Worries of a Winter Gas Shortage in Ukraine Intensify

MOSCOW, Russia -- Worries of a winter gas shortage in Ukraine intensified today as Russia's energy giant, Gazprom, renewed its threat to cut supply lines to Ukraine on Sunday morning if the country did not accept a nearly fivefold increase in price.

Russia's natural gas giant Gazprom chief Alexei Miller speaks to press at his headquarters

The impasse showed no sign of easing. Gazprom rejected an appeal from Viktor A. Yushchenko, Ukraine's president, to freeze prices and maintain gas flow through Jan. 10 to allow for further negotiations.

The company also said that it had run technical tests and was capable of stopping flows for Ukraine, through which much of Europe's gasmoves, while meeting export obligations to countries downstream.

The European Union proposed an emergency meeting of energy officials on Jan. 4. The call reflected worries that the stalled negotiations could tighten supplies in European countries, many of which buy large portions of their gas from Gazprom but receive it after it has flowed through Ukrainian pipelines.

Ukrainian officials and industry analysts played down any immediate risk, saying gas reserves in Ukraine would ensure that its supply was maintained for at least two days and perhaps longer than two weeks. Europe's reserves would also prevent any immediate shortages there.

"I hope Gazprom will not turn off the tap," said Valery Nesterov, an energy analyst at Troika Dialog, an investment firm in Moscow. But he added that if the flow is cut, "they still have the time to negotiate."

The test of wills underscored enmities that have tainted relations between Ukraine and Russia since Mr. Yushchenko and his supporters overturned a fraudulent election last year, defeating a Kremlin-backed candidate and pledging to steer Ukraine toward a more Western foreign policy.

It also marked Russia's willingness to use its state-controlled gas monopoly as an instrument of foreign policy, even coercion, in dealing with energy-hungry neighbors.

That policy is not without risk. The Kremlin and its allies at Gazprom have seized a strong position in the short term. But their threats against Ukraine, their mocking of Ukrainian proposals and concerns, and their willingness to foster worries among other gas customers have raised fresh questions about whether Gazprom, Russia's largest company, is a reliable energy partner.

The dispute centers on Gazprom's politically influenced pricing system.

Ukraine, through a deal arranged under former President Leonid D. Kuchma, has been paying $50 for 1,000 cubic meters of gas, reflecting Russia's practice of providing discounted energy to former Soviet nations that remain within the Kremlin's orbit.

Gazprom, with President Vladimir V. Putin's approval, has proposed charging between $220 and $230 for 1,000 cubic meters, in line with prices in Europe. Mr. Putin has offered $3.6 billion loan to Ukraine to help cover the costs, a gesture variously seen as pragmatic or patronizing.

Mr. Yushchenko's government has said Ukraine is prepared to pay more, but not so much or so fast, and proposed a transition period with a much smaller hike. Mr. Yushchenko has also turned down the loan offer, saying Ukraine should pay for energy itself, albeit "at a reasonable price."

Ukraine's volatile domestic politics lie just beneath the surface.

Parliamentary elections are scheduled for Mar. 26. The elections will be accompanied by constitutional changes, negotiated near the end of the protests that ushered in a new government last year, that will weaken the Ukrainian presidency and strengthen the Parliament and prime minister.

The combination of the new Constitution and the elections means that the faces and policies of Ukraine's government could shift remarkably once again. Russia has made clear its disaffection with Mr. Yushchenko and his government, and the gas dispute is widely seen as an effort to undermine him in part to weaken his party's standing before voters.

A gas shortage during heating season could simultaneously tarnish the revolution, discredit the president and weaken his party, perhaps leading to a more pro-Russian government in Kiev, Ukraine's capital.

Ukrainian officials have acknowledged the risks. At a news conference on Thursday, Anatoly Kinakh, secretary of Ukraine's National Security and Defense Council, said that if talks break down, the effects on Ukraine's heavy industry would be severe.

"It is forecast that Ukraine's G.D.P will decline 4 to 5 percent in 2006," he said, according to a translation by the B.B.C. "Inflation will be at 27 to 30 percent. The social and economic situation in the country may worsen significantly."

He added, "There is the potential loss of hundreds of thousands of jobs."

Gazprom has been unflinching. Aleksei Miller, its chief executive, reiterated the threat today.

"If Ukraine does not sign a contract on the purchase of gas in the remaining hours before the start of the new year, on Jan. 1 at 10 a.m. Moscow time, gas supplies from the territory of the Russian Federation to Ukraine will be completely cut off," he said in televised remarks.

Gazprom officials later clarified his statement, saying gas would still be sent through Ukraine to European customers, but flow would be reduced to account for the cut to Ukraine.

Mr. Nesterov, at Troika Dialog, said it was impossible for Gazprom to meet contractual obligations to European customers without sending gas through Ukraine, because other transit options, through Turkey or Belarus, lack the capacity for those markets.

This left open the possibility that if there was no settlement, Ukraine might divert transiting gas for domestic use, which earlier in the week Prime Minister Yury I. Yekhanurov threatened to do. Gazprom said diversion would be regarded as theft. Ukraine's threat, if acted upon, could also create shortages in Europe.

Mr. Nesterov said that if there is no settlement, Gazprom's position could harm it over the long term. Gazprom is aggressively seeking new markets, but its competitors might now raise new questions about how it makes its decisions, and whether it can be trusted.

"This will not get the company international good will," he said. "The gain is tactical, but the loss would be strategic."

The company seemed undeterred. According to the RIA Novosti news service, it said it would invite Russian television stations to broadcast the reduction in gas flow live on New Year's Day.

Source: The New York Times

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