Ukraine has agreed to extend the Russian lease of the biggest naval base in the Black Sea by 25 years in a move that is bound to consolidate Russia's strategic hold on the region.

A breakthrough agreement to extend the stay of the Russian Navy in Sevastopol till 2042, with a possible five-year extension, was signed by Russian President Dmitry Medvedev and Ukraine's President Viktor Yanukovych during their meeting in the Ukrainian city of Kharkiv on Wednesday.

Under the current agreement, signed in 1997, the Russian lease of the former Soviet base expires in 2017. Russia pays an annual rent of nearly $90 million for the base. Ukraine's former President Viktor Yushchenko had fought hard to evict the Russian Navy from the base even before the expiry deadline, as its presence on Ukrainian territory was an obstacle to his plan to join NATO. Mr. Yanukovich, who won the presidential elections earlier this year, ruled out Ukraine's NATO membership and moved to improve relations with Russia. Moscow in return has agreed to supply its natural gas to Ukraine at a 30-per cent discount, which will add up to $40 billion over the next decade. This money will be used to pay for the Russian lease of the Sevastopol base, Prime Minister Vladimir Putin told a Cabinet meeting on Thursday.

The Russian-Ukrainian naval base agreement is a setback to U.S. efforts to establish control of the Black Sea, which is a gateway to Russia and the Caucasus. During the five-day war with Georgia in 2008, Russian warships based in Sevastopol sank a Georgian missile gunboat and played a key role in ferrying marines and weapons to the war zone and.A Navy source said Russia would now strengthen Sea Fleet, consisting of about 40 combat vessels, with new surface warships and submarines.

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