Oil and Gas

Russia Threatens to Cut Ukraine Gas Supply

By Reuters

Russia's gas export monopoly Gazprom threatened on Tuesday to reduce gas supplies to

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Ukraine from March 3 over payment arrears, two weeks after the two ex-Soviet states agreed on how to settle the problem.

Rows over gas between Ukraine and Russia, which supplies a quarter of Europe's gas needs largely via Ukraine, arouse widespread concern since one such dispute disrupted exports to European Union countries in January 2006.

Gazprom said in a statement it believed that 1.9 billion cubic meters of gas had gone missing and were now considered Ukrainian debt. The gas firm earlier this month threatened to reduce supplies to Ukraine over payment arrears of $1.5 billion.

"This cannot go on. If the problems are not settled, to uphold its economic interests in view of (Ukraine's) failure to pay for gas, Gazprom will from 10 a.m. (0700 GMT) March 3 cut gas supplies to Ukrainian consumers by 25 percent," it said.

Ukrainian President Viktor Yushchenko's office said that Kremlin leader Vladimir Putin had warned Yushchenko by telephone that Gazprom could start cutting supplies as early as Wednesday.

"President V. Putin stated that the payments made so far for gas consumed are clearly unequal to the whole debt and cannot be sufficient for further uninterrupted gas supplies to Ukraine," Yushchenko's secretariat in Kiev said in a statement.


Yushchenko and Putin clinched a last-minute deal on February 12 to settle payment of Ukrainian arrears for gas supplies and, over time, to eliminate intermediary trading companies involved.

Yushchenko's office also said the president ordered Prime Minister Yulia Tymoshenko, who last week discussed gas supplies in Moscow with Putin and Gazprom chief executive Alexei Miller, to implement the Moscow agreements between the two leaders.

"The president urged the prime minister to implement immediate, far-reaching measures to eliminate Ukrainian arrears for gas and carry out all agreements," it said in a statement.

Ukraine's state oil and gas firm, Naftogaz, said it would transfer to Gazprom 1.175 billion hryvnias ($233 million) this week in addition to $300 million already paid in February.

Gazprom has often threatened to cut gas supplies during disputes over price with former Soviet neighbours Ukraine and Belarus, but has never made good on the threats except in 2006. During a similar row with Ukraine earlier this month, Gazprom said that its gas exports to Europe, 80 percent of which goes via Ukraine, would not be affected.

The European Commission said on Tuesday a renewed dispute would not affect supplies to European Union member states.

"Gazprom has informed the Commission about the renewed commercial dispute with Ukraine," a spokesman for the EU executive said. "Gazprom has assured the Commission that gas supplies to the European Union will not be affected."

The gas giant has also said that the cut would only affect supplies of gas produced in Russia, a quarter of Russia's overall gas shipments to Ukraine. The flow of Central Asian gas, which amounts to 75 percent of exports, would not be affected.