Ukraine gas crisis escalates
(Agencies)
Updated: 2006-01-03 06:32

MOSCOW/KIEV: A day after Russia severed natural gas supplies to Ukraine, tensions rose further yesterday as the Russian state gas company Gazprom accused the Ukrainians of stealing millions of dollars in exports intended for European customers.

On January 1, the day Russia finally turned off the taps after a prolonged pricing dispute, Ukraine illegally diverted 100 million cubic metres of gas for its own use, the company claimed.

"The cost of Russian gas stolen by Ukraine over the 24 hours was more than US$25 million," Gazprom deputy CEO Alexander Medvedev said in Moscow.

Ukrainian Minister of Fuel and Energy Ivan Plachkov rejected the theft charge and said Ukraine would cover its immediate needs from reserves and using gas from its other key supplier Turkmenistan.

President Viktor Yushchenko flatly contradicted Moscow's claim that gas from the Central Asian republic was no longer reaching his country via Russian pipelines.

Meanwhile, his prime minister, Yury Ekhanurov, moved to calm fears of widespread shortages.

"I want to make clear that the Ukrainian population will not feel the effects of the blockade at all," Ekhanurov stressed in Kiev as he outlined an energy economy programme.

Small users, central heating stations and state-run institutions such as schools and hospitals would be unaffected but heavy industry could suffer, he said.

Ukrainian authorities said the amount of gas flowing through a main pipeline at the border with Russia had fallen from 2 million cubic metres an hour to 450,000 cubic metres.

But enough gas was being fed into the lines to cover obligations to European countries, said Gazprom, which sends some 80 per cent of its European exports through Ukraine.

The company cut off gas for Ukraine's domestic use early on Sunday after Kiev refused to accept an almost five-fold price hike.

Gazprom demands that Ukraine now pay the market price of US$230 per 1,000 cubic metres of gas instead of the previous subsidized rate of US$50.

The escalating dispute has alarmed other customers, although the largest consumer, Germany, has said it has enough reserves and North Sea gas sources to weather the crisis.

German officials yesterday called on the conflicting countries to compromise but underlined that Berlin was not taking sides or seeking a role as mediator. "There is no finger-pointing from our side," said Foreign Ministry spokesman Martin Jaeger.

Hungary reported a 25 per cent decrease in gas from its pipelines and Austria experienced an 18 per cent drop. The shortfall would be covered from storage depots, said a spokeswoman of the Austrian oil and gas company OMV.

Poland experienced a slight drop in pressure in some eastern sections of its national gas pipeline grid but stocks also sufficed, assured Economy Minister Piotr Wozniak. Additional Russian gas could be received via Belarus, he added.

Russia's decision to choke the supply accompanies a deterioration in bilateral relations with Ukraine since Yushchenko came to power a year ago.

While the Foreign Ministry in Kiev has accused Moscow of using economic pressure and blackmail to destablize its economy, Yushchenko still hoped to resolve the matter through talks.

"We are for continued negotiations but are prevented by Gazprom insisting on US$230 and nothing else," the president said on Ukrainian television. "Ukraine is willing to pay a market price for gas, but US$230 is a virtual price, not a real one."

Faced with the prospect of a blockade, the government in Kiev threatened earlier to hike transit costs for billions of cubic metres of gas it pumps west for Gazprom. It also talked about raising the rent it charges Moscow for the use of the Crimean port of Sevastopol by Russia's Black Sea Fleet.

Reactions on the street in Kiev to the developments varied from shock at the rift between the two former Soviet republics to acceptance of market realities in the dispute.