Kiev (Platts)--22Feb2013/925 am EST/1425 GMT

Ukraine may quit the European Energy Community in reaction to its lack of support for the country in ongoing natural gas disputes with Russia, President Viktor Yanukovych said Friday.

The warning comes two weeks after Yanukovych said he was unhappy that the community had given a green light to Russian gas pipeline projects bypassing Ukraine on the way to Europe.

"The interests of Ukraine have been violated," Yanukovych said in remarks aired by state television. "So, the question is 'Why do we need to be in the community?'"

"I will say this: we have considerably sharpened our position on this matter today," Yanukovych said. "We, as a member of the community, are extremely dissatisfied with the way the community treats Ukraine."

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Yanukovych's comments come ahead of a summit in Brussels Monday between Ukraine and the EU.

Ukraine became a member of the European Energy Community in January 2011 in the hope it would help increase investments in the country's energy infrastructure, in particular natural gas pipelines.

The European Energy Community was established in July 2006 by EU countries along with Albania, Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, Serbia and Kosovo.

Russia is not a member of the community and has repeatedly suggested Ukraine should quit the group as part of a deal allowing Gazprom to acquire control over Ukrainian gas pipelines, according to a Ukrainian government official.

Ukraine is unhappy that the community did not block the construction of North Stream, a Russian gas pipeline across the Baltic Sea to Germany, which has led to a reduction in Russian gas supplies via the Ukrainian gas pipeline system in 2012.

Yanukovych also criticized the community for giving the go-ahead, despite Ukrainian concerns, for another pipeline, South Stream, which is supposed to link Russia and Bulgaria across the Black Sea.

South Stream threatens to dramatically reduce gas supplies via the Ukrainian gas pipeline system, which until recently has been shipping up to 80% of Russian Europe-bound gas supplies.

$7 BILLION PENALTY

Yanukovych was also angry that the community did not publicly support Ukraine after Gazprom recently imposed a $7 billion charge for failing to import the contracted volume of gas in 2012.

Ukraine refused to pay the charge and is currently involved in talks with Russia over the matter, Yanukovych said.

Gazprom hit Ukraine with the penalty last month in response to a steep decline in its gas purchases in 2012. Naftogaz Ukrayiny, the national energy company, bought 24.4 billion cubic meters of gas last year, down from 40 Bcm in 2011, citing high gas prices.

But Gazprom says a take-or-pay clause in a 2009 gas supply agreement obliges Naftogaz to buy contracted gas volumes regardless of price.

The agreement, negotiated by then prime minister Yulia Tymoshenko and then Russian prime minister Vladimir Putin in January 2009, calls for Ukraine to import 52 Bcm of gas annually through 2019.

The agreement allows Ukraine to cut gas imports to 41.6 Bcm/year without penalty and to 33.3 Bcm/year with Gazprom's written consent.

Gazprom has repeatedly refused to grant such consent to Ukraine, according to Ukrainian officials.

--Alexander Bor, newsdesk@platts.com
--Edited by Jonathan Fox, jonathan_fox@platts.com

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