Ukraine and Gazprom square off for annual gas row

Moscow is threatening to cut off gas supplies to Ukraine over unpaid bills. It follows a statement from Kiev that it won’t be able to clear its debt to Gazprom by the end of the year. Russia says European consumers won’t be affected by the dispute.

During talks in Moscow on Wednesday, Naftogaz – Ukraine’s state-run gas company – told its Russian counterpart that it was unable to pay for gas deliveries made in November and December.

Payment of the debt is necessary before a contract between Gazprom and Naftogaz can be sealed. In response, Gazprom may cut gas deliveries by January 1.

“The situation is very complicated and I would even call it critical, as in the long run we could find ourselves in a position without any contract for the delivery of Russian gas to Ukrainian consumers from January 1, 2009,” Gazprom’s spokesman, Sergey Kupriyanov said.

“The transit gas to Europe, however, will be supplied in full and we will fulfill all our obligations to European consumers,” he said.

Russian exports supply about a quarter of the EU’s gas needs and about 80 per cent of that flows through Ukraine.

In 2005, following a price dispute, Gazprom shut off the gas supply to Ukraine. In response, Kiev started siphoning off gas illegally. This resulted in disruptions of gas deliveries to Europe. Gazprom is counting on promises made by Ukraine not to interfere with supplies to Europe.

Some experts are not optimistic. Aleksandr Pikayev from the Institute of World Economy and International Relations believes this time Ukrainians would do the same.

“Ukrainian authorities have already hinted at that saying they might need an extra 6 to 7 billion cubic metres of gas for technical reasons,” he said.

Déjà Vu? Gazprom says that in 2005 it was a price dispute, but now it’s about paying the debt.

“The situation is very different now. We have two separate contracts for transit and for deliveries and they are not interlinked,” Kupriyanov said.

The negotiations have dragged on for months, but haven't brought results.

President Viktor Yushchenko says he’s got it covered. One of the solutions on offer from Kiev is the return of unused gas.

“Even in IKEA stores the return period for goods is 30 days, not more. But our contracts do not stipulate any return clause,” Gazprom’s spokesman commented.

In 2005, Ukraine used the dispute with Gazprom to accuse Russia of applying political pressure.

Three years on, it seems gas is a key card in Ukraine’s own political games.

Analyst Aleksandr Pikayev said: “Ukraine is in a very difficult economic situation.”

“The country is close to national currency default. Therefore, Ukrainian authorities have to demonstrate that the country’s economy is not in that bad shape and even the dispute with Russia has been solved.”

As Ukrainian leaders blame the crisis on each other, a resolution seems a long way off. Come the New Year, Ukrainian gas customers may find things getting a lot colder.