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Gazprom Says May Cut Gas to Ukraine Over Debt

Russia's gas export monopoly Gazprom will cut supplies to Ukraine if Kiev fails to agree repayment terms on a $1.3 billion debt for earlier deliveries, Gazprom said on Tuesday.

Gazprom, the world's largest gas producer, supplies Europe with a quarter of its gas needs via Ukraine and Belarus.

Previous pricing disputes with those transit states have led to significant cuts in deliveries to Europe.

"Gazprom today warned its European partners about existing problems with gas deliveries to Ukraine," it said in a statement, two days after parliamentary elections in Ukraine.

No clear winner has yet emerged between rival groups loyal to pro-Western President Viktor Yushchenko and to Prime Minister Viktor Yanukovich, from Ukraine's Russian-speaking east.

Some analysts interpreted Gazprom's statement as a message of support to Yanukovich.

Supplies to some European Union countries fell by as much as 20% for a few days in January 2006 after Gazprom and Ukraine failed to agree on the price of Russian gas imports.

Ukraine had failed to redeem its debt for gas deliveries on a number of occasions over the past decade but Tuesday's statement was the first mention of any new debt in recent months.

"Gazprom has repeatedly raised the issue of a quick gas debt redemption with Ukrainian colleagues," it said in a statement.

Final Demand

Gazprom's demand came as Ukraine faced potentially lengthy talks to form a viable coalition government. There was no immediate comment from the country's leading politicians.

Both Yanukovich's Regions Party and the "Orange" bloc of ex-prime minister and opposition leader Yulia Tymoshenko claimed victory in Sunday's vote. Tymoshenko's results are bolstered by Our Ukraine Party, which supports President Yushchenko.

Kiev's relations with Moscow slumped during Tymoshenko's brief tenure as prime minister in 2005.

"This is a negative signal to a potential Tymoshenko government. Russia ... is saying that it has the resources to put pressure on Ukraine," said Alexei Makarkin, deputy head of the Centre of Political Technologies in Moscow.

A spokesman for Gazprom's export arm, Gazpromexport, Ilya Kochevrin, denied the move was politically motivated.

"We did not want to bring this issue before and during the elections to avoid accusations that we try to politicize the issue and influence the results," he told a conference call.

Andre Andrijnovs at ING in London said Ukraine's rival political forces could both benefit from Gazprom's warning.

"Both camps can play this as a card. One side can say that Gazprom is trying to play with Ukraine and alter the election outcome, and Yanukovich can use it to his advantage as well by
saying under his control things went smoother," said Andrijnovs.

Gazprom currently sells gas to Ukraine at $130 per 1,000 cubic meters or around half its export price to Europe. Both sides have yet to agree on prices for 2008.

"It looks like it will be a repeat of tough pricing talks we have been seeing in the past years," said Artyom Konchin from Aton brokerage in Moscow.