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Gazprom threatens to cut off gas supply to Ukraine

State-controlled natural gas giant OAO Gazprom could cut off gas to Ukraine as early as Tuesday morning if agreement is not reached on settling a debt, Russian news agencies quoted a Gazprom spokesman as saying.

Sergei Kupriyanov's statement, reported on Friday, that Russian gas shipments could be halted at 10am came a day after Gazprom demanded Ukraine work out settlement of a US$1.5 billion debt by tomorrow.

The muddled dispute is being watched with anxiety in Western Europe, which receives much of its natural gas through pipelines crossing Ukraine.

Earlier on Friday, Ukraine's natural gas company, Naftogaz, conceded it owed money for gas, but said it did not owe the money directly to Gazprom.

Naftogaz deputy chairman Igor Didenko came to Moscow for talks with Gazprom on Friday, but they ended with no sign of progress.

"The meeting showed the complete unpreparedness of the Ukrainian side to discuss the essence of the matter," Kupriyanov was quoted as saying by the RIA-Novosti news agency.

The unexpected cutoff threat and the demand that the problem be solved within a few days raised tensions between Russia and Ukraine, already strong due to Ukraine's drive to join NATO and the EU. The threatened cutoff would come on the eve of Ukrainian President Viktor Yushchenko's planned official visit to Moscow.

The announcement also brought echoes of Russia's January 2006 gas dispute with Ukraine, when Gazprom halted shipments to Ukraine for several days as the countries argued about price. The cutoff disrupted supplies to Western European countries that get Russian gas through pipelines that cross Ukraine.

About one-quarter of the gas imported by Ukraine is of Russian origin and the rest comes from Central Asian countries, Gazprom officials said. But all of it comes in pipelines that cross Russia.

If the debt is not resolved, Gazprom said, it would cut only Russian-origin gas and promised that the move would not affect deliveries further downstream in countries beyond Ukraine.

The European Commission on Friday said it was closely monitoring the dispute and called on both sides to ensure Russian gas deliveries to Western Europe are not cut.

"We expect both Gazprom, as a supply company, and the Ukraine, as a transit country, [to] honor their contractual obligations with European consumers," EU spokesman Ferran Tarradellas Espuny said.

Naftogaz on Friday denied in a statement that it directly owed anything to Gazprom, but spokesman Dmitry Marunich conceded that it has not settled payments with one of the intermediate companies involved. He did not say how much money was owed.

Naftogaz buys its gas from UkrGazEnergo, which is a joint venture between Naftogaz and RosUkrEnergo, a Swiss-based middleman company that sells gas to UkrGazEnergo. RosUkrEnergo is half-owned by Gazprom.

Marunich did not specify how much money Naftogaz owed to UkrGazEnergo, which has said the amount claimed by Gazprom is approximately what Naftogaz owes.

If Naftogaz were to pay that amount, the money would have to be paid to RosUkrEnergo and sent on to Gazprom, UkrGazEnergo spokesman Vitaliy Kisel said.

A RosUkrEnergo spokesman declined comment on Friday, but the ITAR-Tass news agency quoted an unnamed company official as saying "the problem is that Naftogaz owes money to UkrGazEnergo."

Ukrainian Prime Minister Yulia Tymoshenko has vowed to eliminate the intermediary companies, which critics see as mechanisms for diverting money into private pockets.

She will also visit Moscow this month; it was unclear whether Gazprom's cutoff threat was connected to her opposition to the middlemen, although Gazprom export spokesman Ilya Kochevrin said on Thursday that the Russian company would be happy to sell directly to Ukraine.
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