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Russian gas cuts on Ukraine could hurt Europe

Ukraine began preparing on Friday for Russia to cut off its gas after talks on long-running price dispute broke down, raising the prospect of supplies to the European Union also being disrupted from Monday.

n employee walks on gas metering station 'Uzhgorod' near the Chaslivci village, not far from western Ukrainian city of Uzhgorod, Transcarpathian region on May 21, 2014.
Alexander Zobin | AFP | Getty Images
n employee walks on gas metering station 'Uzhgorod' near the Chaslivci village, not far from western Ukrainian city of Uzhgorod, Transcarpathian region on May 21, 2014.

Kiev was still scrambling late on Friday to arrange talks before Monday, the deadline for it to start paying billions of dollars in unpaid gas bills, but Moscow showed no interest in new talks and rejected a new compromise offer by Ukraine.

Turning off the taps would aggravate the worst political crisis between Russia and Ukraine since the Soviet Union broke up in 1991 and set back fledgling peace moves in east Ukraine, where government forces are fighting pro-Russian separatists.

"Ukraine is getting ready for the worst scenario, a cut in Russian gas supplies," Andriy Kobolev, chief executive of the Ukrainian state gas company Naftogaz, was quoted as saying by a company spokeswoman.

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Prime Minister Arseny Yatseniuk issued an order to the energy sector, relevant ministries and regional authorities to prepare for supply cuts.

The gas talks have proved especially difficult because of political tensions over the overthrow of Ukraine's pro-Russian president in February, Russia's annexation of Crimea from Ukraine in March, and the violence in east Ukraine.

Each side blames the other for the impasse.

Kremlin rejects new offer

Russia initially demanded Ukraine pay $485 per 1,000 cubic meters of natural gas but then offered to remove the export duty, a move that would reduce the price to $385—around the average amount paid by Russia's European clients.

Ukraine had held out for $268.5 until Friday, when it said it was ready to pay $326 for an interim period of 18 months while a long-term price was worked out.

"Ukraine will be ready under such a compromise to pay its unpaid bills from the past," Kobolev told reporters in Kiev.

But President Vladimir Putin's spokesman described the new offer—based on a proposal by the European energy commissioner who is mediating talks—as "inadequate."

The spokesman, Dmitry Peskov, said he knew of no plans to hold new talks and the Energy Ministry ruled out any prospect of an immediate resumption.

On Friday evening, Ukraine proposed starting a new round of negotiations on Saturday in Kiev or, failing that, another European city. There was no immediate response from the Kremlin.

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Russia's state gas exporter Gazprom has demanded that Ukraine pay $1.95 billion in gas debts by Monday, but there was no sign on Friday that the money had been paid.

Gazprom also delivers gas to the EU, half of it through pipelines via Ukraine. Onward supplies to the rest of Europe were badly disrupted when Russia cut supplies to Ukraine during a previous price dispute in 2009.

Disruptions now would have only limited impact because it is summer and both Ukraine and the EU have gas in storage, but the increasingly bad atmosphere at the talks could sour broader contacts between Kiev and Moscow.

Read MoreUkraine says Russia allowing tanks across border

Ukraine's new president, Petro Poroshenko, held talks with a Russian envoy this week and met Putin briefly last week in France, breaking the ice between them, but tensions have mounted again over Ukrainian accusations that Russia had allowed rebels to bring tanks across its border into east Ukraine.

By Reuters

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