In Ukraine, Rivals Unite Over Russian Gas

By Philip P. Pan
Washington Post Foreign Service
Friday, January 2, 2009

MOSCOW, Jan. 1 -- Ukraine's feuding leaders united behind a common negotiating position and held firm in their fuel standoff with Moscow on Thursday as Russia followed through on a threat to halt all shipments of natural gas to the country.

The cutoff began as scheduled at 10 a.m. after talks over energy prices broke down the night before. The European Union -- which gets a quarter of its natural gas from Russia, most of it through Ukraine's pipelines -- expressed concern and urged the neighboring nations to resume discussions.

Gazprom, the Russian gas monopoly, said it was increasing shipments intended for its European customers in an attempt to prevent any midwinter disruption in heating and electricity service caused by its suspension of supplies for Ukraine.

A similar cutoff in 2006 caused pressure in pipelines to fall and resulted in fuel shortages in several parts of Europe. But analysts said most countries have enough gas stockpiled this winter to last several days without fresh supplies from Russia.

Energy firms in several European nations said they saw no drop in supplies as a result of the Russian embargo against Ukraine. The Ukrainian government, which said it had enough gas in reserves to last through early April, reported that domestic consumers were not immediately affected either.

The dispute revolves around Russia's demand that Ukraine pay higher prices for gas this year and cover more than $2 billion in debt for gas it purchased in 2008. But talks have been complicated by the Kremlin's strained relations with Ukraine's pro-Western government and by an intense rivalry between Ukraine's president, Viktor Yushchenko, and its prime minister, Yulia Tymoshenko.

The two officials, allies in the 2004 demonstrations known as the Orange Revolution, are expected to compete for the presidency in October and have accused one another of mishandling the gas dispute while maneuvering to take credit for winning concessions from Russia.

But in a joint statement issued Thursday, Yushchenko and Tymoshenko agreed on an offer to Russia of $201 per 1,000 cubic meters of natural gas, up from the $180 that Ukraine paid last year. They also demanded that Russia pay higher fees to use Ukrainian pipelines for its shipments to the rest of Europe.

"I am sure that a few more days will pass, and we will complete these complex talks," Yushchenko said in a statement, predicting a deal by Christmas, which will be celebrated Wednesday in the Eastern Orthodox Church.

Oleh Dubyna, chairman of Ukraine's state energy firm, Naftogaz, appeared to improve the offer later in the day, saying at a news conference that the firm was willing to pay $235 per 1,000 cubic meters of gas.

Russian Prime Minister Vladimir Putin had set a price of $250, describing it as a "humanitarian" gesture to a neighbor during an economic crisis. But Gazprom chief executive Alexei Miller said Thursday that the company was now asking for $418 because Ukraine had turned down that offer.

Gazprom's European customers generally pay more than $400, though gas prices are expected to fall sharply in the spring because they are tied to the price of oil, which has plummeted.

Putin has condemned Ukraine's attempt to charge more for use of its pipelines, arguing that fees were set in a separate contract that remains in effect until 2010. Gazprom pays $1.70 for every 1,000 cubic meters of gas delivered through 62 miles of pipeline, a rate it says is "comparable" to what it pays other European countries.

But Yushchenko and Tymoshenko said the fee is half what others charge, and they demanded it be raised to $2 to cover the cost of maintaining the pipelines. Dubyna later said Ukraine would accept $1.80.

Sergei Kupriyanov, a spokesman for Gazprom, said the fee was not negotiable. "The transit agreement was signed, the rate is set and there is nothing more to discuss," he told Echo Moskvy radio. He added that Gazprom was doing all it could to avoid a disruption in supplies for Europe but complained that Ukraine was refusing to let auditors determine whether it was stealing supplies meant for Europe.

Dubyna said Ukraine was not legally required to do so. He acknowledged that Naftogaz was siphoning off some gas intended for Europe but said that was only to maintain pressure in the pipeline and ensure smooth delivery. Ukraine has repeatedly pledged not to disrupt deliveries to Europe.

Kupriyanov also accused Ukraine of provoking the crisis for political reasons, a charge that was made repeatedly Thursday by pundits on state-controlled media.

"It's not a question of the conditions or prices that were discussed," he said. "The purpose was to drag out the conflict to the utmost, to start the new year without contracts, without deliveries. . . . Any problems are to their benefit because they can shift the blame on us."

© 2009 The Washington Post Company