EU: Ukraine needs to reform gas sector

KIEV, Ukraine, March 2 (UPI) -- Ukraine needs to reform its gas sector to draw foreign investments, European officials say.

"We need urgent progress on modernization and restructuring of the gas sector," Jose Manuel Barroso, president of the European Commission, said at a news conference Monday with Ukraine's new President Viktor Yanukovych in Brussels.

Ukraine is a key energy transit country for the European Union. Nearly 80 percent of Russian gas exports to Europe are sent through Ukraine, satisfying one-fifth of the continent's demand.

In the past years, gas conflicts between Russia and Ukraine temporarily halted supplies to Europe, damaging Kiev's reputation as a reliable transit country.

Yanukovych is willing to modernize the gas sector but he does not have the money for it. Ukraine's economy is in shambles and the national budget overstretched.

The EU is willing to help but only if Ukraine increases market transparency, privatizes state-owned utility Naftogaz and raises gas prices for domestic consumers to avoid inefficiencies.

Barroso said Ukraine was welcome to sign Energy Community Treaty once it adopts a gas law in line with EU regulations.

"We will believe this will unlock significant foreign direct investment in Ukraine," he added.

Yanukovych, in comments that went down well in Brussels, said he was "ready to adopt a law on the internal gas market."

While Ukraine needs Western companies' investments in its gas sector, Yanukovych also has to please Russia to keep gas import bills affordable.

The Ukrainian leader has indicated he might hand the Ukrainian gas network to a consortium comprised of Ukrainian transit companies, Russian state-controlled energy giant Gazprom and Western European energy companies to safeguard Ukraine's role as a key transit country. The issue will likely be discussed this Friday, when Yanukovych travels to Moscow for a visit dominated by energy policy.

His predecessor Viktor Yushchenko had led Ukraine into two gas conflicts with Russia, a development Yanukovych is eager to counter.

In the aftermath of the first gas conflict between Ukraine and Russia, two major Russian-European gas pipeline projects -- Nord Stream in Germany and South Stream in southeastern Europe -- were jump-started in a bid to bypass Ukraine and deliver Russian gas unilaterally to Europe.

Yanukovych is eager to at least render insignificant South Stream, which is not as far advanced as Nord Stream, for which most of the pipes have already been delivered. Reports say South Stream could almost halve Ukraine's transit fees -- a disastrous outlook for the notoriously bankrupt country.