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President of Russia Dmitry Medvedev: Vladimir Vladimirovich, over the last few years a regrettable new tradition has emerged, which is that just when everyone is getting ready to celebrate the new year, our Ukrainian partners start gas supply negotiations with us, and this year is no exception. How do things stand today? How are the negotiations going?

Prime Minister Vladimir Putin: Yes, absolutely, it has already become a real sign that it’s nearly New Year – the reactivation of these negotiations.

Dmitry Anatolyevich, you understand the situation, you spent a long time as the state representative to the very company Gazprom. Over the past few years, our company has bought gas from our Central Asian partners, in Turkmenistan, Uzbekistan and Kazakhstan. In effect we have been simply transporting this gas to Ukraine. And this year everything was supposed to continue like that.

In addition the Central Asian states will in 2009 start charging world prices for their gas. Gazprom itself gets gas from these countries, at a price which, for the first quarter, is in the order of 340 dollars for a thousand cubic meters. If you add the cost of transporting the gas, then for Ukraine the gas price would be approximately 380 dollars per 1000 cubic metres.

The company Gazprom offered to sell gas to its Ukrainian partners at 250 dollars per 1000 cubic metres. We did this for a number of reasons. The first is, without any exaggeration, a humanitarian one. We start from the fact that in this case our partner is not simply anyone, it is again without exaggerating, the fraternal Ukrainian people. And we understand what a difficult position Ukraine currently finds itself in regarding the global financial and economic crisis. And they are in a much more difficult position than we are, in this country. Many experts think that they could even be on the verge of default.

The second consideration is a purely economic and pragmatic one. We think that none of our partners should be put in the position of not being able to pay for our goods.

And the third consideration is that, sadly, as you and I both know the situation in Ukraine is made much worse by the fact that the increasingly tense political rivalry, the internecine warfare, itself exerts such a negative influence on the economic situation.

That is what led Gazprom to offer such a reduced price. In spite of the fact that our Ukrainian partners have refused to sign both the agreement, and the contract.

We will continue negotiations, they are continuing as we speak. I have only just had a conversation with the Prime Minister of Ukraine, Yulia Tymoshenko, about this. And the representatives of the relevant Ukrainian departments are currently in the Gazprom offices.

I would also like to underline one very important matter. You and I have just discussed this, the Ukrainian partners have officially informed us that, should there be no signing of the contract for gas supply to Ukraine then Ukraine will obstruct the gas transfer to the primary consumers, in western Europe. We think that this position is absolutely incorrect from both the economic and legal points of view. Above all from a legal point of view, because there is a contract between the Ukrainian and Russian partners that has been in place since April 2007 regarding transit of our gas to the primary consumers in Europe, which stipulates transit costs as 1.6 dollars per thousand cubic metres per 100 kilometres. This contract runs until 31 December 2010 and is not subject to alteration.

If our partners declare that they do not intend to fulfil the conditions of this contract, which they had already signed previously, then it means that they intend to annul it. I think that this could have dire consequences for the transit country itself, not just in terms of its relations with Russia as a supplier, but also for their relationship with countries we supply in the European Union.

Dmitry Medvedev: If Ukraine takes that action then it will in my view mean two things. One that as we have already discussed, the Ukrainian government is a hostage to internecine warfare, and sadly this has reduced the governments ability to function, and the second is that the European consumers could fall victim to this political factionalism. This does not show Ukraine as a country that is striving for fully fledged political relations with European countries, and with the European Union. All the same, I hope that reason wins out, and that thus the necessary changes are made.

Vladimir Putin: I also hope that will be the case, but however this situation may develop, you and I both know that the Russian consumers are safeguarded, safeguarded 100%, there is no doubt about it. Our energy supply, transport, and strategic industries, whatever problems they may face in connection with the global economic crisis, are already receiving government attention. At the beginning of the year, as agreed we will roll out our full plan of action for 2009. I am certain that the positive indicators will be visible by the first quarter.

But the most important thing, something you and I have repeatedly spoken about, is that we fulfil one hundred per cent of the social duties to our citizens, as planned from the 1st of January 2009. Everything relating to the increase in benefits, pensions and salaries, all this must be fulfilled comprehensively. This includes the reorganisation of the healthcare system, education, and all our plans for reinforcing the pension system. All this is planned and absolutely must be carried out.

Dmitry Medvedev: I am also certain that all these tasks that we have set ourselves in these difficult times must be carried out, in spite of the current global situation. And we can only recommend one thing to our Ukrainian partners, that they move quickly towards making a reasonable decision, and not to condemn their citizens to great hardship.