Russia to cut gas to Ukraine after talks fail
2008-12-31

Category Natural Gas Nations Russia Ukraine City Kiev Moscow Category Regions Regions Europe Pacific Rim People Dmitry Medvedev Vladimir Putin Event 2008 Russia Gas Dispute Company Gazprom Source (AFP)

MOSCOW (AFP) - Russia said it would cut off gas deliveries to its pro-Western neighbour Ukraine on Thursday, following the collapse of talks aimed at ending a stand-off that risks disrupting supplies of gas to Europe.

Russian energy giant Gazprom said the deliveries would halt at 0700 GMT on New Year's Day after talks in Moscow on a new contract for 2009 failed to reach an agreement amid differences over new prices and Ukraine's debts.

"From 10:00 am (0700 GMT) on January 1, 2009, Gazprom will fully, 100 percent, stop deliveries of gas to Ukraine," Gazprom chief executive Alexei Miller said.

"All responsibility lies with the Ukrainian side," a grim-faced Miller told reporters after the talks with officials from Ukrainian gas firm Naftogaz.

"We have the impression that in Ukraine there are political forces who are very interested in there being a gas conflict between the two countries," said Miller.

"Given the absence of a signed contract, Gazprom has no judicial basis to deliver gas across its border."

Naftogaz spokesman Valentin Zemlyansky confirmed that the negotiations were over. "The delegation is coming back to Kiev this evening," he said.

In a dramatic move ahead of a midnight deadline, Gazprom earlier produced a letter which it said contained a warning from Naftogaz that Kiev could disrupt the transit of Russian gas being delivered to Europe.

Prime Minister Vladimir Putin said any violation of supplies of Russian gas to Europe would constitute "a completely different matter with very severe consequences for the transit country.

"Not only in its relations with Russia, as the exporter, but also with consumers in EU countries," he added in a televised meeting with President Dmitry Medvedev.

But Ukrainian President Viktor Yushchenko's representative on energy issues, Bogdan Sokolovsky, insisted that "Europe will receive all the gas Russia supplies it with."

Miller, for his part, said that Gazprom would continue deliveries to consumers in Europe.

EU countries are heavily reliant on Russia for their natural gas supplies -- around one quarter comes from Russia, which possesses the world's largest known reserves.

A similar dispute in early 2006 affected Russian gas supplies to Europe transiting across Ukraine.

The authenticity of the letter alleged by Gazprom to have been sent by Naftogaz could not be independently verified. Ukraine's political leaders and Naftogaz officials have made no such threat in public.

Gazprom deputy chairman Alexander Medvedev said the threat to cut supplies to Europe "cannot be called anything but blackmail."

The gas cut and the alleged "blackmail" were the latest twists in a saga of dizzying complexity, which only Wednesday morning appeared to be heading towards a peaceful resolution after Ukraine partially paid off its debts.

Putin said that Russia had also offered Kiev a price for gas next year -- 250 dollars (179 euros) per 1,000 cubic metres -- below European prices on account of the economic crisis in Ukraine.

But Yushchenko's office dismissed the offer as "unacceptable," as long as the charges for the transit of Russian gas across Ukraine were not lifted.

"To the offer by Russia of discounted conditions for the supply of gas to Ukraine for 2009, we got a negative answer," said Miller.

Analysts say the situation differs from a New Year gas conflict between Ukraine and Russia in 2006 that briefly disrupted supplies to the European Union, as both Ukraine and the EU have large gas reserves in storage.

But a European Commission spokeswoman confirmed that EU Energy Commissioner Andris Piebalgs had been in talks with both sides "encouraging them to find a negotiated solution."

Gazprom says Ukraine owes 1.6 billion dollars for gas it imported in November and December. Ukraine never disputed those arrears, yet late Tuesday transferred just 1.5 billion to an account for payment to Gazprom.

Naftogaz did not explain the 100 million-dollar shortfall. Gazprom has also demanded payment of 450 million dollars in penalties for late payment of the November-December shipments.

"The debt for earlier deliveries wasn't settled. Despite oral statements from Kiev, Gazprom hasn't seen the money in its accounts," said Miller.

Putin meanwhile also ridiculed Ukraine's pro-Western leaders -- who are seeking EU and NATO membership -- for their "inter-clan fighting". The economy there was in a "pre-default situation," Putin added.