Russia cuts off gas to Ukraine
Agence France Presse | 01/02/2009 7:19 AM
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MOSCOW – Russia cut off gas supplies to Ukraine Thursday and sharply raised rates after failure to agree on a new contract, heightening concerns over European dependence on Russian-controlled energy supplies.
After Kiev turned down far lower proposed terms, Russian energy giant Gazprom warned it would have to pay nearly double the amount Ukraine was angling for in 2009 -- shortly after Ukraine's president said the two sides were close to a compromise.
"In connection with the rejection by Ukraine of the reduced conditions for the delivery of gas at 250 dollars, Gazprom will release the delivery of gas to Ukraine from January at the European market rate of 418 per 1,000 cubic metres," Gazprom's chief executive Alexei Miller said, according to state news channel Vesti 24.
Major European consumers of Russian gas -- most of which transits across Ukraine -- reported no immediate impact on their supplies but the European Union expressed concern that the dispute had flared up yet again.
Gazprom confirmed that supplies to Ukraine were shut off at precisely 10:00 am (0700 GMT) after the parties failed to agree terms for a 2009 contract to replace the old one which expired at midnight.
"We have reduced the supply of gas to Ukraine by 100 percent," Gazprom spokesman Sergei Kupriyanov told reporters.
Ukraine's gas company, Naftogaz, confirmed that the volume of gas it was receiving from Russia had dropped, but promised that transit of supplies meant for customers downstream in Europe would be guaranteed.
Gazprom's move recalled a similar cut-off in January 2006 that affected gas supplies to Europe although this time, Ukraine and the EU say they have enough gas reserves to see them through the winter.
A Gazprom official said the flow of more than 300 million cubic meters per day of gas that transits Ukraine destined for clients further afield in Europe would continue unabated.
Around a quarter of the gas used in the European Union -- more than 40 percent of the gas imported by the bloc -- comes from Russia, 80 percent of it moving in pipelines that pass through Ukraine.
"Investors, and gas consumers in Europe, will be hoping that cooler heads prevail before the lights go out across Europe," said Chris Weafer, chief strategist at UralSib.
The United States urged Russia and Ukraine to resume talks. The US Ambassador to the EU, Kristen Silverberg, warned that the dispute could have "humanitarian implications this winter."
The EU's Czech presidency and the European Commission said in a joint statement that they were "concerned" by the turn of events.
But Italy and Poland, two big consumers, said Thursday they had no immediate problem with their Russian gas deliveries. Germany said precautions had already been taken to ensure supplies were not disrupted.
In a change from the tough rhetoric that has marked the sides' latest verbal exchanges, Ukrainian President Viktor Yushchenko said Russia and Ukraine were "close to a compromise" and negotiations should be concluded by January 7.
Ukraine's foreign ministry will send a delegation to European capitals to discuss the problem, said ministry spokesman Vassili Kirilich, Interfax-Ukraine reported.
Headed by energy minister Yuri Prodan, the delegation will first meet with Prime Minister Mirek Topolanek of the Czech Republic, which took over the rotating EU presidency January 1, before heading to other European capitals.
The supply cut-off came after Gazprom said Ukraine had failed to pay in full for the gas it imported from Russia in November and December -- billed at 1.6 billion dollars -- along with late payment fees totaling 450 million dollars.
Kiev rejected Gazprom's proposed 2009 price of 250 dollars (179 euros) per 1,000 cubic meters, a substantially lower rate than that paid by European clients. It said it wanted higher fees for transit of Russian gas across its territory.
But analyst Weafer commented: "Gazprom is a commercial company with over 40 percent of its equity held by international investors."
He added: "Selling gas at less than the European price is against the interests of those minority investors. They did not sign up to be part of anybody's foreign aid program."
Yushchenko said he believed that Ukraine should be buying Russian gas for between 204-210 dollars per 1,000 cubic meters. Naftogaz chief Oleg Dubina said Kiev had proposed a level of 235 dollars.
