Former landlord Russia turns off Ukraine's gas

McClatchy NewspapersJanuary 1, 2009 

MOSCOW — Russia's state-run gas monopoly halted natural gas delivery for Ukraine Thursday, delivering a New Year's blow that further heightened tensions between Russia and the former Soviet republic.

The dispute could affect not only Ukraine, but much of Europe. About a quarter of Europe's gas is supplied by Russia, and most of it - an estimated 80 percent -- goes through Ukraine. The gas flow to big customers like France, Germany and Italy hasn't been affected, and Russian Prime Minister Vladimir Putin has threatened "serious consequences" for any disruption.

During a similar dispute in 2006, when gas to Ukraine was cut for three days, several European countries experienced shortages.

A similar scenario this year could be especially bad for both Ukraine and Russia.

Given the financial crunch of low oil prices and a plummeting stock market in Moscow, this would be a difficult time for Russia to have problems with its European gas consumers.

A statement from President George W. Bush's Texas ranch issued Thursday called for "restoration of normal deliveries" of gas to the Ukraine and "good-faith negotiations without supply cutoffs."

Ukrainian leadership has come under harsh criticism for its internal bickering - President Viktor Yushchenko and his prime minister have traded public insults, and their parties broke apart a parliamentary bloc last year. The political turmoil is often cited as a main reason the country has not gained membership to the European Union or NATO, both key initiatives for Yushchenko. A row with Russia that disrupted gas delivery to Europe would almost certainly deepen hesitations about Ukraine in European capitals.

Beyond the details and accusations of this particular spat, there is a deep acrimony between Russia and the Ukraine. Yushchenko's efforts to gain entry to NATO enraged the Kremlin, which resents western expansion in the former Soviet bloc. Several Ukrainian analysts said last year that they expected the Kremlin to bring the Gazprom negotiations to a halt to make Yushchenko look weak. That would likely hurt his chances in presidential elections scheduled for later this year or early-2010 in which his two main opponents are widely viewed as being closer to Moscow.

Gazprom, the world's largest natural gas company, said the supply to Ukraine was cut after the country failed to pay its debts - a point of contention between the two nations and the web of companies used to transit the gas.

Both agree that Ukraine's national energy company, Naftogaz Ukrainy, transferred $1.5 billion to RosUkrEnergo, a Swiss-based trader used by Gazprom. But there is some question whether those funds have gotten to Gazprom.

Gazprom maintains that Ukraine owes at least an additional $500 million in fines; some reports have put the figure at $600 million. Yushchenko's office issued a statement on Tuesday saying that his country had paid all of its debts and, "thus all the obstacles to reaching agreement on gas supplies for 2009 are removed."

Russia disagreed, and the gas flow for Ukraine was stopped Thursday morning.

The financial particulars are: Russia wants $250 per 1,000 cubic meters of gas, up from $179.50, and Ukraine countered with $201. In addition, Russia wants to keep paying $1.70 in transit fees for 1,000 cubic meters of gas per every 62 miles, and Ukraine is trying to hike that figure to $2.

A release forwarded by Gazprom's public relations firm said that Ukrainian attempts to tie negotiations about the price of gas to a transit fee hike for Russian gas headed to Europe was a "desperate act" that "puts at risk the stability of Gazprom's natural gas supplies to Europe."

On Thursday, Gazprom officials said Ukraine had sent a negotiating team unwilling to sign any contracts, regardless of the terms. Ukraine in turn said the Russians were being unreasonable about price.

It wasn't clear when talks might start again - there were reports they could begin within a day -- or what they would produce. Ukrainian gas officials said they had enough stockpiled supplies to last about three months.

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