Putin tears up lease for Sevastopol naval base

Russia has renounced the lease contracts with Ukraine for its Black Sea Fleet base in Sevastopol in a step that could exacerbate the backlash against Moscow's annexation of Crimea.

President Vladimir Putin signed a law on Wednesday cancelling three agreements with Ukraine signed in 1997 governing the fleet's basing in Sevastopol until 2017 and another one signed in 2010 extending the original lease to 2042.

The cancellation, which the Russian government threatened after completing its annexation of Crimea last month, could signal another increase in the number of Russian troops and military equipment stationed in Sevastopol as well as an additional increase in the price that Russia charges Ukraine for gas.

In the basing agreements, the number of Russian soldiers was capped at 25,000. They also limited the types and number of vessels and aircraft that Moscow could deploy.

The defence ministry has already said that it would shelve earlier plans to deploy new submarines at Novorossiysk, a Russian port on the eastern Black Sea coast, and expand its submarine base at Sevastopol instead now that the port is under Russian control.

Moscow's move came amid continued warnings about a Russian military threat to Ukraine. Nato's top military commander said on Wednesday that Russia had the capability to take over parts of eastern Ukraine in three to five days because Moscow continued to have a sizeable military presence on the border with its neighbour.

"This is a very large, and very capable, and very ready force," General Philip Breedlove, Nato's supreme allied commander in Europe, said in an interview with Reuters and The Wall Street Journal.

By ending the contracts, Moscow also paves the way for raising gas prices by another $100 per thousand cubic metres after raising them to $385 on Tuesday on termination of a discount granted under a December bailout deal.

As part of the so-called Kharkiv agreement which extended Russia's lease for Sevastopol to 2042, Moscow had agreed to grant Ukraine the $100 gas discount. That price reduction has been applied since the agreement was signed in 2010. Dmitry Medvedev, Russia's prime minister, suggested last month that Moscow could, apart from terminating this discount, even sue Ukraine for $11bn accumulated from this discount in past years. But Moscow has yet to decide whether to make this move.

Alexei Miller, Gazprom chief executive, discussed the Russian state monopolist's dealings with Ukraine in a meeting with Gunter Oettinger, Europe's energy commissioner, and Frank-Walter Steinmeier, German foreign minister, in Brussels on Tuesday, according to a source familiar with the meeting.

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Gazprom said that the two sides had "confirmed their interest in maintaining the mutually beneficial relationship built over the decades of successful collaboration".

Moscow argues that the basing contracts for the Black Sea Fleet became null and void after its annexation of Crimea last month - a view opposed by Kiev. Arseniy Yatseniuk, Ukraine's interim prime minister, told an investor conference that Russia had "violated international law".

But otherwise, Kiev's reaction was muted. Mr Yatseniuk even made a dark joke about the move. "So we are, as usual, happy with this," he quipped.

Mr Yatseniuk noted that Ukraine had increasing options to import gas from western Europe by reversing the flow in transit pipelines, although Gazprom remained a "key supplier".

He said Kiev was considering a "number of options how to cope with Gazprom", hinting at the possible international legal action. "All technical, political and legal moves will be undertaken in order to facilitate a level playing field" between Ukraine's state gas utility Naftogaz and Gazprom, he added.

Mr Yatseniuk suggested recently that Ukraine would pay the new price of close to $500/tcm for Gazprom gas.

But Yury Prodan, energy minister, said last week that Russia had no legal right to terminate the Kharkiv accords and said Ukraine would continue to pay the old gas price of about $386, including the discount from the Kharkiv accords. Analysts in Kiev say Gazprom would have little option then but to go to international arbitration - but it might be reluctant to do so because it was likely to lose.

Additional reporting by James Fontanella-Khan in Brussels

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