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Russia starts cutting off gas to Ukraine

Posted on: Sunday, 1 January 2006, 06:21 CST

By Christian Lowe

MOSCOW (Reuters) - Russia began cutting off gas to Ukraine in a dispute that could hit deliveries to a wintry Europe on the very day that Moscow began its first term as chairman of the Group of Eight industrialized nations.

The Russian state-owned supplier, Gazprom, said it had begun reducing pressure in the pipeline supplying Ukraine on Sunday after Kiev refused to pay the increased price Moscow was demanding.

"In this situation, which is the fault of the Ukrainian side, we have been forced to start reducing pressure in the pipeline to Ukraine," Gazprom spokesman Sergei Kupriyanov told a news briefing.

Gazprom supplies 25 percent of western Europe's gas -- most via Ukraine. It insisted deliveries to western Europe would not be affected but Italy's gas importer said Gazprom had warned it that disruption was possible.

Though Russia says it is purely a business dispute, the gas cut-off has fed concern from Washington to Berlin that the Kremlin is prepared to use its control over its massive energy resources as a political weapon.

Ukraine's Western-leaning president, Viktor Yushchenko, has irked many in Moscow by trying to take his ex-Soviet state on Russia's western border into NATO and the European Union.

That, say Ukrainian officials, is why the Kremlin is punishing Ukraine with such a huge price increase while letting more Moscow-friendly ex-Soviet states such as Belarus go on paying far less for Russian gas.

Moscow took over the rotating G8 chairmanship for the first time from Britain on New Year's Day, and its tenure is certain to come under intense international scrutiny.

"Russia wants to make energy security its key message to the G8 community, and simultaneously it is becoming a source of danger, intentionally or unintentionally," said Valery Nesterov, energy analyst at Troika Dialog brokerage in Moscow.

EUROPEAN DISRUPTIONS?

Gazprom's decision to start cutting gas pressure effectively means the Russian gas allotted for Ukraine's consumption is being taken out of the pipeline system.

Moscow insists this will leave enough gas to continue supplying western Europe as normal -- provided Ukraine does not dip into supplies being pumped further afield. Eighty percent of Russian gas exports to western Europe pass through Ukraine.

Russia's NTV television -- owned by Gazprom -- quoted Alexander Nemudrov, a Gazprom official at a pumping station in Slovakia, as saying gas flow out of Ukraine was already falling.

That suggested Ukraine was making up for a shortfall by drawing gas intended for other countries. Gazprom officials in Moscow said they would not know definitely if that was the case until later on Sunday.

Ukraine's Emergency Ministry said no drop in the pressure of gas arriving from Russia had been registered by about 1000 GMT.

Gazprom said if supplies to western Europe were disrupted, Ukraine would be to blame.

"The Ukrainian authorities were determined to have a conflict from the start, and from January 1 to ... start stealing gas from European consumers," Kupriyanov said.

The Italian oil and gas firm Eni said it had been warned by Gazprom that supplies could be disrupted.

Central European states have set up contingency plans. Poland says it has at least a week's reserves.

The EU has called a meeting of member states' energy officials for Wednesday to work out a common approach.

Moscow is seeking a rise in the price of gas it sells to Ukraine to $230 per 1,000 cubic meters from the current $50 -- a level that reflects Soviet-era subsidized rates. Ukraine agrees in principle but wants a transitional period.

Yushchenko, propelled to power in the "Orange Revolution" of a year ago, has linked the gas switch-off to the start of campaigning for a parliamentary election on March 26 in which he faces a tough challenge from pro-Moscow parties.

(Additional reporting by Anatoly Titkin and Dmitry Zhdannikov in Moscow and Olena Horodetska in Kiev)

Source: REUTERS

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