Russia Cuts Off Gas to Ukraine In Controversy Over Pricing

By Peter Finn
Washington Post Foreign Service
Monday, January 2, 2006

MOSCOW, Jan. 1 -- The state-controlled Russian energy giant Gazprom cut off the supply of natural gas to Ukraine on Sunday after weeks of intense negotiations, including a last-minute intervention by Russian President Vladimir Putin, failed to resolve a dispute over pricing.

The dispute is ostensibly centered on Gazprom's desire to move immediately to market pricing and Ukraine's willingness to accept only a phased transition to the kind of prices paid in Western Europe. But the standoff has a fraught political backdrop and could also have potentially far-reaching implications for Europe, which is increasingly dependent on Russia for natural gas.

Russia has long used cheap natural gas to maintain influence in the former republics of the Soviet Union. Ukrainian officials say the price increase, far steeper than for other former Soviet republics, is politically motivated and is punishment for the pro-Western policies of President Viktor Yushchenko, who is committed to making the country of 47 million people a member of NATO and the European Union.

In a New Year's Day address, Yushchenko tried to rally his countrymen.

"A year ago, we beat the dictatorship and won a real victory," he said, referring to the popular movement that swept him into power after elections in which he defeated a pro-Kremlin candidate. "Today we have to go a step further to ensure together Ukraine's economic independence."

Sergei Kupriyanov, a Gazprom spokesman, said in Moscow on Sunday that the company had reduced pressure in the pipeline entering Ukraine, leaving only the amount of gas that is pumped across the country to markets in Western Europe. Russia supplies about half the natural gas used in the European Union, and 80 percent is shipped through pipelines across Ukraine.

There are fears that Ukraine, which receives about one-third of its gas from Russia, could siphon off supplies intended for customers farther west and trigger energy crises in other countries.

"From the very beginning, the Ukrainian authorities had plans to begin to use gas without permission from January 1," Kupriyanov said. "To be more precise, they planned to start to steal gas -- steal it from European consumers."

Ukrainian officials have sent mixed messages about their intentions. Yushchenko has said that supplies to other European countries would not be affected by the dispute, but Ukrainian Prime Minister Yuri Yekhanurov said his country was entitled to 15 percent of the gas that crosses Ukraine as a transit fee.

Naftogaz, the state-owned Ukrainian energy company, said in a statement Sunday that Gazprom, in cutting off supplies to Ukraine, had also decreased the amount intended for Europe. Gazprom's spokesman said the Ukrainians would answer for that claim in court.

Gazprom's tactics are raising longer-term concerns in Western Europe.

In Germany, the government of recently replaced Chancellor Gerhard Schroeder had championed a multibillion-dollar deal to build a pipeline from Russia to Germany across the Baltic Sea, bypassing the Baltic states and Poland. The new pipeline will be controlled by Gazprom with German partners holding minority stakes. Construction started last month.

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