Gazprom threatens gas price hike

Economic development depends on a cheap and steady gas supply

Russian gas supplies are threatening to sour relations between Moscow and a number of former Soviet Union nations.

Gazprom, the state-owned gas giant, is embroiled in a spat over prices with Ukraine that led to the cancellation of a top-level diplomatic visit last week.

The firm also said it planned to raise the price of gas supplied to Georgia, Moldova, Armenia and the Baltic states Lithuania, Latvia and Estonia.

Gazprom provides about a quarter of Europe's total gas supply.

'Not politics'

Critics complain that Gazprom is punishing countries for turning away from Russia and pursuing more pro-Western agendas.

The Russian firm says that prices have to rise to reflect a surge in international costs.

"This is not politics, this is economics," said Gazprom's chairman Alexander Ryazanov.

The row with Ukraine has been rumbling for some time.

It flared up after Russia wanted to renegotiate terms under which it pays to ship gas to Europe through a pipeline running across Ukraine.

Energy costs are a politically sensitive issue across Europe

Under the present deal, which expires in 2013, Gazprom gives Ukraine a percentage of the gas it ships in payment. As the price of gas has risen, so has the value of this levy, boosting Gazprom's shipment costs. Gazprom wants to pay Ukraine market rates for the transit costs, but then work out a new pricing structure for the gas the country buys from Gazprom.

Bigger bills

That would undoubtedly mean an increase in prices, analysts said.

Energy costs are a sensitive subject across Europe, with the UK already dealing with its own pricing problems.

In former Soviet Union nations, they are an even more volatile topic. Many voters have failed to see their wages increase, struggle to make ends meet, and feel as if they have been left behind by economic developments.

Gazprom plans to almost double the price of gas sold to Georgia and Armenia to $110 per thousand cubic metres, and triple the cost of that sold to Ukraine and Moldova to as much as $160 per thousand cubic metres, Reuters news agency said.