The Ukrainian government approved an alternative bill by the opposition, which provides for splitting the national energy company Naftogaz into production and transportation divisions but prohibits rental or privatization of the gas transportation system.

Ukrainian Deputy Minister of Energy and Mines Vladimir Makukha said on Friday Naftogaz should be split according to the provisions of the EU Third Energy Package, which requires the separation of energy production, transportation and sales, as Ukraine is a member of the European Energy Communit, RIA Novosti reported.

Makukha claimed delay in reforming the country's gas sector had prevented modernization of the Ukrainian gas transportation system, and approval of the new bill could re-start the process.
"In fact, implementation of the first pilot project to upgrade Ukraine's gas transit system to modernize the Urengoi-Pomary-Uzhgorod gas pipeline with funds from European financial institutions has stopped," Makusha said. Europe has refused to grant the funds until Ukraine reforms its internal gas market.

Naftogaz expected to get over $300 million from a consortium of international banks in July 2011 to upgrade the Urengoi-Pomary-Uzhgorod pipeline. Kiev estimates the overall cost of upgrading the whole system at $5-7 billion over five to seven years.

Ukraine's National Security and Defense Council head Andriy Klyuyev said the council will discuss how to manage the gas transportation system as the issue is a matter of the country's national security.

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