Russia Continues to Withhold Gas

Updated from 1/1/2009

By Douglas Birch

MOSCOW -- Ukraine sought support Friday in European capitals a day after Russia cut off gas supplies and hardened its stance on prices.

But the two countries pledged they would keep gas flowing to the rest of Europe, and as of late Friday afternoon there were no reports of interruptions in shipments beyond Ukraine.

In 2006, customers as far away as Italy and France were affected after Russia cut off gas to Ukraine in a similar dispute over prices and overdue bills. The European Union depends on Russia for about a quarter of its gas, much of it flowing through pipelines across Ukraine.

On New Year's Day the Russian state-controlled energy giant Gazprom said Ukraine, with a population of 46 million, had failed to pay an outstanding $2.1 billion bill -- and stopped pumping gas.

The move came after Ukraine made a $1.5 billion overdue payment.

Russia is demanding another $600 million, including $450 million penalties for the late payment for gas shipped in November and December.

There were no face-to-face discussions between Russia and Ukraine by late afternoon Friday. But Bohdan Sikolovsky, energy adviser to Ukrainian President Viktor Yushchenko, told The Associated Press "our people are ready to leave for Moscow at any moment to conduct negotiations."

Meanwhile a delegation headed by Energy Minister Yuriy Prodan, and including the deputy chief of gas company Naftogaz, Volodymyr Chuprun, was in Europe conducting a series of meetings with government officials.

"Our aim is to explain our position to our European partners on the situation which arose in the gas sphere," Sikolovsky in a telephone interview from Bratislava. "We are informing them on how the negotiations are going, we are stating our negotiating position."

Sikolovsky also said Ukraine was trying to reassure its neighbors that it would not interrupt gas supplies.

"We told them that Ukraine is fulfilling all of its transit obligations and they have no doubts about that," he said.

Earlier, the Ukrainian delegation visited Prague. Their last stop was scheduled for Brussels.

Gazprom also wants to charge Ukraine higher gas prices for 2009. Ukraine, meanwhile, says Russia should pay more to ship through its pipelines, which carry 80% of the gas Russia sells to European Union customers.

The long-running commercial dispute also reflects strained relations between the two former Soviet nations that developed after Ukraine's 2004 Orange Revolution, which brought a pro-Western government to power.

Ukraine has since sought to join NATO and supported Georgia during its brief war with Russia in August -- moves that angered the Kremlin, which has accused the West of seeking to surround and weaken Russia.

The recent decline in energy prices has hit Russia hard, and Gazprom faces a sharp drop in demand for energy.

Experts say efforts to resolve the dispute are also hampered by divisions within Ukraine's leadership. President Yushchenko and Prime Minister Yulia Tymoshenko are bitter political rivals.

Despite the continuing cutoff and apparent absence of talks, there seems to be little sense of urgency over the deadlock in Kiev or Moscow. Experts say both Ukraine and Europe have significant stockpiles of gas.

At one point Gazprom said it would accept $250 per 1,000 cubic meters of gas, close to the $235 that Ukraine has offered.

But late Thursday Gazprom CEO Alexei Miller toughened his company's stance, resuming an early demand of $418 per thousand cubic meters, the price Russia will charge European customers over the next few months.

Those prices are expected to slide considerably later this year, as the gas market begins to reflect the fall in world oil prices.

Miller said the $250 offer was taken off of the table after Ukraine rejected it. Last year, Ukraine paid $179.50 per 1,000 cubic meters of gas.

Gazprom has agreed to pay three Central Asian countries an average of $340 per 1,000 cubic meters for gas it resells in Europe.

Kiev in turn wants to raise the cost of transporting gas from $1.70 to $1.80 per 1,000 cubic meters per 100 kilometers. Russia has rejected the proposal.

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Associated Press writers Maria Danilova in Ukraine, Lynn Berry in Moscow and Robert Wielaard in Brussels contributed to this report.