Gazprom Warns Ukraine of Gas Reduction

Ukraine's President Viktor Yushchenko. Russian energy giant Gazprom said Ukraine must settle $1.3 billion in debt for supplies.
Ukraine's President Viktor Yushchenko. Russian energy giant Gazprom said Ukraine must settle $1.3 billion in debt for supplies. (By Ivan Sekretarev -- Associated Press)
By Peter Finn
Washington Post Foreign Service
Wednesday, October 3, 2007

MOSCOW, Oct. 2 -- The Russian energy giant Gazprom announced Tuesday that it would begin reducing deliveries of natural gas to Ukraine unless the neighboring country quickly settles a $1.3 billion debt for supplies already pumped there.

In a statement, the state-controlled company said that "if the debt is not settled in October, Gazprom will be forced to begin decreasing deliveries of natural gas for consumers in Ukraine."

Ukraine is a key transit point for Russian gas destined for Western Europe, and the statement raised the prospect of a rerun of the early 2006 standoff that led to cuts in supplies to Europe and accusations that the Kremlin was using energy as a political lever.

Ukrainian officials said the country could not owe anything directly to Gazprom because a series of middle companies stood between Gazprom and Ukrainian consumers.

"Such debts based on today's type of legal agreements and legal relationship cannot exist," said Yuri Prodan, deputy head of the National Security and Defense Council of Ukraine, speaking in Kiev. "The agreement is such that there cannot be direct debts to Gazprom."

Gazprom officials insisted Tuesday that the dispute was purely economic and that the company had waited until after Sunday's parliamentary election in Ukraine to ask for the money lest it be construed as political interference.

The 2006 dispute followed the election of Viktor Yushchenko to the presidency and the formation of a pro-Western government that had strained relations with Moscow. Tuesday's announcement came as votes in Sunday's elections were still being counted in Ukraine, but a coalition government led by Yushchenko's ally Yulia Tymoshenko appears close to securing a narrow majority in parliament.

Gazprom sells gas to Ukraine for about half its export price to Europe, and no price has been agreed upon for 2008. Allies of Yushchenko said in interviews last week that they feared a "price shock" if the outgoing pro-Russian prime minister Viktor Yanukovych were not returned to power.

In early 2006, Gazprom accused Ukraine of broadening the crisis by siphoning off gas that was intended for Western Europe, which depends on Russia for a quarter of its supplies. Some European Union countries are almost entirely dependent on Russian natural gas.

Gazprom said it intends to keep supplying gas farther west, but the company depends on pipelines controlled by Ukraine to reach European Union countries.

In a statement Tuesday, the European Commission, the E.U.'s executive arm, said it urged both sides "to find a speedy settlement for this issue."

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