Russia set to cut off Ukraine gas

BBC, 1 January 2006

Russian gas supplies to Ukraine will be cut at 0700 GMT on Sunday, after last-ditch talks between the two sides failed to settle a price dispute.

The row erupted after Ukraine rejected Russian plans for a 460% price rise.

Earlier on Saturday, Russia's President Vladimir Putin offered a three-month price freeze as long as Kiev agreed to pay the higher price after that.

But Russia's state-owned Gazprom said Kiev had rejected the offer and supplies would end as planned.

Ukraine currently pays $50 per 1,000 cubic metres of gas. Gazprom wants to increase the price to what it says is the market rate of $230.

Russian gas supplies account for about 30% of Ukraine's total consumption.

The loss of those supplies will be a real problem in winter, says the BBC's Economics correspondent Andrew Walker.

Ukrainian gas industry officials say heating needs can be met from other supplies, but industrial customers might face reduced supplies, he says.

The crisis has also sparked fears that Russian exports to Western Europe could also be hit, as most of the gas is channelled through Ukrainian pipelines, but Moscow insists there will be no disruption.

EU governments are convening a meeting of their gas industry experts in Brussels on 4 January to discuss the crisis.

Putin offer

The Russian offer of a stay of execution was made by President Putin at a meeting of his powerful Security Council attended by Gazprom head Alexei Miller.

Ukrainian Prime Minister Yuri Yekhanurov's spokesman said in response that Kiev did not object to market prices but “the exact figures must be negotiated”.

Hours later, a Gazprom spokesman announced that Ukraine had refused its final offer.

“The official response has been received: Ukraine has turned down our offer,” Sergei Kupriyanov said.

Ukraine insists that the planned price rise is politically motivated, in the wake of Kiev's Orange Revolution and the election of its pro-Western President, Viktor Yushchenko.

In his New Year speech, Mr Yushchenko did not refer to the dispute directly but, looking back at the past year, said his country had defeated dictatorship and it was now time to work towards Ukraine's economic independence. Other countries which remain in Russia's sphere of influence continue to receive gas at below-market prices.

Mr Yushchenko has said Ukraine is currently prepared to pay no more than $80 per 1,000 cubic metres of gas.