Page last updated at 15:00 GMT, Thursday, 12 March 2009

Putin eases off 'broke' Ukraine

Vladimir Putin speaks to miners in Novokuznetsk (12 March 2009)
Mr Putin told miners in Siberia the fines could contribute to an economic crisis

Russia's prime minister says it has waived fines owed by Ukraine for breaking gas contracts because it does not want to "finish off" its neighbour.

Vladimir Putin said he realised Ukraine was "on the verge of bankruptcy" and that "they have nothing to pay with".

Mr Putin said Kiev was not taking the volume of gas agreed in contracts with the Russian state gas company, Gazprom.

But Ukrainian officials say Gazprom has already agreed to sell less than the contracted amount of gas this year.

Gas has become a source of major tension between Russia and Ukraine. Gazprom shut down gas supplies to Ukraine for two weeks in January during a commercial dispute, leading to severe gas shortages across Europe.

Supplies were only restored when Ukraine's government and state gas firm, Naftogaz, agreed prices at which they would buy Russian gas, and ship it to Europe. The issue of Ukraine's non-payment of fines imposed by Gazprom for late payment in 2008 remained unresolved by the deal.

IMF loan

In stinging comments on Thursday to miners at Novokuznetsk in south-western Siberia, Mr Putin said Moscow would refrain from levying fines on Ukraine for violating the contracts because they could contribute to an economic crisis in the country.

Agents from the Security Service of Ukraine inside Naftogaz (4 March 2009)
Last week, Ukraine's security service raided the state gas firm, Naftogaz

"Ukraine is not taking from us the contracted volumes [of gas] and should pay fines," he said, according to Russian news agencies.

"We will forgive these fines because we recognise the reality - they have nothing to pay with. They are on the verge of bankruptcy, and as you well know you should not finish off your partners," he added.

Ukraine's economy has been hit by falling demand for its main exports, notably steel. In November, it received $4.5bn of a $16.4bn loan from the International Monetary Fund (IMF) to help weather the downturn.

The IMF and Kiev said on Wednesday that they were making progress on overcoming differences in implementing reforms that have delayed the release of a second part of the loan, worth $1.9bn.

Earlier this week, Mr Putin cast doubt on Ukraine's reliability as a gas-transit country after the national security service raided the headquarters of Naftogaz.

"Only God knows what parts of their bodies the people who give these orders are thinking with," he said.

The raid was linked to an investigation into the diversion of 6.3bn cubic metres of natural gas worth $880m (620m), whose ownership is in dispute.

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