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Russia to cut gas supplies to Ukraine

The CEO of Russia's state gas monopoly Gazprom said Wednesday Russia will cut off all gas supplies to Ukraine on Thursday morning, raising a threat to Europe's supplies.
/ Source: The Associated Press

Russia’s state gas monopoly Gazprom said it will cut off all gas supplies to Ukraine on Thursday morning after the two sides failed to reach an agreement on how much Ukraine will pay in 2009.

The cutoff announced late Wednesday by Gazprom CEO Alexei Miller threatened a replay of the January 2006 crisis, when a halt in Russian gas shipments to Ukraine during a similar dispute resulted in a brief reduction of supplies to Europe.

But Miller said Gazprom would continue full shipments to the European Union, which gets about a quarter of its gas from the Russian company, most of it through pipelines that cross Ukraine.

The Ukrainian president’s energy adviser, Bohdan Sokolovsky, also said Ukraine would guarantee the delivery of gas to Europe.

“Whatever Russia ships we will deliver,” he said. “This is what we have committed to.”

Gazprom had warned it would cut supplies unless Ukraine paid off all of its debt and signed a deal for 2009 deliveries by midnight. Neither was done, Miller said.

“Gazprom will cut off 100 percent of gas supplies to Ukrainian consumers at 10 a.m. (2 a.m. EST, 0700 GMT) on Jan. 1.,” Miller told reporters. “All responsibility for the situation rests on the Ukrainian side.”

His statement reflected the extremely strained relations between the two neighbors. Ukrainian President Viktor Yushchenko has angered Moscow through his efforts to win NATO membership and his support of Georgia in its August war with Russia.

The situation is further complicated by an open conflict between Yushchenko and Ukraine’s prime minister over gas policy and relations with Russia, among other issues.

Ukraine’s gas company Naftogaz said it paid $1.5 billion to cover the debt, but Miller said Gazprom had not yet received the money. The amount also falls short of the $2.1 billion that Gazprom says Ukraine owes for gas supplies and fines for late payment.

The $1.5 billion was paid Tuesday to Rosukrenergo, a Russian-Ukrainian gas trader based in Switzerland that is half owned by Gazprom. It was not immediately clear why the money had not been transferred to Gazprom.

“This is an issue of Gazprom’s dealings with Rosukrenergo,” said Naftogaz spokesman Valentyn Zemlyansky. “Naftogaz has fulfilled all its obligations.” He repeated Ukraine’s insistence that this money covers the entire debt.

The other stumbling block was the failure to sign a contract for 2009 gas deliveries.

Gazprom had first insisted that Ukraine pay $418 per 1,000 cubic meters of gas in 2009, more than double what it paid the previous year. But on Wednesday, Gazprom offered a contract with gas set at $250, which Ukrainian officials said was still too high.

While Gazprom’s European customers now pay the higher price, the cost of gas is expected to fall sharply in coming months as a result of the steep drop in the price of oil.

Naftogaz had said it would agree to $250 if Gazprom agreed to pay a higher transit fee for the gas it ships across Ukraine, a condition Gazprom refused to accept.