Kiev asks for a $9 billion annual gas discount to reach agreement with Moscow on operating the Ukrainian gas transportation system, Russian gas export monopoly Gazprom CEO Alexei Miller said on Friday.

"Our Ukrainian counterparts raised a question about a discount for gas prices during the talks. If we count for a volume of 40 billion cubic meters, the volume which Ukraine has to buy as part of the terms of the current contract, the discount may be about $9 billion annually," Miller told the country's Prime Minister Vladimir Putin, according to RIA Novosti.

Miller also said that Ukraine estimated the value of its gas transportation system at $20 billion. "Our Ukrainian friends mentioned that they value their gas transportation system at $20 billion. It is a big sum taking into account that we will have to spend large amounts on its modernization," Gazprom CEO said, adding that the upgrade might cost from two to eight billion euros.

Putin told Miller the talks to form the consortium should be continued as gas supplies through the Ukrainian gas transportation system will be in demand amid rising gas consumption in Europe.

To diversify Russian gas routes away from transit countries such as Ukraine, Moscow initiated the South Stream gas pipeline project. Russia plans to launch the South Stream pipeline, intended to carry Russian natural gas to Europe along the Black Sea bed, in 2015. The pipeline will transport up to 63 billion cubic meters of gas to central and southern Europe.

Putin also ordered that the pace of construction of the pipeline be picked up and the start of the underwater part of the works by the end of 2012, not in 2013 as it was previously planned.

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