In the beginning of January 2009, gas going from Russia to Europe via Ukraine was blocked for two weeks due to a lack of payment from Ukraine. The country had not fully paid for Russian gas, but continued to receive, so Russia had to stop supplies temporarily. Eventually, an agreement was reached. But recently Russian Prime Minister Vladimir Putin has warned Europe about the possible eruption of a new gas dispute with Ukraine. After talks with the Austrian Chancellor, he said Russia would cut gas supplies to Ukraine if it starts unauthorized siphoning of fuel from pipelines.

During the economic summit on Thursday, Yulia Timoshenko admitted that it was difficult for Ukraine to pay for gas accurately every month. “But it is the first time in 18 years that Ukraine has made payments on time. The financial crisis has not interfered with that,” said Timoshenko. She also promised that Ukraine will make timely payments for Russian natural gas, despite the recession, and fulfill its transits to third countries.

The breakthrough in the two countries’ relationship is a relief for Europe, which depends on Russian gas being transported there through the territory of Ukraine.

In 2009, Ukraine pays 20% less than the European market price for Russian natural gas, and Russia’s payment for its gas transit to Europe is also discounted.

On Wednesday, Ukrainian Prime Minister Yulia Timoshenko announced that Ukraine will significantly increase its tariffs for the transit of Russian gas through its territory. On Thursday, both sides confirmed this intention. In 2010, payment of transit bill will be increased by 60% and Ukraine will receive Russian gas at the European market price, with no discount.

“All these conditions are written in out regular contracts. There are no special conditions for Ukraine,” said Vladimir Putin.

The issue of the insufficient off-take of gas from that supplied has also been discussed. Under the existing arrangement, Ukraine should take more gas than is consumed and stores it, however they have not been fulfilling this aspect of the deal. Russian Prime Minister Vladimir Putin emphasized that Russia will not force any sanctions against Ukraine. "Gazprom has a direct instruction: no fines shall be levied against Ukraine. I repeat, there will be no fines," Putin said. Moreover, the supply to Ukraine will be decreased because the country does not need as much gas as it’s receiving now. Timoshenko thanked the Russian government and Gazprom for this decision.

The final result seems to suit all parties. Yulia Timoshenko considers the agreements reached a great success. "It's so pleasant to point out some victories we scored in 2009, like the signing of a long-term contract on Russian gas supplies to Ukraine through to 2019, and on the transit of gas via Ukrainian territory to Europe," said Timoshenko.

This is happening as the election campaign runs in Ukraine. Earlier, the country’s president, Viktor Yushchenko, had criticized the agreement reached by Yulia Timoshenko and Vladimir Putin last year. He wrote an open letter to Russia's President Dmitry Medvedev saying that he wants to review last year’s arrangements. This is making big waves in Ukraine as the election campaign continues. Yushchenko’s intervention may endanger the achieved result in bilateral relations. The Kremlin labels Yushchenko’s gesture as an attempt to threaten Europe and political blackmailing.