PRESIDENT VLADIMIR PUTIN: Ladies and gentlemen,

The Russian-Ukrainian Intergovernmental Commission has concluded its second meeting. I would like to thank everyone who took part, and above all my colleague Viktor Andreyevich Yushchenko, for their constructive and fruitful work.

Russia and Ukraine are of great importance for each other as partners. I think that we must do everything we can to make this partnership unquestionably a strategic partnership that contributes to the growing prosperity of our citizens, and to base our practical work together on the unchanging principles of good-neighbourly relations, pragmatism and mutually beneficial cooperation.

Today, we analysed the issues currently facing our bilateral relations and we outlined the main directions for developing our cooperation in the future, above all in the trade and economic sector.

Trade between Russia and Ukraine reached a figure of $32 billion in 2007, which represents an increase of around 20 percent. This is a decent result but it is not the limit. We think that improvements in the investment climate will help to increase our economic results. Our joint efforts should focus on removing various barriers and discrimination that hinder businesses’ work and ensuring fair competition.

We gave particular attention to cooperation in the energy sector. The only acceptable way forward today is to apply the same approach to all. Cooperation must be based on a market economy, take the situation on the world market into account, and, very importantly, be based on conscientious compliance with existing agreements. I am sure that respect and consideration for each other’s interests will not only reinforce the ties between Russia and Ukraine but will considerably increase energy security in Europe as a whole.

We discussed opportunities for cooperation in the transport sector, aircraft manufacturing, the space sector, military-technical sector, and the peaceful use of nuclear energy.

Our agenda included the issue of improving the legal basis for the Russian Black Sea Fleet’s presence on Ukrainian territory, and also the issue of delimiting our respective territory in the Sea of Azov and the Kerch Strait. We are firmly committed to finding solutions to all of these issues based on the existing basic agreements and taking each other’s interests into account.

Cooperation between our regions and between the border areas is an important part of our relations. What is important here is to help our citizens maintain their ties as good neighbours, friends and relatives. Our citizens should be able to cross the border without problems and at their convenience. At the Commission’s meeting and during my one-on-one meeting with Viktor Andreyevich, we also gave a lot of attention to the humanitarian dimension of our bilateral relations.

We discussed the issue of how to approach the common history that our countries and peoples share. We are very conscious of the great mutual sympathy and respect our fraternal peoples feel for each other. I am sure that the 200th anniversary of Nikolai Gogol’s birth, which we will celebrate next year, is an equally significant event for both peoples. Moreover, we also agreed today to celebrate in worthy fashion the 1020th anniversary of our countries’ baptism into Christianity this year and the 300th anniversary of the Battle of Poltava next year. We think that we should also discuss this question with our Swedish partners.

I am sure that these and other events will enrich the positive agenda for humanitarian cooperation between our countries. Overall, our efforts are directed at having a positive impact on developments in the situation in Europe. The Intergovernmental Commission’s relevant subcommittee is working on these issues.

We had a frank discussion on issues concerning European security and stability. The Commission’s meeting concluded with the approval of the Russia-Ukraine Work Programme for the period through to 2009, which sets out the key vectors for our cooperation in a wide range of areas.

In conclusion, I would like to say that the results of the Commission’s meeting and our talks with Viktor Andreyevich confirm our mutual desire to keep developing our bilateral cooperation. It is true that our priorities do not always coincide, but we are nevertheless happy with the results of today’s meeting, which has given us the opportunity to bring each other up to date and coordinate our joint efforts to put substance into our partnership in the form of concrete work for the good of our two peoples.

I would like to thank Viktor Andreyevich for this very frank and constructive dialogue that has not only enabled us to understand each other’s positions but has gone a considerable way in bringing them closer together.

Thank you for your attention.

PRESIDENT OF UKRAINE VIKTOR YUSHCHENKO: Vladimir Vladimirovich, ladies and gentlemen,

I would first like to say a few words in my native language. I am very grateful for the atmosphere and the spirit in which our talks today took place.

Now I will speak Russian so that everyone present today can understand.

I greatly appreciate the spirit and nature of our talks today. They were indeed very open. We discussed all of the most sensitive issues in our bilateral relations: in the energy sector and in the humanitarian and other areas. I think that our most important achievement today is to launch the mechanism for the Putin-Yushchenko state commission that will enable us, through our work programme for 2008, to respond to the twenty-thirty complex issues that have come up in our relations.

Vladimir Vladimirovich and I discussed practically all of these different issues during our one-on-one meeting. We did indeed bring each other up to date on our respective views on this or that process. I can say frankly that I am very happy with the spirit and nature of these talks. The mutual understanding that was emphasised is very important for the development of our bilateral relations.

Our priority, of course, goes to our trade and economic relations. It is our view that the dynamic that we have seen over these last years, including last year, can be further improved. Our bilateral trade increased by 30 percent and Ukrainian exports rose by almost 50 percent. Our ties in the services sector have also undergone a quality improvement. The last year has been a success economically speaking and many of the results obtained are cause for satisfaction in both Ukraine and Russia. But there is still much to be done in the economy, especially as far as trade relations are concerned, given that both countries are looking to join the World Trade Organisation. I am sure that both sides will prove capable of addressing the different issues that come up in the negotiating process, including in 2008. Ukraine is interested in seeing Russia join the WTO as soon as possible and will do everything it can to facilitate this process.

Among the other blocks of issues before us I want to stress the importance of settling all matters concerning the demarcation of our borders. We have complete understanding as far as the land border is concerned and we are seeing good progress in the negotiations on delimitation in the Sea of Azov. I think that the talks on the Kerch Strait that have now begun will also result in a solution that is acceptable to both sides. We consider this dialogue very important and our approach is that of openness.

Negotiations on the Black Sea Fleet have stepped up considerably over the last year. We have approved the methodology and procedures for evaluating assets, property, land and other characteristics. It is very important to make a full inventory and bring it into line with the existing agreement.

Vladimir Vladimirovich and I discussed today the content of a declaration on our strategic partnership and have issued the according instructions to our respective foreign ministries. This document, which will give clear answers for the strategic perspective should be on the desks of both presidents soon.

We also discussed humanitarian and social issues and heard proposals from both sides on sensitive matters in these areas. I am grateful to Vladimir Vladimirovich for the attentiveness, sincerity and the atmosphere in which our dialogue took place.

It is a pleasure to be here in Moscow and I am very pleased that we have started this commission’s work. I am very pleased that we now have a clear blueprint for developing our bilateral relations this year and in the years to come.

QUESTION: The Ukrainian President’s visit to Moscow was long awaited, but there is one cloud in the sky, and that is the gas issue. Did you raise this issue and what conclusions did you reach? This question is addressed to both presidents.

VLADIMIR PUTIN: We did discuss this issue. We discussed it in great detail. We talked about not only the current situation but also about the prospects for our cooperation in this sector. We regret that these sorts of problems keep coming up. The current problem is partly linked to the rather severe winter conditions our partners in Central Asia have been facing. We have drawn up a common plan for work over the coming period.

Our partners informed us today that they would begin paying off the debt very soon. We have agreed on the principles for our cooperation in 2008 and the following years. We hope that all of these agreements will be set out on paper today or tomorrow. Gazprom is happy with the proposals made by our Ukrainian partners. We hope that all of these agreements will now be carried out.

VIKTOR YUSHCHENKO: We agreed that on Thursday Ukraine will begin paying off the debt that arose last November and December after the relevant organisations did not sign the supply contracts and verification statements for the deliveries and the money owed. I am grateful to everyone from the different ministries who took part in resolving this complex matter.

I have no desire, as President, to have to deal with gas issues, and I am sure that the same is true of Vladimir Vladimirovich, but we have had to take a helping hand in sorting out this matter.

We have agreed that the payments for 2007 will be made according to the prices in 2007. Payments will begin on Thursday and we should complete this process very soon.

As for supplies in 2008, we have agreed on maintaining the basic entry price of $179; on de jure status for the market players that have contracts; and we have also agreed that NAK Naftogaz and Gazprom will set up a working group to establish simpler, more direct and transparent relations in the area of the market’s organisation and the supplies themselves.

VLADIMIR PUTIN: I just want to add that we are very keen to ensure that our cooperation is as transparent as possible. As you know, Gazprom is directly represented through Gazprombank in all of the organisations working on the Ukrainian market. Viktor Andreyevich and I talked in general today about how the good prospects for our cooperation in the energy sector could help to increase Ukraine’s importance as a major energy player in Europe. This opportunity exists and we are interested in making it reality.

QUESTION: My first question is for Mr Yushchenko. This is not the first time that the problems of gas supplies and debts have come up in Russian-Ukrainian relations. Why is Ukraine unable to pay on time? Have you discussed the possibility of direct gas supplies to Ukraine?

I also have a question for Mr Putin. Russia has made concessions to Ukraine in the past, just recently for example on the issue of compensation for Central Asian gas supplies. Why does Russia take this approach and what concessions is it willing to make this time?

VLADIMIR PUTIN: Concessions are not the issue. The issue in this case is that under the terms of a contract signed in 2006, in the event of a shortage of Central Asian gas, Gazprom promised to compensate for this shortage, though at European prices. Our position is that these agreements must be respected.

VIKTOR YUSHCHENKO: I would like to make our position clear to the Russian public. Ukraine has never and never will set out to obtain free gas or other services. Nothing in this world is free. We began putting our relations in the gas sector in order starting back in 2000, when we abandoned the big barter deals that were keeping our relations in this sector in the shadows. We then went over to monetary payments for gas supplies and this was followed by liberalisation of prices for gas and also of transit prices. We were emerging from a regulated administrative economy. Today, both countries want to organise clear and transparent relations without intermediaries that could have a negative impact on these relations.

Paradoxical though it may sound, the problems that arose last year are due to the fact that NAK Naftogaz still has no contract and no statements for the gas supplies received in November and December. A lot of clarification needs to be carried out in this respect. What I want to say is that we have agreed that this problem of documents and acts that turned a normal situation into an abnormal state of affairs is now in the past. We have agreed that the debts for 2007 will be paid off very soon in accordance with the supply volumes and under the terms set out in the relevant agreement. In our relations in this area in 2008, our goal is to organise the market in such a way as to make our relations as transparent as possible. I think that our talks have been quite productive in this regard. We have issued the relevant instructions to NAK Naftogaz and Gazprom and I think that these proposals will start being implemented over the coming days and that you will soon see the measures that these two organisations propose the presidents and the market.

QUESTION: This is a question for the Russian President. Will Russia reconsider its relations with Ukraine if Ukraine joins NATO? What is the Kremlin’s position on this issue?

VLADIMIR PUTIN: Can you imagine Sevastopol, a city made famous by the heroic naval exploits of our two countries, with a NATO base there? Just imagine the emotional impact this would have in Ukraine and Russia? Do you realise what this would mean? Russia seeks to develop friendly relations with all countries and all organisations in the world, including with military-political alliances such as NATO. We signed an agreement setting up the Russia-NATO Council, but we never sought to actually join NATO because joining an alliance of this type would place limitations on our country’s sovereignty. If Ukraine is willing to limit its own sovereignty, this is, of course, Ukraine’s own affair, as is the choice of principles for its security strategy. We have no right to intervene in this process. What we are trying to point out is that these kinds of limitations on sovereignty have certain consequences in real life, for example, stationing bases or deploying elements of a missile defence system in Eastern Europe, which we see as pursuing the goal of neutralising our nuclear missile potential. This forces Russia into a situation where it has to take countermeasures. It would be awful even to consider the prospect that if such a missile defence system was eventually extended to Ukrainian territory too, and theoretically this can’t be ruled out, Russia would have to target its nuclear offensive systems at Ukraine. Just imagine it for a second! This is what worries us. This is most certainly a subject we need to discuss frankly with our partners, above all with the Ukrainian leadership.

I did discuss this subject today with Viktor Andreyevich. It seems to me that Viktor Andreyevich and our other colleagues want a frank and open dialogue with Russia. We are pleased to see this. It is these concerns I just mentioned that explain Russia’s misgivings about the possibility of Ukraine joining NATO. There is nothing really more to add in this respect.

VIKTOR YUSHCHENKO: I would just like to add one remark. Our position is that each nation, each country, has the right to decide on its own defence and security policies and I am pleased that we have complete understanding on this point.

Second, we realise of course that there are a number of sensitive issues that we must discuss frankly and openly with all of our friends and partners, starting from the fact that the Ukrainian constitution does not allow foreign states and alliances to establish bases on Ukrainian soil and other no less sensitive issues. Only through dialogue can we make these issues heard and understood. After all, none of Ukraine’s action in this area is in any way directed against any third country and all the more so is not directed against Russia.

I think it is very important that Vladimir Vladimirovich and I agreed today that we would hold consultations on this issue in order to hear each other better and find mechanisms for mutual understanding.

QUESTION: This is a question for both presidents but above all for Mr Yushchenko. When will Russian business be able to expect a comfortable working environment on the Ukrainian market? What can we do to lift our bilateral economic relations out of stagnation?

VIKTOR YUSHCHENKO: As an economist, I would not call a 50-percent increase in Ukrainian exports stagnation. And I would not call a 30-percent increase in bilateral trade stagnation. Looking at our economic and trade relations, I think that successful negotiations on greater liberalisation of trade between our two countries would create good impetus for their future development.

Vladimir Vladimirovich and I discussed a few other issues too. There are some things I do not wish to go into right now, but to answer your question I should perhaps mention them at least. For example, why are there restrictions on the sale of Russian matches to Ukraine? To be honest, I do not know. This issue obviously has its own history and you would have to go back more than five or ten years to find the answer, just as you would have to do if you wanted to explain the restrictions on imports of Ukrainian treacle, caramel, wine and dozens of other items. Why is this? I am certain that this is not to do with any big economic issues but rather probably stems from practices that took shape a long time ago and that have left their mark on our relations today. Of course this situation is absurd. The sum of money we are talking about is not so small, either, several billion dollars in mutual trade. I am sure, however, that when we start negotiations on these issues Ukraine and Russia will both take a more open approach and the negotiation process will bring better results.

As for the presence of Russian business in Ukraine, there are hundreds of companies working in our country and I do not think you hear them complaining. There are some specific projects that Vladimir Vladimirovich discussed in great detail. These are sensitive projects such as the Lugansk Locomotive Plant, GAKOR, and a number of projects in the oil refinery sector. We discussed all of these matters. I want to say to the Russian business community that our aim is to bring all processes, including the procedures for obtaining property rights, into strict compliance with our national laws.

As far as tenders are concerned, we would like to see real tenders that bring millions of dollars into the national treasury. I am sorry, but when we see that in some projects eighty percent of the participants are excluded from the tender so as to create a tender for two parties who have already settled on a price, this does not suit our wishes. I have informed Vladimir Vladimirovich and our Russian colleagues that when it comes to these issues all of our positions are based on the law. Everything else can be settled. I hope therefore that Russia has accepted the detailed positions I set out on specific cases in my opening remarks.

VLADIMIR PUTIN: I agree with Viktor Andreyevich that the way the economic relations between our two countries are developing can hardly be called stagnation. Growth of 20, 25 or 30 percent a year is a very good result even for Ukraine and Russia, given the extent of our trade and economic ties.

As far as investment is concerned, cumulated Russian investment in Ukraine now comes to around $1.2 billion. We have had a few problems with our investments in Ukraine of late. I am sure that this is not to do with the work of Russian investors but with particular problems in Ukrainian legislation and privatisation procedures. Our position is that our companies and investors should be offered the same conditions as all other investors in Ukraine. Ukrainian and foreign investors should all be given equal conditions and all disputes should be settled through legal procedures. I spoke about this with Viktor Andreyevich and he assured me that this will indeed be the case.