Bitter Gas Delivery Dispute Deepens As Ukraine Rejects Russian Loan

KIEV, Ukraine -- Ukraine dug in its heels Thursday in a bitter dispute with Russia over gas deliveries, as President Viktor Yushchenko rejected President Vladimir Putin's offer of a multibillion-dollar loan to help Kyiv adjust to a huge hike in Moscow's price tag for gas.

A demonstrator holds a poster mocking Ukrainian President Yushchenko's campaign slogan 'Yes!' with a 'No' during a protest against the Ukrainian position in the Russian gas issue in front of the Ukrainian embassy in Moscow. Russia and Ukraine are in 'real crisis,' President Vladimir Putin said, as negotiations to resolve a gas price dispute went to the wire ahead of a January 1 deadline for Ukraine to accept a steep increase or see supplies cut off.

With Russia threatening to stop supplying gas to Ukraine on New Year's Day if no solution is found, Ukraine's state-run gas company said the country's 48 million people won't freeze and its factories won't go dark if Moscow follows through on the threat.

At a second day of talks in Moscow, Russian authorities stuck by their demand that Ukraine pay more than four times the current price, and no agreement was reached. The negotiations were to resume Friday.

Meanwhile, Russia tightened the screws by signing a new deal to purchase gas from Turkmenistan that analysts said would leave the Central Asian country with less to sell to Ukraine - which relies on Russia for about a third of its gas and Turkmenistan for 45 per cent.

The dispute has further damaged relations between Russia and Ukraine, two mostly Slavic, Orthodox Christian ex-Soviet republics whose common history goes back centuries but whose ties have been strained by the ascendancy of the westward-leaning Yushchenko a year ago.

Russia's state-run natural gas monopoly OAO Gazprom says it plans to halt gas deliveries to Ukraine on Jan. 1 unless Kyiv agrees to pay about $230 US per thousand cubic metres - up from the $50 it pays now.

"This is a price that Ukraine will never accept," the ITAR-Tass news agency and Russia's NTV television quoted Yushchenko as saying Thursday. According to ITAR-Tass, he added that the Russian price was "a provocation."

Ukrainian officials say they want a price increase phased in over several years and claim the sudden huge hike would cripple industry. Energy-intensive steel and heavy industries are a key component of the struggling country's economy.

Yushchenko said Ukraine wants a transition period of about three years to adjust to higher prices, and that an "objective" price for the Russian gas in Ukraine now is $75-80 US, according to his office.

Putin indicated the price was unacceptable, saying in the Moscow talks that Russia could no longer subsidize gas deliveries to Ukraine and that Kyiv must pay a market rate based on average European prices.

In comments shown repeatedly on state-controlled Russian television stations, Putin said Russia offered to loan Ukraine up to $3.6 billion to help it pay the higher price. "Even by Russian standards, this is a huge sum," he said.

Yushchenko rejected the offer, the Interfax news agency reported, saying his country was thankful for the proposal but that "Ukraine does not need these credits."

"Ukraine will rely on its own resources under a clear, correctly and objectively formed price," Interfax quoted him as saying.

Accepting a big loan from Russia would increase the Kremlin's clout in Ukraine as Yushchenko - who came to power after last year's Orange Revolution, beating a Russian-backed rival in a bitter presidential battle - seeks to move out of Moscow's shadow.

Source: AP

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