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Russia's Gazprom threatens Ukraine cutoff over debt

Russian gas export monopoly Gazprom geared up for a new confrontation with Ukraine, saying it would cut off its neighbor from January as Kiev was unable to meet its arrears by the end of the year.

The company's deputy chief executive, Alexander Medvedev, told a news conference Gazprom understood Ukraine was able to pay only $800 million of arrears of more than $2 billion.

Gazprom executives said they would warn European customers about the risks of gas transit via Ukrainian territory in view of the dispute over debt payments.

European companies have closely watched recurring disputes between the two ex-Soviet neighbors since a brief cutoff of supplies to Europe resulted from one such row in early 2006.

The head of the Ukrainian state energy company Naftogaz, Oleh Dybyna, flew to London for talks on transit with senior EU officials.

Gazprom has said the arrears must be settled as talks proceed on a supply and pricing agreement for 2009.

In Kiev, President Viktor Yushchenko said Ukraine had already paid $800 million as part payment for the arrears and a further $200 million would be paid soon.

“We should have no debts,” Yushchenko said at Kiev airport in televised comments after talks with Naftogaz head Dubyna.

Yushchenko, quoted by UNIAN news agency, said the debts had accumulated after Naftogaz pumped large amounts of gas into storage areas to guard against shortages to consumers.

“I don't know whether the priority here is price or a question of national security,” he was quoted as saying. “It is clear that Naftogaz was motivated by ensuring supplies of gas for the most difficult period of January-February.”

Naftogaz officials have said that a record amount of gas now lies in underground storage - more than 28 billion cubic meters, with 17 billion cubic meters belonging to the company.

Ukraine has faced substantial annual increases in the price it pays for gas imported from Russia, with the 2008 price set at $179.50 per 1,000 cubic meters - considerably below the European market rates.

Ukrainian Prime Minister Yulia Tymoshenko agreed in talks in October with her Russian opposite number, Vladimir Putin, that prices would rise to market levels over three years.

But Gazprom has threatened to push up the price to $400 next year if arrears remain unpaid.

Tymoshenko says the talks are being hindered by rows over her demand to eliminate intermediary companies from the gas trade between the two countries.

But Medvedev said Gazprom would be unable to switch to direct gas deals with Ukraine without the use of intermediaries in the current situation. (Reuters)