Russia halts free-trade deal with Ukraine – Kiev to buy gas from French, British suppliers

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MOSCOW, Jan 3, (AFP): President Vladimir Putin on Wednesday signed a decree suspending Russia’s free-trade agreement with Ukraine as of Jan 1.

Ukrainian President Petro Poroshenko, speaking in Brussels, admitted Russia’s retaliatory move would cause “damage” to his country’s economy but said he was “ready to pay the price” and press on with efforts to join a European Union free trade zone.

Putin’s decree orders a halt to the 2011 Russian-Ukrainian agreement “due to exceptional circumstances which impact the interests and economic security of the Russian Federation”, according to the official document posted online.

“These measures are meant to protect Russia’s economic interests,” Kremlin spokesman Dmitry Peskov told journalists, citing a lack of protection for the Russian market once Kiev’s free trade agreement with the EU goes into effect.

Relations between Moscow and Kiev plummeted after Ukraine’s pro-Russia president was ousted in 2014 and replaced by the pro-Western Poroshenko, in a year that also saw Russia’s annexation of Crimea and the start of fighting between government troops and pro-Russia rebels in east Ukraine.

Concern

Moscow has repeatedly expressed concern that Ukraine’s free trade agreement with Brussels may flood its market with European goods and months of three-way talks with the EU to smooth things over have yielded no results.

“Unfortunately, no legally binding agreement has been reached with Russia” during the talks, said Peskov.

Poroshenko said Putin’s decision to suspend their treaty was unfortunate.

“But we are ready to pay this price for our freedom and our European choice,” he told reporters in Brussels, flanked by EU president Donald Tusk and European Commission chief Jean-Claude Juncker.

“Our position is firm and clear. From the 1st of January the DCFTA (Deep and Comprehensive Free Trade Agreement) will be introduced in full between Ukraine and the EU,” he said.

“The DCFTA cannot be postponed, that’s for sure.”

Moscow established a free-trade zone across the ex-Soviet countries of the Commonwealth of Independent States — comprising all former Soviet republics except the Baltic states and Georgia — in October 2011, when Putin was prime minister.

The zone was supposed to be a step toward tighter political and economic links between the former Soviet allies as part of Putin’s “Eurasian Union” idea.

Ukraine’s previous president, Viktor Yanukovych, at that time had been pushing for closer integration with the EU.

But Brussels backed away following the jailing of his opponent Yulia Tymoshenko, prompting him to edge closer to Moscow.

Yanukovych’s decision in 2013 to opt for strategic partnership with Russia rather than sign the Association Agreement with the EU unleashed popular protests and sparked a chain of events which led to his ousting and Moscow’s seizing of the Crimean peninsula.

Souring

In a further sign of souring ties between Kiev and Moscow, Putin earlier this month ordered his government to sue Ukraine if it defaults on its $3 billion (about 2.7 billion euros) debt to Russia.

The loan was given to Yanukovych in 2013 and is due for repayment this month.

Meanwhile, Ukraine, which last month halted gas purchases from Russia, announced it would receive deliveries from two other European suppliers, paid for by a loan from the European Bank for Reconstruction and Development.

France’s Engie and Britain’s Noble Clean Fuels have won tenders to deliver gas to Ukraine in December and January, after they offered the lowest tariffs, in particular compared to Russian giant Gazprom, the Naftogaz state energy company said in a statement.

It said the deliveries will be paid for out of a $300 million (277 million euro) loan granted by the EBRD to cover the purchase of around one billion cubic metres of gas from Europe.

Naftogaz did not indicate how much gas the French and British companies would supply nor the price paid.

But a source at the EBRD said the two suppliers would deliver $49.2 million worth of gas to Ukraine.

Moscow turned the taps back on in October under a deal that saw Kiev switch to a pre-payment system, meaning that cash-strapped Ukraine must stump up money in advance to cover Russian gas deliveries.

But Ukraine on November 25 again announced it had stopped buying gas from Russia.

The EBRD credit is part of a financing plan worth $1.0 billion which Kiev hopes to raise from various institutions in order to pay for gas supplies.

Some 15 percent of the gas used in Europe travels through Ukraine, and the EU has been involved in mediating the dispute between Kiev and Moscow.

Ukraine and its Western allies accuse Moscow of orchestrating and supporting the pro-Russian revolt in the east to avenge last year’s ouster of Kiev’s Kremlin-backed president and the new government’s decision to align itself with the West.

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