Saturday, December 31, 2005

Ukraine Refuses Russia On Natural Gas Deal

MOSCOW, Russia -- Russia's state-controlled natural gas monopoly said early Sunday that Ukraine had refused its last offer on the terms of natural gas deliveries and transit in 2006, setting the stage for Moscow to close the taps on New Year's Day.

Ukraine's President Viktor Yushchenko (L), the head of state-run gas provider Naftogaz Ukrainy Oleksiy Ivchenko (2nd L) and energy officials watch developments in the control centre of Ukraine's pipeline operator in Kiev December 31, 2005.

The announcement came after a midnight deadline Gazprom and President Vladimir Putin had given Ukraine to decide on what price it would pay next year.

Gazprom spokesman Sergei Kupriyanov told The Associated Press that Gazprom had sent its Ukrainian counterpart a signed contract offering the terms Putin had hours earlier: to maintain Ukraine's current fuel price for three months if Kiev agreed to pay more thereafter.

Putin said his offer was only valid until the end of the day — 10 hours before a threatened cutoff of supplies to Ukraine.

"Literally 40 minutes ago, we received an official answer from the Ukrainian side," Kupriyanov said. The answer said: "'We cannot sign it,' and that is all."

His statement put a cap on a day of conflicting statements from Moscow and Kiev. Ukraine's TV5 late Saturday had carried a statement by the Ukrainian gas company, Naftogaz, that "the leaderships of NAK Naftogaz and OAO Gazprom have agreed over the telephone to unchanged prices of natural gas and gas transit for the 1st quarter of 2006."

But it did not answer the key question of what price Naftogaz would pay after that.

Prior to Putin's offer, Gazprom demanded that Ukraine pay $230 — more than four times the current price of $50 — per 1,000 cubic meters of gas, and vowing to halt supplies to Ukraine at 10 a.m. Sunday (2 a.m. EST) unless an agreement is reached.

Ukraine wants an increase that would bring what it pays closer to world prices to be phased in gradually. President Viktor Yushchenko said late Friday that the most it is willing to pay now is $80 (euro68).

The showdown has underlined the tension boiling between the historically linked, mostly Slavic ex-Soviet republics since the West-leaning Yushchenko — who wants to reduce Moscow's clout in his country — beat his Russian-backed rival in a bitter electoral battle a year ago.

Much of the dispute has been played out through the media. Russian television channels showed Putin on Saturday hearing the latest on the negotiations from Gazprom chief Alexei Miller, then making his offer.

"I'm ordering the government and Gazprom to conduct gas supplies to Ukraine in the first quarter of 2006 on the terms and at the prices of 2005, if the Ukrainian partners by the end of the day sign a contract proposed by Gazprom to transfer to free-market prices starting from the second quarter," Putin said during a session of the presidential Security Council. "If there is no clear response, we will consider that our proposal has been rejected."

Gazprom has said the price hike marks a long-overdue transfer to free-market price mechanisms. However, Andrei Illarionov, Putin's former economic adviser, denounced it Saturday as a political move signaling a rise of neo-imperialist trends in Kremlin policy.

Illarionov said the Kremlin had asked him to help cast the price hike as a free-market measure, but that he resigned this week because the move "had no relation not only to liberal economic policy, but to economic policy at all."

Russia, which supplies about half of the European Union's gas — most of which flows through Ukraine — has moved in advance to blame Ukraine for any disruption in supplies to Gazprom's Western clients.

Gazprom informed European customers that, once it stops deliveries intended for Ukrainian use, supplies to other countries could be restricted if Kiev siphons off gas meant for transit further west.

Source: AP

Ukraine Rejects Putin's Eleventh-Hour Natural Gas Price Offer

KIEV, Ukraine -- Ukrainian President Viktor Yushchenko rejected Russian President Vladimir Putin's eleventh-hour proposal to delay a fivefold increase in natural gas prices, which may lead OAO Gazprom to stop supplying the fuel to the former Soviet republic tomorrow.

Ukraine's President Viktor Yushchenko looks on during a meeting with energy officials in the control centre of Ukraine's pipeline operator in Kiev December 31, 2005. Russian President Vladimir Putin offered Ukraine a three-month reprieve in a bitter gas price dispute on Saturday, but only gave Kiev until the end of the day to strike a deal.

"We can't accept a price of $230'' per thousand cubic meters, Ukrainian government spokesman Valentyn Mondrievsky said in a telephone interview from Kiev less than two hours after Putin's proposal was broadcast on Moscow-based Gazprom's NTV television network.

"We support Russia's proposal to switch gas prices to the market, but the price shouldn't look like economic pressure,'' Yushchenko said in an e-mailed statement.

State-run Gazprom, which supplies a quarter of Ukraine's gas and uses the country's pipelines to supply a quarter of western Europe's, plans to shut off supplies to Ukraine at 10 a.m. tomorrow if the nation doesn't agree to pay $230 per thousand cubic meters, up from $50 now.

Putin told a meeting of his Security Council today that "our Ukrainian brothers'' could buy gas in the first quarter of 2006 at the old rate if they signed a contract today to switch to "market prices'' in April. The meeting was attended by Gazprom Chairman Dmitry Medvedev, who is also Russia's first deputy prime minister, and Chief Executive Officer Alexei Miller.

In his statement, Yushchenko proposed that Gazprom freeze the gas price "for a period of time'' and that a committee of officials from the two nations be set up in the next 10 days to discuss the price.

Western Europe

Both sides have said Gazprom's exports to western Europe won't be affected by a cut off, which is scheduled to be shown live on various Russian state-run channels, including NTV.

Yushchenko, who Putin campaigned against in Ukraine's controversial presidential election a year ago, has said Ukraine is prepared to switch to market prices, though not as quickly as Russia wants. "What Russia expects for its gas "is completely unacceptable" and "economically groundless," he said in a televised address the nation last night.

"Why does Turkey pay $100 per thousand cubic meters, the Baltic countries pay $110, the Caucasus pays $100, and Ukraine, which is Russia's closest neighbor, must pay $230?''

Yushchenko last week rejected an offer from Putin to loan Ukraine $3.6 billion to help meet the higher price, saying his country doesn't accept "alms".

`Ready'

Dmytro Marunich, spokesman for NAK Naftogaz Ukrainy, Ukraine's national oil and gas company, said the country was ready for supplies to be cut. "We expect Gazprom to cut off the supply to Ukraine tomorrow if the Ukrainian government doesn't offer Russia anything," Marunych said via telephone earlier today. "Ukraine's ready for that.''

Russian and Gazprom officials have said they want to end Soviet-era subsidies and move toward a free market for natural gas.

Source: Bloomberg

Putin Agrees to Ukraine Gas-Price Freeze

MOSCOW, Russia -- President Vladimir Putin ordered Russia's state-owned natural gas monopoly Saturday to supply Ukraine with natural gas at the current price for three months, if the government in Kiev immediately agreed to a big price hike to take effect later.

Russian President Vladimir Putin

Putin said in televised remarks that his offer was valid only until the end of the day. There was no immediate reaction from Ukraine, which faced a Russian threat to cut off gas supplies Sunday morning.

Putin said OAO Gazprom should continue the current price if Ukraine signed an accord Saturday accepting Gazprom's price increase starting in the second quarter. Gazprom has demanded Ukraine pay $230 per 1,000 cubic meters of gas _ more than four times the current price of $50.

Gazprom's spokesman, Sergei Kupriyanov, said Ukrainian negotiators had left Moscow Friday but the company was ready to wait for them through the end of the day to sign the contract.

Putin cast his move as a friendly gesture.

"Ukraine, above all, is a brotherly Ukrainian people, and we must think about the entire complex of relations between Russia and Ukraine," he said.

The price conflict underlined the tension between the two mostly Slavic former Soviet republics since Ukrainian President Viktor Yushchenko won a fiercely contested election against a Kremlin-backed rival a year ago. It threatened to dominate the New Year holiday, a big one in both countries.

Ukraine wanted any increase toward world-market prices to be phased in gradually, and Yushchenko said late Friday his country could now pay $80 per 1,000 cubic meters at the most.

Gazprom called the demanded price hike a long-overdue shift to free-market price mechanisms.

But Andrei Illarionov, Putin's former economic adviser, blasted it Saturday as a political move signaling the rise of neo-imperialist trends in Kremlin policy.

Illarionov said the Kremlin had asked him to help portray the price hike as a free-market measure, but he resigned this week because the move "had no relation not only to liberal economic policy, but to economic policy at all."

"Energy weapons are being used against neighbors," Illarionov said on Ekho Moskvy radio. "The move toward a policy of imperialism ... has a clear and high price that will eventually be paid by the citizens of a nation that embarks on the imperialist path."

Illarionov said that in August 2004, Gazprom signed a deal with Ukraine's gas company that envisaged five years of gas supplies at $50 per 1,000 cubic meters _ part of the Kremlin's efforts to support presidential candidate Viktor Yanukovych, who lost to the Western-leaning Yushchenko.

"When the political situation changed, they remembered about subsidies," said Illarionov, who long was a dissenter in the Kremlin, which is dominated by Putin's fellow veterans of the Soviet spy agency KGB.

Russia supplies about half of the European Union's natural gas, shipping most of it across Ukraine, and sought in advance to blame its neighbor for any disruption in supplies. It said that if it stopped deliveries intended for Ukrainian use, supplies to other countries could be restricted if Ukraine siphoned off gas meant for transit farther west.

Yushchenko's office said his Cabinet introduced measures to ensure the unhampered flow of gas to EU countries until a new contract was signed. But his prime minister said Ukraine had the right to take 15 percent of shipments through its territory as transit fees.

Source: AP

Illarionov Blasts Ukraine Gas Price Hike

MOSCOW, Russia -- A former Kremlin adviser denounced Russia's New Year deadline for Ukraine to accept a massive gas price increase, saying Saturday the demand was a sign of resurgent Russian imperialism. Europe, meanwhile, warily watched the standoff amid warnings that its supplies could be affected.

Former Kremlin economic adviser Andrei Illarionov

Russia's state-owned gas monopoly, OAO Gazprom, has threatened to cut supplies to Ukraine Sunday morning if Kiev does not agree to pay $230 per 1,000 cubic meters of gas - more than four times the current price.

The company has said the price hike marks a long-overdue transfer to free-market price mechanisms.

However, Andrei Illarionov, a former economic adviser to Russian President Vladimir Putin, said the increase instead was a political move signaling the rise of neo-imperialist trends in Kremlin policy.

Illarionov said the Kremlin had asked him to help cast the price hike as a free-market measure, but that he resigned this week because the move "had no relation not only to liberal economic policy, but to economic policy at all."

"Energy weapons are being used against neighbors," Illarionov said on Ekho Moskvy radio. "The move toward a policy of imperialism ... has a clear and high price that will eventually be paid by the citizens of a nation that embarks on the imperialist path."

Russia supplies about half of the European Union's gas, most of which flows through Ukraine. Gazprom informed European customers that, once it stops deliveries intended for Ukrainian use, supplies to other countries could be restricted if Kiev siphons off gas meant for transit further west, company spokesman Sergei Kupriyanov said.

Ukrainian President Viktor Yushchenko's office said his Cabinet introduced measures to ensure the unhampered flow of gas into Ukraine and its transit to EU countries until a new contract was signed. But his prime minister has said Ukraine has the right to take 15 percent of shipments through its territory as transit fees.

EU Energy Commissioner Andris Piebalgs said he was concerned about the Russian threat, but was confident an agreement would be reached "and that Russia and Ukraine will honor their commitments to supply European gas markets as they have at all times in the past."

The showdown has underlined the tension boiling between the historically linked, mostly Slavic ex-Soviet republics since Yushchenko won the presidency a year ago on the wave of the "Orange Revolution" protests against election fraud. It threatens to dominate the New Year holiday, a big one in both countries.

Ukraine wants any increase toward world-market prices to be phased in gradually, and Yushchenko said late Friday that his country could now pay $80 per 1,000 cubic meters at the most.

Yushchenko was speaking during his televised New Year's address, which followed a carefully staged TV broadcast by Gazprom's head who emphasized the company's plans to shut off the valves on New Year's Day.

"The actions will be precise and resolute," said Alexei Miller, reiterating that the company would halt supplies to Ukraine at 10:00 a.m. Sunday unless a new contract was signed.

With no sign of progress toward a deal, Yushchenko proposed earlier Friday to freeze prices for the first 10 days of January to give both countries' companies extra time to negotiate a deal.

Putin's press service said the Kremlin had not received the telegram containing the proposal, and there was no reaction from the Russian leader. But Gazprom criticized the proposal, saying that accepting it could lead to indefinite delays.

Illarionov said that in August 2004, Gazprom signed a deal with Ukraine's gas company that envisaged five years of gas supplies at $50 per 1,000 cubic meters - part of the Kremlin's efforts to support presidential candidate Viktor Yanukovych, who lost a tense race last fall to the Western-leaning Yushchenko.

"When the political situation changed, they remembered about subsidies," said Illarionov, who long had been a dissenter in the Kremlin, which is dominated by Putin's fellow veterans of the Soviet spy agency KGB.

Illarionov likened Russia's price hike for Ukraine to Nazi and Soviet ultimatums issued to Eastern European nations before their annexation on the eve of the World War II, and urged the Kremlin to step away "from the brink of a precipice that we are approaching so blindly and quickly."

Source: AP

Russia Spurns Ukraine's Pleas As Gas Shutoff Looms

KIEV, Ukraine -- Russian gas giant OAO Gazprom yesterday spurned Ukraine's plea to freeze a rise in prices as the clock ticked down to a New Year's Day deadline for a deal to keep supplies flowing to the ex-Soviet state and Moscow's European customers.

Ukrainian President Yushchenko appealed to Russian President Vladimir Putin in a telegram, asking for negotiations to be extended to January 10 with 'a moratorium on price rises' throughout the period.

Ukrainian President Viktor Yushchenko's appeal coincided with the apparent failure of last-ditch attempts, watched anxiously by consumers in snowbound Western Europe, to end a row over Russia's sudden demand for a fourfold leap in prices.

A clearly nervous European Union called a Jan. 4 meeting of energy officials from its 25 member states to discuss the issue.

"The idea is to be ready for all eventualities and to have a common approach," European Commission spokesman Amadeu Altafaj Tardio said.

Central European nations started setting up contingency plans in case there are supply disruptions.

Mr. Yushchenko's proposal, in a message to Kremlin leader Vladimir Putin, called for further talks with a contract to be signed by Jan. 10.

"Pending completion of these talks and signing of a contract, a moratorium is proposed on increased prices and rates," it read.

But Gazprom clearly had no confidence in the proposal.

"There is a danger that after having proposed to freeze the price for the first 10 days of January, the Ukrainian side will then want to freeze it for another 10 days," Gazprom spokesman Sergei Kupriyanov said in response to the appeal.

Gazprom says it will cut off all supplies to Ukraine tomorrow morning unless its neighbour agrees to pay $230 (U.S.) for 1,000 cubic metres of gas against a current rate of $50.

Russia argues it is subsidizing Ukraine by supplying gas under outdated terms -- discounting prices with the costs of using Ukraine's pipelines to send gas to European customers.

A quarter of Europe's gas needs come from Russia and nearly all of that is piped across Ukraine.

Simmering in the background is tension between the two countries after Ukraine's "Orange Revolution" protests last year which helped put in power the pro-Western Mr. Yushchenko at the expense of the Kremlin's preferred candidate.

"I simply do not want to believe that this is a result of pressure from Russia," Mr. Yushchenko said.

He also announced a deal to buy 40 billion cubic metres of gas next year from ex-Soviet Turkmenistan in Central Asia -- at $50.

Source: Reuters

Friday, December 30, 2005

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

Russians Stand Firm On Ukraine Gas Dispute

MOSCOW, Russia -- Russian authorities refused to ease their tough stance in a politically charged dispute with Ukraine over gas prices Friday, issuing a stern new threat to halt supplies to its neighbor on New Year's Day and criticizing Kiev's call for more time reach a deal.

Russian President Vladimir Putin dressed as a sailor. Russia has warned Ukraine that any attempt by Kiev to change the terms of Moscow's lease of a key naval base on the Black Sea would also threaten agreements on recognition of each other's territorial borders


Ukrainian leaders, meanwhile, tried to reassure the ex-Soviet republic's 48 million people they will not be left in the cold by the conflict that has underlined the political tension caused by the election of a Westward-leaning president in Ukraine last year.

The chief of Russia's natural gas monopoly, OAO Gazprom, reiterated that it will halt supplies to Ukraine on Sunday morning unless a new contract is signed with its Ukrainian counterpart.

"The actions will be precise and resolute," Alexei Miller said on Gazprom-owned NTV television. The station cut into a news broadcast to show Miller live.

Russian authorities are demanding that Ukraine pay $230 -- more than four times the current price of $50 -- per 1,000 cubic meters of gas. Ukraine wants an increase that would bring what it pays closer to world prices phased in gradually and says $75 to $80 is a fair price for now.

The price Russia wants Ukraine to pay is far higher than it is charging other former Soviet republics -- even those that are seeking, like Ukraine, to shake off Russian influence and integrate with the West.

Nadia Kazakova, an oil and gas analyst at Alfa Bank in London, said West European countries would pay an average of $240 per 1,000 cubic meters next year. Hungary is paying $240 for Russian gas, and Romania will pay about $280 starting next year, officials said.

"There is room for negotiation between $230 and (an) actual or reasonable or market price which Ukraine might be willing to pay," Kazakova said. "Ultimately I think there will be some resolution."

But with no sign of progress toward a deal, Ukrainian President Viktor Yushchenko proposed Friday that Russian President Vladimir Putin order both countries' companies to sign a contract in the first 10 days of January, freezing prices until then, Yushchenko's office said.

Putin's press service said the Kremlin had not received the telegram in which Yushchenko made the proposal, and there was no immediate reaction from the Russian leader. But Gazprom said it feared the proposal would lead to indefinite delays.

Source: AP

Thursday, December 29, 2005

Fears Of New Cold War As Russia Threatens To Switch Off The Gas

MOSCOW, Russia -- Picture the families shivering in apartments without heating, factories grinding to a halt, frozen water pipes bursting in the depths of winter. Welcome to the new Cold War.

Russian President Vladimir Putin (L), meets with Head of the Ukrainian national state gas company Naftogas Alexei Ivchenko and Ukrainian Energy Minister Ivan Plachkov (R), in the Novo-Ogaryovo residence outside Moscow

At 10am on Sunday, Russia is threatening to unleash the most powerful weapon in its post-Soviet arsenal: unless Ukraine agrees to a fourfold increase in the price it pays for gas, Russia will simply turn off the tap.

Nor is it just Ukraine under threat — the EU imports about half of its gas from Russia and 80 per cent of that comes through Ukrainian pipelines.

So when President Putin met Ivan Plachkov, the Ukrainian Energy Minister, in Moscow yesterday, there was more at stake than relations between the neighbouring states. Analysts fear the dispute could provide a foretaste of how Russia will use its massive oil and gas reserves as a foreign policy tool in future disputes with the West.

“Energy co-operation has replaced military might as the mainstay of Russia’s international credibility,” Chris Weafer, chief strategist at Alfa Bank in Moscow, said. “It is using its importance as an energy partner to pursue its geopolitical and foreign policy agenda.”

The dispute began when Russia, which supplies a third of Ukraine’s gas, demanded that Kiev agree to pay $220-$230 (£128-£133) per 1,000 cubic metres, compared with the $50 it had previously paid instead of transit fees for gas heading to Western Europe.

Gazprom, the Russian state gas monopoly, said it was simply phasing out subsidies that Ukraine no longer needed since the Orange Revolution last year set it on the path towards integration with the EU. The only possible compromise, it said, was for Ukraine to sell part of its pipeline network to Russia.

Ukraine said that it was willing to accept a smaller price increase, phased in over five years, but ruled out selling its pipelines, which it sees as a strategic asset.

Then things started to get nasty. Aleksandr Medvedev, Gazprom’s deputy head, threatened to cut off Ukraine’s gas supplies at 10am on January 1 if Kiev did not back down.

Ukrainian officials then suggested that its neighbour should pay more for rental of the Black Sea port of Sevastopol, where the Russian Southern Fleet is based. Sergei Ivanov, the Russian Defence Minister, said that would be fatal. Yuriy Yekhanurov, the Ukrainian Prime Minister, fuelled the fire this week by saying that Kiev had the right to take 15 per cent of Russian gas shipments to Europe as a transit fee. Gazprom said that would be theft.

President Putin proposed a compromise yesterday, offering to lend Ukraine up to $3.6 billion to ease the transition to the higher price. He scolded negotiators on both sides for failing to reach a deal. “You created a crisis not only in the energy sphere. It looks very much like a crisis in interstate relations,” he said. “That is very bad.”

But Ukraine rejected his offer. Its officials accuse the Kremlin of trying to punish Viktor Yushchenko, their President, for turning his back on Russia and pursuing membership of the EU and Nato. They also suspect that Moscow is helping Mr Yushchenko’s pro-Russian rival, Viktor Yanukovych, to stage a comeback in parliamentary elections in March.

Gazprom, they point out, has raised gas prices for other former Soviet republics, such as Georgia and Armenia, to $110 — and it has agreed to sell gas to Belarus, a staunch ally, for a mere $46.68.

But analysts say the reform is not just about Ukraine: it is part of the Kremlin’s broader strategy to gain control of Russia’s energy reserves and export routes and to use them to reclaim its world power status.

A year ago, the state oil company, Rosneft, swallowed up most of Russia’s biggest private oil company, Yukos. Then in October Gazprom bought the fifth-largest oil firm, Sibneft. The net result is that the Kremlin now controls 30 per cent of Russia’s oil reserves, and all of its gas supplies and pipelines.

Within the next ten years, Russia aims to be at the centre of a spider’s web of oil and gas pipelines feeding all the major world markets. That would be welcomed by countries anxious to meet the growing demand for gas and to reduce their reliance on the volatile Middle East.

But it leaves the EU dangerously dependent on a country with a history of political instability and aspirations to reclaim its superpower status.

Mr Putin has promised the EU that Russia will not use oil and gas supplies to blackmail other countries. But Mr Yushchenko says that the current dispute proves otherwise, and the EU is under pressure from several members to intervene.

Ukraine has enough gas to last the winter — when temperatures can drop as low as -20C (-4F) — if Russia does turn off the tap.

“Not one Ukrainian family will be cold in the winter,” Mr Yushchenko told NTN television yesterday. But Ukrainian officials have urged people to conserve energy, just in case.

Source: The Times

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

US Urges Compromise In Russia-Ukraine Gas Dispute

WASHINGTON, DC -- The government has urged Moscow and Kiev to reach a compromise in their dispute over the price of Russian natural gas exports, a State Department spokesman said.

State Department spokesman Adam Ereli

'We have been in touch with both countries to express the view that we urge them to come to a compromise that meets the needs of both, underscoring the importance of security of supply and stability of prices,' spokesman Adam Ereli said.

While emphasizing that the United States sees the issue as 'a bilateral matter between Russia and Ukraine,' Ereli added that the dispute 'is a question of energy supply that we and the Europeans are all following closely because it is significant and important.'

Talks in Moscow between senior Russian and Ukrainian negotiators ended with no deal Thursday, but will resume Friday just hours ahead of a deadline for cutting off supplies to Kiev, Russian news agencies reported.

Russia has threatened to cut off gas shipments to Ukraine on January 1 if Kiev refuses to accept a quadrupling of the price.

Ukrainian President Viktor Yushchenko was quoted by Interfax news agency late Thursday as offering a much lower price increase of only 50 to 60 pct.

Western Europe is observing the crisis nervously as around a fifth of European gas supplies come from Russia via Ukraine and there are fears the row could disrupt shipments.

Source: AFX News

EU Expects Quick Settlement of Russia-Ukraine Gas Dispute

MOSCOW, Russia -- The European Commission said Thursday it was closely monitoring a bitter dispute over gas prices between Ukraine and Russia and believes that a negotiated settlement is near.

Demonstrators in Moscow protest against Ukraine’s refusal to accept new price for natural gas

“The outcome of these talks with Ukraine are important for us and we are following this but we think it can still be solved,” the AFX news agency quoted commission spokesman Amadeu Altafaj Tardio as saying.

Russian and Ukrainian negotiators were meeting in Moscow to break the deadlock over gas prices as the clock ran down on a Jan. 1 deadline for Ukraine to agree to a steep increase or see supplies cut off — potentially disrupting the flow of gas to Europe.

Russian state-controlled energy giant Gazprom has announced a more than four-fold increase in gas prices to neighboring Ukraine and says that if Kiev does not agree by Sunday the supply will be shut down.

“It’s true that Gazprom supplies a quarter of Europe’s gas so of course everything linked to these negotiations is important to us,” Altafaj Tardio said.

“We expect that the difficulties that are appearing now can be resolved in the coming hours before the deadline,” he added.

However, the commission was “not envisaging an intervention” to help settle the dispute.

The standoff is being closely followed in Western Europe amid concerns there that any attempt by Ukraine to compensate for a cut-off in its own supplies by using those in transit to Europe could then affect EU gas imports.

Source: MosNews

Kiev Stalls Former Nazi's Extradition

KIEV, Ukraine -- Kiev will study the US decision to extradite convicted ex-Nazi death camp guard John Demjanjuk to Ukraine before deciding whether to let him return to the United States, a process which could take years, Ukrainian officials have said.

Accused Nazi death camp guard John Demjanjuk (C), is helped out of a vehicle upon his arrival at Federal Court in Cleveland

"According to general practice" and "Ukrainian law, the US court decision must be examined by competent Ukrainian officials, such as the prosecutor general," the foreign ministry's spokesman Vasyl Filipchuk said.

Demjanjuk, 85, a convicted former Nazi concentration camp guard whose legal battles with the American and Israeli governments have dragged on for 28 years, was ordered on Wednesday to be deported to his native Ukraine.

However, a source in the Ukrainian ministry said that as Demjanjuk had no Ukrainian citizenship, "this is a 100-per cent reason to refuse accepting him."

According to this source, principal conclusions would be drawn by Ukrainian security services, who would then transmit them to the prosecutor general.

"If in those two cases the conclusion is positive, a political decision would have to be made" as to whether to accept or refuse his extradition, the source said, adding that the procedure could take "years".

Officially, Ukraine had so far received no official request from the United States on this issue, Mr Filipchuk said, adding that "we have only media reports."

If Ukraine refuses the extradition, Demjanjuk would be deported to Germany or Poland.

Demjanjuk's legal odyssey began in 1977 when the US Justice Department first accused him of being a Ukrainian prison camp guard nicknamed "Ivan the Terrible", who tortured Jewish inmates and operated gas chambers at three camps that killed 900,000 people.

A US Federal judge stripped Demjanjuk of his US citizenship in 1981 for lying about his Nazi past when he first entered the United States in 1952. The Justice Department then began proceedings to deport him to Ukraine.

Israel requested Demjanjuk's extradition in 1983 to face war crime charges. He was found guilty and sentenced to death. The conviction was overturned in 1993 when the Israeli Supreme Court heard testimony from former death camp guards and labourers that another man was actually Ivan the Terrible.

Demjanjuk, a retired autoworker, returned to his home in a Cleveland suburb and restored his citizenship in 1998.

Judge Michael Creppy stripped Demjanjuk of his citizenship for a second time last June and the Justice Department applied to have him deported.

Demanjanjuk applied for asylum and argued he would likely be tortured if he was deported to his native Ukraine.

Source: AFP

Wednesday, December 28, 2005

US Judge Orders Accused Nazi Demjanjuk Deported to Ukraine

CLEVELAND, OH -- John Demjanjuk, a retired auto worker once thought to be the sadistic Nazi death camp guard "Ivan the Terrible", can be deported back to his native Ukraine, a U.S. judge ruled on Wednesday.

John Demjanjuk

Chief U.S. Immigration Judge Michael Creppy ruled that Demjanjuk would not likely face prosecution if he were sent from the United States to Ukraine, Germany or Poland and ordered his removal.

Demjanjuk, 85, had appealed to the Immigration Court for relief from a previous ruling from Creppy that he could be deported.

Demjanjuk claimed that he could be charged, prosecuted or face torture if he were sent back to Ukraine. The U.S. government argued that Demjanjuk had not shown that any such treatment was likely.

Demjanjuk was found guilty of lying to gain entry to the United States.

Demjanjuk, whose case has been in U.S. courts for three decades, lives in the Cleveland, Ohio, area.

A federal judge previously revoked Demjanjuk's U.S. citizenship on multiple grounds, including his "willing" service in a unit "dedicated to exploiting and exterminating" Jewish civilians in Nazi-occupied Poland.

In 2002, following a trial, a federal judge in Ohio ruled that the government had proved that Demjanjuk was an armed guard at Sobibor, Majdanek and Flossenburg concentration camps.

A federal appeals court affirmed the decision and the case was then brought before the immigration judge to approve deportation.

Demjanjuk has denied he was ever a World War II death camp guard, saying he was in the Soviet Army but spent much of the war as a German prisoner.

Source: Reuters

Ukraine, Russia Fail to Resolve Dispute

MOSCOW, Russia -- The energy ministers of Ukraine and Russia on Wednesday failed to resolve a politically charged dispute over Russia's plans to raise the price of natural gas exports to Ukraine.


The two officials left late-evening negotiations in Moscow without a deal, but talks were to resume Thursday, Ukrainian Energy Minister Ivan Plachkov said.

Russia is threatening to cut off supplies within days unless Ukraine accepts its demands to pay more than four times the current price for gas imports.

"We agreed to break until tomorrow," Plachkov said in footage shown on NTV television, adding that compromises in the nations' positions are essential.

"Of course" compromises are possible, Plachkov said in response to a reporter's question. "There is no way to do without movement and compromises."

Russia's state-controlled Gazprom natural gas monopoly says it is prepared to shut off gas to Ukraine on Jan. 1 a major holiday in both countries unless Ukraine accepts the price increase.

Hours before the talks between Plachkov and Russian Fuel and Energy Minister Viktor Khristenko, Ukrainian Prime Minister Yuriy Yekhanurov denounced the Russian demand as unacceptable pressure against his country.

About a third of Ukraine's natural gas comes from Russia, and Ukrainian officials say raising the price from the current $50 per 1,000 cubic meters could cripple Ukraine's energy-intensive heavy industry and impede the country's efforts to boost its economy.

Gazprom argues that Ukraine should pay $220 to $230 more in line with world prices and portrays the demand as a justifiable move to scrap energy subsidies enjoyed by former Soviet nations.

Kiev has asked for the increases to be phased in over five years instead of all at once.

Yekhanurov warned Tuesday that Ukraine could divert some of the Russian gas supplies going to Europe, calling it Ukraine's right to take 15 percent of those shipments passing through its territory to European markets. Gazprom said such action would amount to theft.

Source: AP

Gang With 57 Murders On Its Record, Arrested

KIEV, Ukraine -- A gang consisting of eleven criminals who committed a total of 57 murders has been rendered harmless in the East-Ukrainian region of Donetsk, public relations department of Ukraine's Interior Ministry said.

The organized grouping was engaged in contract murders, extortions, and criminal control over the markets of metal and fuels and over gambling.

From 1990 through 2002, members of the grouping committed a series of resounding contract murders pertaining to partitioning of the criminal spheres of influence. They killings involved the use of firearms and explosives.

The gang's operations embraced the Donetsk region, other parts of Ukraine and other countries of the Commonwealth of Independent States.

The list of victims includes 25 businessmen, 19 gangsters from other criminal groupings, eight criminals from the same grouping, and five occasional witnesses.

The gangsters were selected by the grouping's mogul, Givi Nemsadze, the Interior Ministry said.

The grouping took final shape by 1995 and established corrupt relationship with public employees of different ranks, some of them working in law enforcement agencies.

Given the inter-regional and inter-state scope of the crimes the grouping committed, its activities are being investigated by the Interior Ministry and the Prosecutor General's Office.

SOurce: ITAR-Tass

Russian-Ukrainian Naval Deal Should Remain Unchanged — Moscow

MOSCOW, Russia -- Russia has warned Ukraine that any attempt by Kiev to change the terms of Moscow’s lease of a key naval base on the Black Sea would also threaten agreements on recognition of each other’s territorial borders, AFP reported.


Russian Defense Minister Sergei Ivanov said that the leasing agreement for the naval base in the Crimea was part of a broader Russian-Ukrainian treaty on territorial integrity.

“That is why pushing for changes to this accord would seem fatal,” Ivanov said.

Officials in Ukraine, which is embroiled in a bitter dispute over gas prices with the Russian state-controlled natural gas giant Gazprom, have suggested charging Russia higher fees for use of the base on Ukraine’s southern Crimean peninsula.

Source: MosNews

Dispute Between Ukraine, Russia Heats Up

KIEV, Ukraine -- A dispute between Ukraine and Gazprom, Russia's state-owned natural gas monopoly, grew more intense Tuesday as Ukraine threatened to take a portion of Russian gas exports to Europe and Gazprom called such a move theft.

Protesters holds placards reading 'Gas-the price we pay for your NATO ' during a mass rally in front of Ukraine President Viktor Yushchenko's office. Yushchenko urged compromise in a bitter dispute with Russia over natural gas prices as Russian state-controlled giant Gazprom threatened to cut off supplies to Ukraine.

The verbal sparring escalated as Gazprom insisted that it would more than quadruple the price of natural gas exports to Ukraine and the Ukrainian prime minister asserted that Ukraine had a right to take 15 percent of the gas that Gazprom exports through Ukraine to Western Europe.

Gazprom has said it will shut off gas exports to Ukraine on Sunday if the country fails to agree to the new price. Ukraine's president, Viktor Yushchenko, has said the country will accept higher prices, but only if they are phased in over two years.

The acrimony reflects a determination by Russia and Ukraine to stand firm in a dispute that could have long-term consequences for the foreign policy of both nations.

"If Ukraine holds out and manages to strike a compromise with Russia, then Russia's ambitions to restore its influence in this part of the former Soviet empire could be finished," said Bruce Jackson, president of Project on Transitional Democracies, a U.S. group that has supported former communist countries joining NATO.

"This is Russia's last chance to influence Ukraine," he said. "And it is no coincidence that it is using energy as its tool against President Yushchenko before Ukraine's parliamentary elections that take place in March."

Since the Orange Revolution in Ukraine last year, in which Yushchenko was elected president, Ukraine's foreign policy has shifted toward the European Union and NATO.

While the Kremlin has accepted its former satellites in the Baltic States and throughout Eastern and Central Europe joining those groupings, it has been reluctant to see Ukraine go in the same direction because of its size, geography and importance to Russia's foreign policy goals and economic interests.

Energy experts said Gazprom's tough statement against Ukraine reflected that struggle.

For weeks, Ukraine has said it would be willing to increase the price it pays for gas from Russia as well as place all its energy relations with Russia on a cash basis instead of a semi-barter system. But it wanted a two-year transition period, during which it was prepared to gradually raise the prices to European levels, raise domestic energy prices and introduce energy-saving changes.

Yushchenko and President Vladimir Putin agreed Tuesday that Yushchenko would send the Ukrainian energy minister, Ivan Plachkov, to Moscow today in an effort to reach a compromise with Russian energy minister Viktor Khristenko.

Their conversation came hours after Ukraine's prime minister, Yury Yekhanurov, said the country could take 15 percent of the gas Russia exports via Ukraine to Western Europe. More than 80 percent of the gas Russia exports there goes through Ukraine.

Gazprom said the price of gas and the price of shipping it were not comparable and that any siphoning by Ukraine of Russian gas destined for Europe would be considered theft.

Natural gas is one of the key commodities for Russia, whose economy heavily depends on exports of natural resources.

As the price dispute intensified, Ukrainian officials began suggesting that the country hike the rent it charges Moscow for the Russian navy's Black Sea facilities. The port in Sevastopol provides the Russian navy its only convenient access to the Mediterranean.

Source: The New York Times

Tuesday, December 27, 2005

Ukraine’s Yushchenko Pays Unexpected Visit To Troops In Iraq

AL KUT, Iraq -- Ukrainian President Viktor Yushchenko has made an unannounced one-day visit to his country’s peacekeepers in Iraq days before the troops were to leave the war zone, Associated Press reported.


The 867 Ukrainian soldiers have served as a part of the U.S.-led coalition under Polish command in southern and central Iraq. All are due home by Dec. 30, making the former Soviet nation the latest country to wind down its presence in the coalition.

Yushchenko plans to visit troops at the Ukrainian headquarters base in the town of Al Kut, said presidential spokeswoman Irina Gerashchenko.

He will also meet top Iraqi officials to discuss Ukraine’s role in the reconstruction of the country, she said.

Ukraine initially contributed 1,650 troops to the U.S.-led force in Iraq.

The government began withdrawing the troops in March, and President Yushchenko had pledged they would be out by the year’s end. The Western-leaning Ukrainian leader, who was elected in December last year, made a pullout from Iraq one of his campaign promises.

Eighteen Ukrainian soldiers died and 32 others were wounded in Iraq.

Source: MosNews

Monday, December 26, 2005

Russia Closes Ukraine Ex-PM Case

KIEV, Ukraine -- Russia has dropped criminal charges against former Ukrainian Prime Minister Yulia Tymoshenko. Ms Tymoshenko had been accused of bribing Russian defence officials in the 1990s - charges she denied.

The charming Yulia Tymoshenko

But Russia's prosecutor-general's office said in a statement: "The criminal case has been closed because the statute of limitation has expired."

Russia dropped the international warrant against Ms Tymoshenko after she met prosecutors in Moscow in September.

Ms Tymoshenko has had uneasy relations with Russia, dating back to the mid-1990s when she headed Ukraine's main gas distribution company.

Orange split

However, she has apparently moved to mend fences with the Kremlin, after her sacking as prime minister in September.

Ms Tymoshenko's political bloc is seen as a top contender for parliamentary elections in March.

She hopes the poll will help her regain her job as prime minister, with much wider powers because of constitutional reforms.

Ms Tymoshenko was a key player during Ukraine's so-called Orange Revolution last year - the mass street protests that swept Viktor Yushchenko to power.

President Yushchenko's decision to fire the entire Tymoshenko cabinet officially marked a split in the Orange camp.

Source: BBC News

Ukraine Forks Out $12 Million For President’s Luxury Plane

KIEV, Ukraine -- Ukraine has raised 12 million dollars to finance the purchase of a luxury plane for President Viktor Yushchenko. Amber, mahogany and 18 carat gold were used in the interior of the presidential An-74 plane, the Ukrainian newspaper Segodnya wrote on Monday.

An-74 plane

The aircraft is currently being tested at the Kharkov aircraft plant. In designing the interior or the plane, designers took into consideration the taste of Yushchenko’s wife.

The lining is in light colors with an incrustation of rare gems. All elements made of metal, like handles or lamps, are made of gold against the initial plans were to make them of silver. However, “Katerina Yushchenko insisted on gold,” the newspaper wrote.

Earlier the president’s property manager, Ihor Tarasyuk, said there was no money in the country for the plane.

Source: ITAR-Tass

Sunday, December 25, 2005

Russia Warns Ukraine Against Siphoning Off Europe-Bound Gas

MOSCOW, Russia -- Russian natural gas giant Gazprom said on Sunday it may take Ukraine to an international court if the former Soviet republic uses gas intended for European clients from a pipeline running through its territory without permission.

Gazprom headquarters building

"Eighty percent of our gas transits through Ukraine, which was the motive behind our Ukrainian colleagues' decision to start to blackmail us ... But we are ready to go to the Swedish court in the event of Ukraine's unsanctioned use of gas," deputy chairman Alexander Medvedev told Channel One television, referring to the Stockholm International Court of Arbitration, which acts as a neutral body for resolving East-West trade disputes.

Ukraine buys Russian gas at a discounted price of 50 US dollarsper 1,000 cubic meters, but Russia has asked Ukraine to pay more than quadruple the current price and offered cash payments for gas transit.

Ukraine said it is willing to switch to market prices for Russian gas but insisted it needs a transitional period to adjust its economy.

Medvedev repeated previous warnings that the company will shut the taps for Ukraine at 10:00 a.m. (0700 GMT) on Jan. 1 if no deal is struck with Ukraine by then.

"Time is running out for Ukraine to make a decision," he said.

The feud over gas prices between the two former Soviet republics has raised fears that supplies could be suspended.

Gazprom has suggested Ukraine uses shares in its gas transport system as payment for gas supplies if it doesn't have enough cash on hand, but the head of Ukrainian national gas company, Naftogaz Ukrainy, rejected the proposal on Sunday.

"We see no need to hand over control over our gas transportation system to anybody. Ukraine is capable of managing it effectively. The status of the gas transportation system will remain unchanged," company chairman Oleksiy Ivchenko said, quoted by the Interfax news agency.

Source: China View

Azerbaijanis Cite Control System In Crash

BAKU, Azerbaijan -- The failure of an Azerbaijani airliner's control system likely caused it to crash, killing all 23 people on board, an airline official said Saturday.

An-140 twin-engine turboprop

But Ilham Amirov, the deputy chief of Azerbaijani Airlines, said it was too early to dismiss other possible causes, including a terrorist attack, of Friday night's crash of the An-140 twin-engine turboprop.

The development of the An-140 — designed by Ukraine's Antonov company — has been troubled because of the severe funding problems that crippled the country's aviation industries after the 1991 collapse of the Soviet Union.

A plane of the same make crashed in Iran in December 2002, killing all 44 people on board. Azerbaijan was the first foreign commercial customer for the An-140, capable of carrying 50 passengers on medium-range flights.

Friday's crash killed all 18 passengers and five crew members, said Rustam Usubov, Azerbaijan's first deputy prosecutor general.

The passenger list included several foreigners — a Briton, an Australian, a Turk, a Georgian and four citizens of Kazakhstan — said Valida Aslanova, a dispatcher at the international airport in the Azerbaijani capital, Baku, where the plane took off shortly before crashing.

The plane was en route to Aktau, a city on Kazakhstan's Caspian Sea coast, when it crashed on the Caspian shoreline, about 20 miles north of Baku.

Emergency workers combed the wreckage Saturday for clues to the cause, and Usubov said they were still looking for the flight data and voice recorders. Some wreckage was in water within 10 feet of shore.

Local television stations reported that wreckage was spread over an area about a mile wide, a pattern that could indicate an explosion.

"I saw how the plane was flying away from the airport and that flames were coming from its rear part," Hamid Imamverdiyev, a 17-year-old resident in the crash area, told The Associated Press. "Then there was a roar from the plane falling onto the shore."

Another witness, who gave only his first name, Hafiz, said the plane was flying low and caught fire shortly before slamming into the ground.

"We were shocked by the terrible scene — there were body fragments scattered all over the area and one dead woman was still sitting in her chair," he said.

Azerbaijan's president, Ilham Aliev, visited the crash site and sent his condolences to the victims' families.

The plane had been in service with the state-controlled Azerbaijani Airlines for just over a year, airline spokesman Fuad Guliyev said. It has purchased four planes of the same models, two of which were delivered, including the one that crashed.

In the 2002 crash, most victims were aircraft experts from Ukraine and Russia bound for a demonstration flight of the plane's twin, the Iran-140, built under Ukrainian license in Iran.

Ukraine's president, Viktor Yushchenko, offered his condolences to Aliev and promised to send a team of experts to help investigate.

Source: AP

Friday, December 23, 2005

Gazprom Warns Ukraine: No Contract, No Gas

MOSCOW, Russia -- Russian energy giant Gazprom's Deputy Board Chairman Alexander Medvedev said Friday that his company would not supply Ukraine with natural gas if a contract has not been signed by 2006.

Alexander Medvedev

"No contract, no deliveries," Medvedev said at a press conference in Moscow.

Asked whether Ukraine would be able to satisfy domestic demand by using reserves in its underground storages, Medvedev said the natural gas in those reserves was meant for export and that the reserves did not contain extra amounts of gas for the domestic market.

However, he said Gazprom did not have accurate data on the amount of natural gas being kept in Ukraine's underground facilities.

"We do not have data, but we have made assessments on this score," Medvedev said.

He said Ukraine could afford to pay the price.

Asked what Ukraine would do if the contract was not signed this year, Medvedev said he hoped it would behave in a civilized manner.

Medvedev said that if Ukrainian officials' threat to tap natural gas from the transit pipeline was carried out, Kiev would be stealing gas.

Source: RIA Novosti

Major Player Behind Ukraine’s Orange Revolution Quits As Presidential Aide

KIEV, Ukraine -- Ukrainian presidential aide Vladislav Kaskiv has resigned from his post, saying in a statement that his work was incompatible with his participation in the parliamentary elections.

Vladislav Kaskiv

Kaskiv is the leader of Pora party that rose to prominence during the so-called Orange Revolution last December when Viktor Yushchenko became president.

Yushchenko initially lost to his rival, PM Viktor Yanukovich who was supported by Russia, but after a scandal linked to the falsification of election results and mass protests in the country, Yushchenko won a repeat poll. Pora was one of the main movements behind the revolution.

Kaskiv now plans to concentrate his efforts on forming an effective parliamentary majority and the creation of a “reform government” after the elections.

He also asked to for his salary to be rescinded for the last three months because he was unable to fulfill his duties suitably during that period.

Source: MosNews

Ukraine's Dance Of The Oligarchs

KIEV, Ukraine -- If anyone wants to make any sense of what is happening to Ukraine one year after the Orange Revolution, then a walk past the Parliament building on Hrushevskoho Street in Kiev could explain a lot.


When in session, the area resembles an open-air luxury car exhibition. All the latest four-wheel-drive models from BMW, Mercedes, Porsche and Lexus are parked on the sidewalks and in the streets. Most of the vehicles are black, with bulletproof materials installed beneath their sleek skins.

Their tinted windows are so thick and dark that no one can look inside to see the state-of-the-art GPS navigation consoles, the elaborate communications systems mounted on the dashboards and the plush leather upholstery. All have drivers, most of them dressed in black leather jackets. When asked who owned the cars, the drivers either refuse to answer or simply say, "A parliamentary deputy."

That may be surprising, in a country where salaries for members of Parliament range from 4,700 to 5,000 hryvnia, or $935 to $995, a month.

But then, this is Ukraine. Since the country won its independence in the collapse of the Soviet Union in 1991, Parliament has become dominated by the oligarchs - enormously wealthy industrial managers who have interests in steel, iron, coal, the media and soccer clubs.

They have used Parliament as a forum to protect their interests. These include campaigning for tax breaks, retaining customs fees to protect their companies against imports and ensuring a weak, poorly paid judiciary that has allowed sales of state-owned enterprises at well below market prices.

"Parliament operates under the political umbrella of the oligarchs," said Igor Burakovsky, director of the independent Institute for Economic Research and Policy Consulting. "The Parliament consists of many personal interests - particularly how the oligarchs can influence the appointment of the cabinet."

Yet only a year ago, tens of thousands of people stood in freezing temperatures outside Parliament, demanding not only free elections but an end to corruption and the power of the oligarchs over political life. They blamed the oligarchs, many of whom own television stations, for muzzling the media and not allowing objective reporting of the presidential elections.

The demonstrators held banners bearing pictures of Viktor Yushchenko and Yulia Timoshenko, leaders of the Orange Revolution, who they believed would sweep away the old guard and usher in a political system based on transparency and accountability.

Yushchenko eventually won in a democratic and free vote. He defeated Viktor Yanukovich, who was backed by Russia and hailed from the Donetsk region in eastern Ukraine, home to some very powerful oligarchs.

But a year after the Orange Revolution, the oligarchs remain in good humor.

They have started to put their energy and money into next March's parliamentary elections as they gauge which camp they will support.

"Until the elections, all reforms are on hold," said Vasily Astrov, Ukraine expert at the Vienna Institute for International Economic Studies.

The March elections are crucial because the stakes this time are higher than ever. For the first time, the president's powers will be curbed while those of Parliament will be strengthened as Ukraine moves from a presidential system to a full-fledged parliamentary democracy. This change was agreed to a year ago, with support from Yushchenko, who said it would put Ukraine firmly on the path to democracy.

But the move places Yushchenko in a tricky position. As president, he will lose the power to appoint a cabinet. So the oligarchs are jostling to influence the outcome of the election, since the largest political groupings will have the biggest say over cabinet posts.

Under the new rules, the party with a majority in Parliament will nominate a candidate for prime minister. The president, who will remain commander in chief of the armed forces and will nominate the foreign and defense ministers, will no longer have the power to dismiss Parliament without its consent.

"It will be very difficult to predict the outcome of the elections," said Elisabetta Falcetti, Ukraine analyst at the European Bank for Reconstruction and Development. "The existence of the oligarchs introduces a completely new dimension to economic analysis."

Yushchenko is lining up his allies in the hope that he will have a prime minister with whom he can work.

From interviews with his advisers, it appears that Yushchenko is still undecided about forming an alliance with Timoshenko, his former prime minister and the leader of the Motherland Party. Yushchenko dismissed her last September, partly over economic policy but also because they simply could not work together. Since then, he has had a better relationship with Yuri Yekhanurov, a leading member of Yushchenko's Our Ukraine Party.

Yushchenko's main supporter among the oligarchs is Petro Poroshenko, chairman of a large financial group called Ukrpromivest that includes shipbuilding, car assembly and confectionery businesses.

Yushchenko retains Poroshenko's support even though he fired him as secretary of the National Security and Defense Council last September after the two men clashed with each other and Timoshenko.

Two other oligarchs, David Zhvania and Yevgeny Chervonenko, are standing behind Yushchenko as well, although they were also ousted from the cabinet in September, as Yushchenko struggled to achieve a balance among the 14 political parties with seats in Parliament.

Yanukovich, who was personally endorsed by President Vladimir Putin of Russia in last year's presidential election, has started to reorganize his Party of the Regions in a bid to become prime minister after the parliamentary elections, or at least play a big role in the next government.

Yanukovich has the support of Rinat Akhmetov, the most powerful oligarch in the eastern industrial center of Donetsk, who owns System Capital Management, a diversified industrial and financial services group.

Timoshenko, a former business tycoon who made her money in the energy field, is wooing some powerful oligarchs as well, despite her promise in a recent interview to curb their powers.

"In the economic sense, some oligarchs, corrupt civil servants and business interests basically built a coalition of forces to extract money from the state," she said in an interview this month. "The less state, the better," she said, "because more state encourages corruption. It leads to an alliance between the bureaucrats and the oligarchs."

Yet Timoshenko herself depends heavily on oligarchs, including Alexander Volkov, a legislator from Donetsk. She is also negotiating an alliance with Igor Kolomoyski, a former board member of Ukraine's central bank and now head of the Dnipropetrovsk Private Group, which specializes in ferrous metals and coke. Yet only last year, Kolomoyski had supported Yanukovich.

So what made Kolomoyski switch sides? Ukraine is awash with rumors and speculation. Astrov says Kolomoyski has become Timoshenko's main financial supporter. Though her advisers become defensive when the issue of oligarchs is raised, Ukraine experts say that when Timoshenko was prime minister and pursued a relentless program of expropriating and reselling businesses, she often acted from political motives.

Timoshenko has said "some of the resales had been necessary" in trying to break the oligarchs' political power.

But according to Astrov, Timoshenko, as prime minister, campaigned hard to transfer the ownership of Nikopol Ferroalloys Plant, a lucrative steel business, to assist Kolomoyski.

Nikopol's owner was Viktor Pinchuk, son-in-law of the former president, Leonid Kuchma. Pinchuk also owned the Kryvorizhstal metallurgical enterprise, which he had bought at well below market price in 2004.

Yushchenko had Kryvorizhstal taken from Pinchuk and the business was resold last October for $4.8 billion, six times the original price. Astrov said Kolomoyski wants control of Nikopol, and it is scheduled to be resold in 2006.

Whichever oligarchs side with whichever political party in the coming weeks, Hyhoriy Nemyria, director of the Center for European and International Studies, said a Parliament with real powers was "creating a new reality."

"The real centers of power - the president and the National Security and Defense Council and cabinet - have been eliminated as a result of the constitutional reforms that will create a parliamentary democracy," said Nemyria, who is an adviser to Timoshenko.

"All the main political leaders, including Yushchenko, have yet to decide with which parties they will ally themselves before the elections and afterward in Parliament," Nemyria said, "because none of them will have an outright victory. What we are seeing now is a situation where everyone is out to make strategic compromises in order to gain power, but so far, little is being said about reforms."

Source: International Herald Tribune

EU Officially Grants Market Status To Ukraine

KIEV, Ukraine -- Ukrainian Prime Minister Yuriy Yekhanurov said today that the EU has granted Ukraine the status of a country with market-based economy.

Ukrainian Prime Minister Yuriy Yekhanurov

Yekhanurov announced the move at the meeting with teachers and students of the Kyiv National University and said that the status was granted on 21 December.

The EU announced its decision to grant a market-economy status to Ukraine on 1 December.

The United States is still considering the possibility of granting the same status to the country.

Source: Radio Free Europe

Moscow Center to Fight Kiev's Bid to Join NATO

MOSCOW, Russia -- A Ukrainian lawmaker on Thursday harshly criticized her nation's plan to join NATO and opened an information center in Moscow aimed at opposing the move.

Natalya Vitrenko on a poster for her radical socialist party

Natalya Vitrenko, a radical socialist who leads the New Opposition bloc running for seats in March's parliamentary elections, said the government of President Viktor Yushchenko could make a NATO bid as early as the first half of the year if it wins a majority in parliament.

"If Ukraine joins NATO, it will become an open enemy of Russia," said Vitrenko, who represents a fringe party. "Ukraine will host NATO bases presenting a direct military threat to Russia."

Yushchenko has made NATO membership a top goal.

Vitrenko, who ran in Ukraine's 1999 presidential election, spoke at the opening of the Anti-NATO Information Center, which is located on a freshly painted ground floor of a shabby apartment building at 10 Khokhlovsky Pereulok.

Sergei Markov, a Kremlin-linked political analyst who helped run the ill-starred campaign of Yushchenko's Moscow-backed rival, also attended the opening. "Our nation is being dragged into NATO behind the people's back," Vitrenko said. "We must mobilize all healthy forces of society to oppose this evil scenario."

Many Ukrainians view NATO with hostility and fear that alliance membership would worsen relations with Moscow and ruin the nation's defense industry, which has close links to Russia.

Markov sought to play on these fears Thursday, saying that "Ukrainian boys will be used as cannon fodder."

During recent weeks, Moscow and Kiev have been locked in an acrimonious dispute over Russian natural gas deliveries to Ukraine. Gazprom more than quadrupled the price for Ukraine starting next year, and Ukraine has refused to pay.

Markov claimed Thursday that Gazprom had been caught in a "trap" set by the Ukrainian authorities, who will use the conflict to fan anti-Russian sentiments.

Source: AP

Thursday, December 22, 2005

Ukraine Says It Will Not Accept Blackmail, Pressure From Moscow

KIEV, Ukraine -- Ukraine will not be blackmailed by Russia, Ukraine's foreign minister vowed Thursday, as the two countries continued their verbal clashes in an escalating dispute over natural gas supplies.

Ukraine's Foreign Minister Borys Tarasiuk

Foreign Minister Borys Tarasiuk's remarks were the latest volley in the ongoing feud over Moscow's demand that Ukraine pay more than quadruple the current price it pays for gas imports from Russia. Kiev has refused, saying such a sharp hike would harm energy-inefficient industries and poor consumers.

"We want to develop partnership, friendly and neighborly relations with Russia, but we will never accept blackmail and pressure," Tarasiuk told reporters.

Also Thursday, President Viktor Yushchenko spoke over the telephone with Turkmenistan counterpart Saparmurat Niyazov in an apparent attempt to alleviate a looming gas crisis. A statement from Yushchenko's office said the two leaders spoke about "energy issues and gas shipments."

Earlier Thursday, Fuel and Energy Minister Ivan Plachkov and the head of the state-run gas provider Naftogaz Ukrainy traveled to the Turkmen capital Ashgabat to try and agree on new prices for the next year.

Turkmenistan, which supplies Ukraine with more than half of its gas imports, has also proposed increasing prices.

Ukraine is heavily dependent on Russia for its energy supplies and Kiev has threatened it could reconsider the US$97 million (Ђ77 million) in annual rent that Russia pays to base its Black Sea fleet in the Ukrainian port of Sevastopol.

Russia's state-run gas giant Gazprom has rejected Kiev's request for a phased increase and has threatened to turn off the taps if a deal is not signed by Jan. 1.

Russia provides almost half of the EU's gas imports, and some 80 percent of that goes through Ukrainian pipelines. The feud has raised fears that these supplies could be interrupted.

Tarasiuk said he regrets that "the line of confrontation, which can be seen in the actions and statements of some Russian politicians, narrows the opportunities for a normal dialogue."

"One should bear in mind that Ukraine depends on Russia as much as Russia depends on Ukraine," he said.

The disputes highlight a growing rift in Russian-Ukrainian relations that emerged in last year's Orange Revolution which brought to power the pro-Western Yushchenko to the presidency. His administration has sought to bring the former Soviet nation away from the Kremlin's sphere of influence and closer to NATO and the European Union.

Also Thursday, in what appeared to be an attempt to soothe tensions, the top official with Ukraine's security council, Anatoly Kinakh, traveled to Russia for discussions with his Russian counterpart Igor Ivanov.

An official statement said the talks would include "conditions for strengthening bilateral cooperation."

Meanwhile, speaking Thursday to his National Security Council in Moscow, President Vladimir Putin made veiled reference to the dispute and the threat to Russia's gas exports to Europe

"Before us stands large-scale work for developing infrastructure to diversify fuel export routes," Putin was quoted as saying by the ITAR-Tass news agency. "That will reduce the potential risks and, of course, open access to promising, new markets, in particular the Asia Pacific region."

Russia is currently building a new oil pipeline that will stretch across eastern Siberia and provide a crucial outlet for oil and gas exports to China, Japan and other Asian markets, reports AP.

Source: NewsFromRussia

Russia: West Should Not Be Scared of Russian Spies

MOSCOW, Russia -- In the run-up to the 85th anniversary of the Russian Foreign Intelligence Service [formerly known as the KGB], marked on Dec. 20, its director Sergei Lebedev told Interfax about the service’s top priorities and threats to Russia’s security.

Russia's top spook Sergei Lebedev

Lebedev refuted Western media reports that his service’s activities in the United States and the EU, including its recently admitted members, have reached Cold War levels.

“This is not so. In comparison with that period, the Russian intelligence service has curtailed its presence abroad and drastically reorganized its functioning,” he said.

Lebedev said those media reports were probably paid for by those who do not want relations with Russia to continue to develop.

“To my regret, it has become a rule to scare ordinary citizens abroad with Russian spies, who have allegedly made inroads into all of the agencies. There have been instances of local counter-intelligence services deliberately exaggerating the Russian espionage threat to show their relevancy, enhance their staff or secure more funds,” he said.

Asked what is more characteristic of relations with foreign special services today — cooperation or confrontation, Lebedev said that “the changing international situation and the expanding globalization process certainly influence the nature of the Foreign Intelligence Service’s cooperation with foreign partners. It is broadening,” he said.

“As far as confrontation is concerned, I view it as a natural element of international ties. The only question is what exactly one means by it,” Lebedev said.

“Confrontation can be intellectual, psychological, political and diplomatic. I can say that it remains in relations between intelligence agencies because they, including the Foreign Intelligence Service, primarily defend the interests of their own states. Fatherland is the first word in our service’s motto: ’Fatherland, Valor, Honor’,” he said.

Asked whether the Foreign Intelligence Service has brilliant spies abroad such as Abel or the ’Cambridge Five’, Lebedev said, that “as a rule, the public only learns about the work of such agents many years after they are active. My successor will tell your future colleagues about today’s successes of the Foreign Intelligence Service in 50 years,” he said.

Foreign military bases deployed in the vicinity of Russia’s borders pose a threat to the nation’s security and are the focus of the Foreign Intelligence Service’s attention, Lebedev said.

“Russians cannot help but be concerned about new military bases and military contingents being deployed around our country. Therefore, the main task facing the Foreign Intelligence Service is to detect military threats to Russia,” he said.

Changes that have taken place worldwide have allowed Russia to abandon the term ’main adversary’, he said.

However, there are still threats facing Russia. “New but no less serious threats and challenges facing our state’s security have replaced old threats and challenges. Today the most serious threats are from international terrorism, from religious and nationalist extremism. Hotbeds of tension along the perimeter of Russia’s borders continue to smolder,” he said.

Ensuring the security of Russia’s foreign trade and countering environmental threats feature high on the Foreign Intelligence Service’s agenda, Lebedev said.

Among other urgent issues, Lebedev mentioned the fight against the proliferation of weapons of mass destruction and measures against drug trafficking, the illegal arms trade and illegal migration.

Asked whether progress has been made over the past few years in lessening the threat from the development of weapons proliferation, Lebedev said that he cannot “give a definite answer to this question because this is a comprehensive problem and involves steps to counter the spread of both nuclear, chemical and biological arms and related technologies and materials.”

In the past few years, “such efforts have centered on preventing weapons of mass destruction and their components from falling into the hands of terrorist and extremist organizations,” he said.

“In its 1993 open report entitled The Proliferation of Weapons of Mass Destruction is a New Challenge After the Cold War, the Foreign Intelligence Service of Russia drew the attention of the Russian and international public to this problem. Today the service views it as a priority area of operations,” Lebedev said.

“We have been working in close cooperation with other Russian agencies and foreign special services. Our joint efforts have made it more difficult to acquire weapons of mass destruction and their components,” he said.

In addition, the anti-terrorist coalition has captured or killed most of the al-Qaeda international terrorist network’s leaders, he said.

“Nearly 70 percent of al-Qaeda’s highest-ranking members have been captured or killed in the international anti-terrorist campaign that has been in progress since 2001. They include Abu-Zubaid, Abu-Leits, Sheikh Halid Mohamed, and Abu Faraji al-Libi,” Lebedev said.

“As for Al-Qaeda representatives who took part in terrorist activities in the North Caucasus, odious figures such as Hattab, Abu al-Walid, Abu Zait and Abu Omar have been eliminated,” he said.

“The special services of a number of European countries carried out a joint operation in November 2005 to arrest leaders and members of Al-Qaeda’s cells in Belgium, France, Italy and other states,” he said.

Terrorism can be defeated only through “joint efforts of all countries, their special services, other state bodies, and international organizations. The Foreign Intelligence Service’s cooperation with its foreign colleagues helps achieve greater results in the anti-terrorist fight. That is why we are committed to further strengthening of international cooperation in this area,” Lebedev said.

Source: MosNews

Moscow Seeks To Use Petro-Power As Political Tool

MOSCOW, Russia -- Russia is nine days away from potentially carrying out a threat to reduce gas supplies flowing through a pipeline across Ukraine to western Europe, unless Kiev pays higher prices for gas it takes from the pipe. The result could be winter energy shortages in some European countries.


Yet on the same day, January 1, Russia assumes the rotating presidency of the Group of Eight nations, of which it has made “energy security” a central theme. Moscow is widely expected to use its presidency to promote itself as a reliable energy supplier to the world’s biggest economies.

These two positions may seem contradictory, but in fact point to the same conclusion. While it does so in a variety of ways, Russia is ever more confidently wielding its mammoth reserves of oil and natural gas as a political tool. High prices, tight supplies, and the west’s desire to reduce reliance on Middle East suppliers are increasing its leverage.

“It is not that energy is the new atomic weapon,” says Cliff Kupchan, an analyst with the Eurasia Group consultancy and former state department official in the Clinton administration, “But Russia knows petro-power, aggressively and cleverly applied, can yield diplomatic influence.”

After spending the past year bringing key oil and gas assets back under state control, a string of events have shown how Russia is using its petro-power. Gazprom, the state-controlled gas giant, is demanding that former Soviet states, which since the USSR collapsed in 1991 have enjoyed subsidised prices for Russian gas, finally move to market rates.

But it is doing so in a highly differentiated way. Ukraine, having shifted out of Moscow’s orbit since last year’s Orange Revolution, has been slapped with the biggest demand for a price increase. Prices charged to Georgia and Moldova, which have also turned their gaze westwards, have nearly doubled. Yet Belarus, loyal to Moscow, is still getting gas at the old price.

Russia is using its dominant position in oil, too, to favour Russian commercial interests. It plans to cut oil supplies to Lithuania from January 1 in what analysts see as an attempt to press the Baltic republic to favour a Russian buyer over rival Polish and Kazakh bidders for the strategically important Mazeikiu oil refinery.

The refinery is being sold off by the Lithuanian authorities to pay off a huge back tax bill owed to Moscow by Yukos, the Russian oil company whose main production asset has, in effect, already been renationalised as part of the legal assault on Mikhail Khodorkovsky, its former owner.

Russia is, moreover, squeezing potential competitors in the former Soviet Union – notably Kazakhstan – that are trying to develop their own energy industries independently of Moscow. It is for example attaching tough conditions to allowing Kazakhstan to expand a key pipeline from the vast Tengiz oilfield in the Caspian to Russia’s Black Sea port of Novorossiysk. This is crucial to plans by the field’s operator, Chevron of the US, to ramp up production.

Also this month, Russia started construction, with some fanfare, of the $5bn North European Gas Pipeline, an export route under the Baltic sea to Germany that will bypass the Baltic states, Ukraine and Poland. It attracted even more attention by naming Gerhard Schröder, the former German chancellor, project chairman.

Within days, word leaked that Russia’s president Vladimir Putin had asked Donald Evans, the former US commerce secretary and close friend of President George W. Bush, to chair Rosneft, the Russian state-owned oil company preparing for an initial public offering. Mr Evans this week politely declined, citing other commitments.

How should the outside world make sense of all these different signals? Analysts say Russia has always used energy as a lever with its former Soviet neighbours – and kept natural gas prices low partly to keep them within its fold – though it is being increasingly hard-nosed.

Political and economic interests are intertwined. With gas prices rising, increasing the effective revenue loss to Gazprom and Russia from providing cut-price gas, there seems little point continuing to subsidise states which have already shunned Moscow.

“The time when we built relations by quasi-subsidising neighbouring economies is gradually passing,” Alexei Kudrin, Russia’s finance minister, said last week. “We must think about our own interests.”

Most analysts expect Russia and Ukraine to pull back from the brink before west European gas supplies are threatened; neither would want to be blamed for shortages.

Russia has far too much at stake. It is preparing to project its energy influence to a much wider audience – and its approaches to Mr Schröder and Mr Evans may be an important part of that.

Moscow has already hinted to US officials and international energy executives that it intends to use its coming G8 presidency to assure the world it can be a pivotal energy supplier to Europe, the US and Asia.

Mr Kupchan, of Eurasia Group, believes Russia has studied Saudi Arabia, which has used its energy clout to build a close geo-political relationship with the US - and mute US criticism of its domestic policies. But he suggests Russia is aiming for a “Saudi-plus” model.

“Saudi Arabia has achieved this only with the US. The Russians are looking for something broader,” says Mr Kupchan. Moscow wants to build a wider network of influence and, unlike some petro-states, turn its oil and gas companies into international players.

He forecasts more moves to grant minority stakes to foreign oil majors in Russian companies, both state- and privately-controlled, and oil and gas projects, though with Russia always retaining control. He also foresees more invitations to prominent western executives to take jobs with Russian energy companies.

Both could help confer a sense of legitimacy and transparency on its industry, especially after the state’s asset-grab, and increase Russian companies’ sway in foreign capitals.

But with some, particularly US, politicians challenging Russia’s G8 role amid questions over its democratic record – heightened by the Yukos affair – western officials say Russia will be under intense scrutiny.

Says one person close to the White House: “The G8 is going to be a great opportunity for them to appear adult, responsible and be taken seriously by the world.”

Source: Financial Times