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The Times: Gazprom issues new ultimatum to Ukraine: pay $1.3bn bill or gas will be cut

October 3, 2007
Carl Mortished, International Business Editor

Gazprom said yesterday that it would cut supplies of natural gas to Ukraine if a $1.3 billion (£636 million) debt was not settled this month. The warning from Moscow was delivered just as pro-Western parties claimed a lead in closely fought parliamentary elections in Ukraine.

The country is a key transit point for Gazprom’s exports to Western Europe.

A spokesman for Gazprom said yesterday that the European Commission had been told of the situation and he denied that the action had any relation to the Ukraine elections.

“Gazprom has been delivering gas for nine months with incremental nonpayments,” he said. The company had deferred its threat of cutting off supplies until after the election so that it could not be accused of twisting arms, he added. “We are trying not to push this issue during elections, the spokesman said.

Yesterday the European Commission called for a speedy settlement of the dispute. According to Gazprom, RozUkrEnergo, the local gas supplier, has failed to pay for gas supplied since a new contract was agreed nine months ago. Gazprom suggested that the Ukrainian utility was suffering from nonpayment problems with its own customers.

The Russian company would not give a deadline, which it said would emerge in the continuing discussions, but it suggested that there was pressure to resolve the matter soon.

“With the onset of autumn and winter, when gas consumption traditionally rises, we are mindful of the need to resolve this issue urgently,” the Gazprom spokesman said.

The Russian utility’s action raised the prospect of a rerun of events in January last year, when Gazprom cut off Ukraine in a dispute over gas prices. The New Year’s Day shutdown took gas companies across Europe by surprise and led to sudden reductions in pipeline pressure in Austria, Italy and Germany as Ukraine lifted volumes from transit pipelines to maintain its own supplies.

Gazprom was accused of bullying its neighbour, but the Russian company rounded on Western critics, accusing them of hypocrisy. The company said that it wanted a proper price for its gas and could not be expected to continue to subsidise an independent country with gas at a fifth of its market value.

Both sides claimed victory yesterday in Sunday’s elections in Ukraine, with the Orange Revolution alliance of President Yuschenko and the right-wing Yulia Tymoshenko marginally ahead of Viktor Yanukovych, the Prime Minister.

Critics of Gazprom claim that the decision to cut off the former Soviet Republic was linked to Kremlin anger over the pro-Western stance of Mr Yuschenko and his support for joining the European Union and Nato.

Under a deal that is set to expire at the end of December, Ukraine pays $130 per 1,000 cubic metres for Russian gas – significantly less than the $230 price demanded by Gazprom in the last stand-off.

The Russian utility has sought big price increases from all its former satellites, including Moldova and Belarus.

An effort by Gazprom to secure control of transit pipelines to Western Europe is believed to be an underlying factor in the confrontation. The transit states earn significant revenues from the pipeline and reduce the value of Russia’s gas exports.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article2578197.ece

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