MOSCOW, March 5 (Reuters) - Ukraine's new president, Victor Yanukovych, arrived in Moscow onMar. 5for his first visit since winning election on a pledge to improve ties with the Kremlin after years of acrimony under his pro-Western predecessor.
Economic issues, such as cash-strapped Ukraine’s bills for Russian natural gas, are expected to dominate his meetings with Russian President Dmitry Medvedev and the country’s most powerful politician, Prime Minister Vladimir Putin.
Political ties soured under Yanukovych’s pro-Western predecessor, Viktor Yushchenko, who came to power after the Orange Revolution and sought to take his country towards membership of the European Union and NATO.
Yanukovych, inaugurated last week, comes to Russia days after his firsFt foreign trip as head of state, to Brussels, where he promised the European Union to keep Ukraine on the reform path and ensure it remains a reliable gas transit route.
Europe, which gets a fifth of its gas needs from Russia via Ukraine, is hoping Yanukovych’s more pro-Russian stance can guarantee he will avoid repeating the price disputes which led to supply cuts to Europe in recent years. "I hope that the dark period in relations between Ukraine and Russia will end with your arrival as president, that we will move to a completely new level of cooperation," said Medvedev at the start of talks in the Kremlin.
Yanukovych responded that he wanted a u-turn in ties that would erase the tensions of the past five years.
‘POISONED CHALICE’
Many analysts believe Kyiv’s desperate public finances mean Yanukovych must change a long-term gas deal signed in 2009 by his election rival, former Prime Minister Yulia Tymoshenko, specifically the part which eliminated Russian gas discounts, meaning Ukraine now pays the European market rate. "He’s inherited the proverbial poisoned chalice in the economy and will need to do deals with both Russia and the EU," said Uralsib chief strategist Chris Weafer.
"What they do with the gas contract is critical, which is where we’ll see some bartering. I think the EU will be relieved to see a deal, as it would be an insurance against further shutdowns."
The Kremlin on Thursday said Ukraine should not seek to reopen the terms of gas contracts.
But Russian business daily Kommersant reported on Friday that Ukraine will offer to give Moscow a one-third stake in the future management of its gas pipeline network, in exchange for deep cuts in the price of imported Russian gas.
Yanukovych’s domestic critics warned about creating a gas consortium that would hand over pipeline control.
"Any talks about the necessity of creating some sort of consortium, of leasing it, of some sort of common ownership or control by other countries of the gas transport system … is a betrayal of national interests," Ukraine’s acting prime minister, Oleksander Turchynov, said in televised remarks.
Yanukovych has pleased Russia by making clear he opposes Ukraine joining NATO, saying Kyiv would continue only partnership programmes with the Western military alliance.
But analysts have said Yanukovych would have to offer Moscow bigger incentives — such as a deal for the Russian Black Sea Fleet to stay in Ukraine’s port of Sevastopol beyond the official withdrawal deadline of 2017 — to win lower gas prices.
Yanukovych has said he could allow the fleet to stay, a move Moscow sees as a certain guarantee that Kyiv will not join NATO.
He may also seek to convince Russia not to proceed with either Nord Stream or South Stream, pipelines that would bypass Ukraine in delivering gas to Europe via the Baltic and Black Seas, drastically cutting Kyiv’s transit revenues.
