Ukraine's President-elect Viktor Yanukovych is expected to reach out to Russia as well as the West to safeguard Ukraine's position as an important energy transit country.
Yanukovych won Sunday's presidential election duel against Orange Revolution hero Yulia Tymoshenko and is now expected to reform the Ukrainian gas sector. Nearly 80 percent of Russian gas exports to Europe are sent through Ukraine, satisfying one-fifth of the continent's demand.
Alexander Rahr, an analyst with the Berlin-based German Council on Foreign Relations, met Yanukovych at the World Economic Forum in Davos. Rahr said the Ukrainian leader told him about his plan to hand the Ukrainian gas network, which is in dire need of modernization, to a consortium comprised of Ukrainian transit companies [first of all, Naftogaz], Russian state-controlled energy giant Gazprom and Western European energy companies.
"Yanukovych does not want to give up Ukraine's role as an important transit hub," Rahr told UPI in a telephone interview Wednesday.
The balancing act is intended to please Russia as well as the West, after the confrontational course steered by Kiev and Moscow in the past years only damaged Ukraine's role as a reliable transit country.
Current President Viktor Yushchenko, who led Ukraine into two gas crises with Russia, was eliminated in the first round of voting.
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 jumpstarted 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.
Rahr said the gas relations between Russia and Ukraine will thus remain highly political.
"Ukraine can't afford to pay the bills for Russian gas," which easily amount to $1 billion per month, Rahr said.
That's why Kiev is expected to please the Kremlin on other fronts, such as giving up plans to join NATO or allowing for the Russian Black Sea fleet to remain in Sevastopol.
"If that happens, then Ukraine will get the same price for gas as Belarus," which is on friendlier terms with Russia, and thus enjoys below-market prices.
Yet Yanukovych will also have to please the West to counter fears that he is turning his back on Europe.
While inviting European companies into the pipeline consortium, he is expected to further privatize the Ukrainian economy and include Western firms in that process.
"And he won't be able to question the plan to eventually join the European Union," Rahr told UPI. "That's where the Ukrainians want to go, because it's a well-functioning economic circle, and one that promises prosperity. In that regard, Russia is no alternative."