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Russia, Ukraine in new gas talks as deadline nears

  Top Russian and Ukrainian energy executives begin talks in Moscow on Monday in an attempt to clinch a last-minute deal that would allow Kiev to receive gas after Jan. 1 and guarantee smooth gas transit to Europe.

 

“Our team went to Moscow. The main issue is to resolve the financial problems and the issue of future supply and gas price,” said Valentyn Zemlyansky, spokesman for Ukraine’s state energy company Naftogaz.

Russia and Ukraine are locked in a gas dispute, the fourth in as many years, and Russian gas export monopoly Gazprom says there is a 50% chance it could cut supplies from Jan 1 if Ukraine does not pay off its arrears.

The only major cut by Gazprom of supplies to Ukraine occurred in January 2006 and the move had a knock-on effect on Europe, which receives a quarter of its gas needs from Russia. Gazprom has already warned European customers it fears Ukraine could resume what the gas giant describes as siphoning gas from transit pipelines.

Kiev says it will respect all obligations and has enough reserves in underground storage to withstand a cut. But Naftogaz said this month that if supplies are reduced it has no intention of using up its reserves to ensure Russian gas gets to European customers. It says it needs up to 7 bcm of “technical gas” to keep the pipeline operating.

The European Union and the United States have called on both sides to quickly reach a compromise to guarantee uninterrupted supplies to Europe. The dispute is being played out as the economies of both countries grapple with the effects of the global financial crisis, with production down, jobs cut and currencies being devalued.

A political dispute in Ukraine between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko is aggravating the dispute as the two sides deliver conflicting statements about gas relations with Russia.

“I would not like to see the Ukrainian delegation celebrating the New Year near Gazprom and (Gazprom) showing how the taps are being turned off,” Ukraine’s parliament chairman Volodymyr Lytvyn told Ekho Moskvy radio while visiting Moscow. “In today’s difficult situation Russia has to show generosity,” said Lytvyn, elected as the assembly’s chairman this month with a reputation as a skilled mediator.

Gazprom says Ukraine must pay over $2 billion by year-end. Ukraine says the sum is smaller and may be paid in the New Year. Gazprom has proposed Ukraine count the debt against future fees for Russian gas transit and also suggested Ukraine could give back stockpiled gas. Ukraine has turned down the proposals.

Russia and Ukraine have yet to agree on the 2009 price of gas. Kiev pays $179.50 per 1,000 cubic meters compared with $500 in Europe, where gas and oil prices are set to decline. (Reuters)