Ukraine declares state of emergency in energy sector

KIEV - Ukrainian Prime Minister Arseny Yatsenyuk on Monday declared a "state of emergency" in the country's energy sector after Russia reportedly suspended its natural gas supplies to Ukraine.

"I authorize the Energy Ministry and Justice Ministry to prepare a draft law on state of emergency in the energy sector," Yatsenyuk said while opening a government meeting.

Yatsenyuk asked the National Regulatory Commission to set "economically justified" tariffs for the transit of Russian gas through Ukrainian territory, saying that Kiev has no plans to "subsidize" Russia any longer.

He also instructed the Energy Ministry to prepare a bill to woo investments from the United States and the European Union to finance the modernization of Ukraine's gas transit network.

Earlier in the day, Russian energy giant Gazprom said it had filed a lawsuit at the Stockholm arbitration court demanding Ukraine pay off some 4.5 billion dollars of gas debt and decided to introduce a prepayment regime with Ukrainian gas firm Naftogaz.

In a countermeasure, Naftogaz also filed a lawsuit at the Stockholm court to contest the pricing of natural gas it imports from Gazprom, claiming that it has "overpaid" Russia by around 6 billion US dollars due to an "unfair" gas contract.

"The lawsuit also contains a requirement to recover an amount of money from Gazprom, which Ukraine has overpaid since 2010," Naftogaz said in a statement.

The two sides have been locked in dispute for three years over a 2009 contract under which they agreed to tie the price of gas to the international spot price of oil.

Russia initially demanded Ukraine pay 485 dollars per 1,000 cubic meters of gas. Moscow then offered to remove an export duty, which would cut the price by 100 dollars. Ukraine had been holding out for a lower price of just over 268 dollars.

On Friday, Ukraine said it was ready to pay 326 dollars for the next 18 months while the two sides worked out a long-term price deal, but the two neighbors failed to reach a compromise during their weekend talks.

Ukraine has enough gas to meet domestic demand in the next six months, Naftogaz chief executive Andriy Kobolev said Monday.

"We have time at least until December to solve the problem," he told a cabinet meeting, explaining that Ukraine has around 14 billion cubic meters of gas in its underground reservoirs and plans to import 16 billion cubic meters of fuel from the European spot market to meet domestic needs.

A German company is ready to sell gas to Ukraine at the price of 300 US dollars per 1,000 cubic meters, Kobolev said, without giving the name of the firm.

He added that Naftogaz has also asked the European Commission to allow increased reverse gas flows to Ukraine through Slovakia in light of the termination of Russian supplies.

According to a deal signed by Kiev and Bratislava in April, Ukraine could annually import around 8 billion cubic meters of gas from the European market through Slovakia.

Ukrainian Energy and Coal Minister Yury Prodan, who was also attending the cabinet meeting, pledged that Russia's gas transit to Europe through Ukrainian territory would not be affected.