Gazprom Threatens to Cut Gas to Ukraine

By Nataliya Vasilyeva

MOSCOW -- Russia's state-owned natural gas company Gazprom will stop shipments to Ukraine if it doesn't pay a $2 billion debt and agree to sharply higher payments for future deliveries by New Year's Eve, the company's chief executive said Tuesday.

Ukraine faces a replay of the January 2006 crisis, when a cutoff of Russian gas shipments resulted in a reduction of supplies in Europe. Gazprom supplies a quarter of the gas used by EU nations, and around 80% of it goes through Ukraine.

But this year could be worse. The financial crisis has hit Ukraine harder than most other European countries, and Kiev was recently forced to seek $14.5 billion in aid from the International Monetary Fund.

"The countdown has started," Gazprom CEO Alexei Miller said in a televised statement. "If Ukraine doesn't pay off the debt by Dec. 31, Gazprom will have no grounds to continue shipping gas to Ukraine."

Miller said Gazprom is demanding that Ukraine pay $418 per 1,000 cubic meters for future deliveries, roughly what Russia charges other European consumers. That would more than double the current price of $179.50.

While Gazprom's European customers now pay the higher price, the cost of gas is expected to fall sharply in coming months as a result of the steep drop in the price of oil.

For months, Russia and Ukraine have been locked in a dispute over past and future natural gas shipments from Gazprom, which has been seen the value of its stock slip by almost 75% since the start of the global financial crisis.