities and other infrastructure, an EU official said on condition of anonymity because he was not authorized to speak to the media.

A key part of the project will be separating Naftogaz from subsidiary Ukrtransgaz, which operates the pipelines.

Project funds would come from international financial institutions, the official said, without elaborating.

The Ukrainian government's energy adviser, Oleksandr Hudyma, hailed the project.

"Modernizing Ukraine's gas transport system will guarantee gas supplies to Europe," he said.

Late last year, Ukraine and Russia became embroiled in a dispute over gas prices and fees for using Ukraine's pipeline network. Accusing Ukraine of stealing gas, Russia shut off supplies through Ukraine, leaving many EU countries with little or no gas for two weeks in January.

The dispute tarnished both countries' reputations as the EU's energy partners.

Ukrainian President Viktor Yushchenko has accused Russia of using the dispute to acquire control of the strategic pipeline network.