Page last updated at 19:01 GMT, Wednesday, 31 December 2008

Russia-Ukraine gas row heats up

A man walks at the newly built Bobrovnytska gas-compressor and gas-holder station
Ukraine is a key transit route of Russian gas to Europe

A war of words has broken out in a gas supply row between Ukraine and Russia, amid claims that supplies to Europe could be under threat.

As a midnight deadline loomed, Russian PM Vladimir Putin accused Kiev of threatening to block supplies piped through Ukraine to Western Europe.

Later, Russian energy giant Gazprom said the talks had failed and it would cut gas supplies on Thursday.

Ukraine denies owning Gazprom money and says it has guaranteed gas transit.

A similar row between Gazprom and Ukraine in 2006 led to gas shortages in several EU countries.

'Severe consequences'

Earlier, Gazprom's chief executive, Alexei Miller, criticised Ukraine's stance during the negotiations as "unconstructive" and warned it would cut off supplies at 1000 local time (0700 GMT) on Thursday if a deal was not agreed.


We are in a situation when transit volumes to western Europe are in danger... This position cannot be called anything but blackmail
Alexander Medvedev
Deputy Chief Executive, Gazprom

Mr Miller said the contract depended on the full settlement of 2bn in gas bills and late-payment fines levied by Gazprom.

Ukraine's state gas firm, Naftogaz, has said it has paid $1.5bn (1bn) in outstanding bills to RosUkrEnergo - a Switzerland-registered gas trading company which is acting as an intermediary - but not the fines.

Gazprom's deputy chief executive, Alexander Medvedev, meanwhile accused Ukraine of trying to "blackmail" Russia by threatening in a letter to divert gas intended for the European Union.

Mr Medvedev condemned the threat as "utterly irresponsible", saying it violated Ukraine's obligations under a previous contract, and suggested that "political intervention" might be needed.

Later, Russian Prime Minister Vladimir Putin warned Ukraine not to disrupt the transit of gas to Europe.

Europe's gas pipeline network

"If our partners say that they are not intending to fulfil the conditions of a contract signed previously then that means that they are intending to annul it," he told President Dmitry Medvedev during a televised meeting.

"This will be a completely different story with very severe consequences for the transit country, in my opinion. Not only in its relations with Russia, as the exporter, but also with consumers in EU countries," he added.

Mr Putin said Gazprom had been generous in offering Ukraine a price of $250 per 1,000 cubic metres of gas in 2009, given that the price in Europe was currently more than $500.

"We understand that Ukraine is in a difficult economic situation. It is much more complicated than our own situation," he said.

Mr Putin put the dispute down to a "war of the clans" between the Ukrainian Prime Minister, Yulia Tymoshenko, and President Viktor Yushchenko. In response, Ms Tymoshenko abandoned plans to fly to Moscow to take charge of the talks in person.

An aide to President Yushchenko told the AFP news agency that the increased gas price was unacceptable unless his country was permitted to raise its transit fees.

Ukraine is a key transit route of Russian gas to Europe, and it is feared that a supply cut could affect countries further west.

Gazprom, the world's largest gas producer, supplies a quarter of the European Union's gas needs, or 42% of EU's gas imports.

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