RUSSIA CUT natural gas deliveries to Ukraine yesterday after negotiations failed to resolve a dispute over unpaid bills and the price for supplies this year.
Gazprom, the Russian state-owned gas-provider, lowered the pressure at 7am GMT in pipelines to Ukraine that also carry 80 per cent of Russian gas consumed by other countries in Europe.
Ukraine said yesterday it had paid $1.5 billion (€1.074 billion) in debts for supplies in November and December, but Gazprom said it had not received that money from RosUkrEnergo, an intermediary company. It is also demanding $600 million in fines, which Ukraine has said it will not pay.
The last time exports were terminated, in January 2006, there was an immediate impact elsewhere in Europe as Ukraine allegedly siphoned off gas meant for onward transit.
Gazprom's chief executive Alexei Miller said the company would continue full shipments to the EU, which gets about one-quarter of its gas from the Russian company, most of it through pipelines that cross Ukraine.
The row is politically tinged because Moscow and Kiev have been at odds since 2004 when mass protests over a rigged election set Ukraine on a course to European integration.
Russia is implacably opposed to its neighbour joining Nato and accused Ukraine of sending military advisers to Georgia last August, when Russia and Georgia went to war over the breakaway republic of South Ossetia.
Talks went to the wire last night, but the two sides could not resolve the dispute or agree on a price for gas supplies this year.
Mr Miller said: "The debt to Gazprom for gas supplied earlier was not paid. Despite verbal statements from Kiev, Gazprom did not see any money in its account."
Ukraine paid $179.5 per 1,000 cubic metres of gas in 2008. It has refused a Gazprom offer of $250 for the same quantity in 2009, which the Russian company says is half the European market rate.
Kiev's ability to negotiate has been weakened by political turbulence in Ukraine, where the president, Viktor Yushchenko, and the prime minister, Yulia Timoshenko, are in dispute over policy.
Analysts say Ukraine has enough of its own gas in storage to meet internal demand for about three months.
Gazprom, which has its own troubles due to very high debt levels, has accused Ukraine of trying to hold Europe to ransom by saying there could be shortages if the taps were turned off again, but Kiev has denied making such a threat. Russia denied any political motive behind the row, saying it was purely a business dispute and that it would do all it could to maintain smooth supplies to Europe.
Europe depends on Russia for one-quarter of its gas, with Germany's BASF and E.ON, which supplies UK consumers, plus Italy's ENI, being among the biggest customers. Russian gas supplies to Britain are limited, but any cut in European supplies could cause shortages and force up prices.
Gazprom said it had received a letter from Naftogaz, Ukraine's state-run gas company, stating that if Russia turned off the gas, Ukraine could confiscate Russian fuel bound for western Europe.
"We cannot describe this position from Ukraine as anything other than blackmail," said Alexander Medvedev, head of Gazprom's export arm. "And they are blackmailing Gazprom, Russia and western Europe."
Gazprom's declining stock price has taken it from being the world's third-largest company at the start of 2008, to the 47th. It must repay $10.6 billion of debt by the end of June. - (Guardian service)