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Russia and Ukraine face off over gas again

Russia said on Thursday Ukraine must repay a $2.4 billion gas debt, but Kiev denies the claim, raising fears the two sides face another battle in their gas war, which has threatened European supplies in the past.  

Russia has often threatened to cut gas supplies during pricing disputes with Ukraine and has fulfilled the threat in early 2006, briefly halting supplies to Europe, 80% of which go via Ukraininan territory. Russian president Dmitry Medvedev has ordered gas export monopoly Gazprom to ask Ukraine to pay back its gas debt to Russia, which Gazprom estimated at $2.4 billion.

“We need to fully clarify ourselves with Ukraine’s debt and recover it on a goodwill or compulsory basis. As it is stated in the current legislation and within the frames of our bilateral relationships,” Vesti 24 TV channel showed Medvedev as saying to Gazprom’s chief executive Alexei Miller at a meeting in the Kremlin.

But Ukraine’s state energy firm Naftogaz said its debt to RosUkrEnergo, a Russian-Ukraine intermediary gas trader, co-owned by Gazprom, is nearly half of what Gazprom estimates. “Today our debt with all of the nuances taken into account is $1.26-$1.27 billion... We are buying all the gas from RosUkrEnergo, so we do not have any debts to Gazprom,” Vladimir Trikolich told reporters. RosUkrEnergo said the Naftogaz information was wrong and confirmed Gazprom’s figure.

“As of today taking into account the current month’s supplies, Naftogaz Ukraine’s financial liability according to its contract with RosUkrEnergo amounts to $2.4 billion,” said RosUkrEnergo spokesman Andrei Knutov. “Ukraine’s debt prevents RosUkrEnergo from timely and full accounts with Gazprom,” Knutov added.

Swiss-registered RosUkrEnergo, Gazprom’s 50/50 venture with two Ukrainian businessman, supplies to Ukraine is a mixture of fuel from Russian fields and cheaper Central Asian gas. Ukraine imports about 55 billion cubic meters of gas annually, buying most from RosUkrEnergo. Besides the trader, Gazprom’s Ukrainian unit has the right to supply no less than 7.5 billion cubic meters to Ukrainian consumers.

Russia and Ukraine have repeatedly said they need to get rid of intermediaries in gas trade. Gazprom said last week it has agreed to directly supply Ukraine with a minimum of 55 bcm of Russian gas next year. But the two sides have yet to agree the price of the supplies and analysts say the negotiations could lead to another crisis as the issue is closely connected with the unstable political situation in Ukraine. “Unfortunately, one cannot rule out such a development... Especially that gas talks between Russia and Ukraine serve as an important factor in political struggle,” Valery Nesterov from Troika Dialog investment bank told Reuters. “Taking into account instability of Ukraine’s government and their continued differences, the end of the year may again become harsh,” he added.

Ukraine’s Prime Minister Yulia Tymoshenko, who is in a political stand-off with President Viktor Yushchenko, has been accused by critics at home of turning to Moscow for political backing after earlier being noted as a critic of the Kremlin, especially over energy policy.

Gazprom has long said it wants to switch to market prices with ex-Soviet states and has previously indicated it could increase the price for Ukraine to $400 per 1,000 cubic meters from the $179.50 it pays now. Gazprom has said its gas export price to Europe has reached a record $500 per 1,000 cubic meters in the fourth quarter of this year. Tymoshenko said she was trying to convince Gazprom to keep the current price. (Reuters)