Russia must be involved in Ukraine gas system upgrade - Merkel

BERLIN, March 31 (RIA Novosti) - The European Union and Ukraine must work with Russia in modernizing the Ukrainian natural gas pipeline network, the German chancellor said on Tuesday.

The EU and Ukraine signed an agreement last week on modernizing Ukraine's Soviet-era pipelines, triggering an angry reaction from Russia, which exports most of its Europe-bound gas via Ukraine. Moscow said the deal failed to take into account its interests.

"Ukraine is a sovereign state, but we are talking about a gas pipeline network that serves several countries, and Russia must definitely participate in this," Angela Merkel said at a joint news conference with Russian President Dmitry Medvedev in Berlin.

Merkel urged for negotiations between Russia and the EU to settle differences over the cooperation agreement with Kiev reached last Monday, and to "prevent a conflict" as "Russia is not happy at having been excluded from the talks."

The latest dispute has stirred fears in Europe of a repeat of January's dispute between Russia and Ukraine, when some EU consumers were left without gas for about two weeks.

Medvedev told the news conference that Russia would soon send its gas transportation proposals to both the European Union and Ukraine.

"We need to create a proper legal basis, so that such issues do not create difficulties for us in the future," he said, while calling the Brussels talks "questionable."

"Dividing up a product that does not belong to you is not possible. It is equally impossible to build a viable gas transportation system without the country that produces the gas," he said, adding that Russia was ready to engage in talks on the issue with the EU and Ukraine.

Medvedev also warned that Russia would take into account Ukraine's pipeline agreement with the EU in considering Kiev's request for a $5 billion loan.

Moscow has delayed inter-governmental talks with Kiev, and threatened to review energy ties with Europe if its interests are disregarded.

Ukrainian Premier Yulia Tymoshenko has said on several occasions that Russia is welcome to invest in the modernization of the national gas grid.

Russian energy officials have said that Ukraine's network is part of the export system used by gas monopoly Gazprom, and that uncoordinated capacity and other changes to the network could affect exports and production.

Ukrainian President Viktor Yushchenko's recent remark that Ukraine would soon join the common European energy system have also raised concerns in Moscow, as the move would bring Ukraine legally closer to the EU in energy dealings.