Medvedev Wants Ukraine To Pay Gas Debts

MOSCOW, Russia -- Russia turned up the pressure on Ukraine on Thursday as Dmitry Medvedev, president, ordered Gazprom to enforce payment on $2.4bn in gas debts even as Kiev struggles to weather the global financial crisis and a political crisis at home.

Russian President Dmitry Medvedev.

“We need to fully clarify our position on Ukraine’s debt and recover it either on a voluntary or compulsory basis,” Mr Medvedev told Alexei Miller, the Gazprom chief executive, in comments broadcast on Russian television.

Mr Miller later told journalists Gazprom would charge Ukraine more than $400 per thousand cubic metres for gas supplies next year, more than double the $179.5 Kiev currently pays. Analysts had expected that earlier calls for $400 would be lowered because of a more than three-fold tumble in global oil prices, which gas prices are tied to, since early summer.

Analysts warned Ukraine could find it impossible to pay down the debt as its economy is struggling to survive the global financial crisis and is locked in yet another political crisis. Kiev has received the first tranche of a $4.5bn IMF loan to help shore up its embattled economy.

The comments, Mr Medvedev’s strongest warning yet, raised fears of new cut-offs like the ones that led to reductions in gas supplies to Europe in 2006. But a Gazprom representative said “no-one is going to cut off anything. We need to figure out how to collect the money and work out the contract for next year.”

Analysts warned that a new standoff with Russia over gas debts could help tip the balance in upcoming parliamentary elections in December, which Ukraine’s pro-western president, Viktor Yushchenko, called following another conflict with his prime minister, Yulia Tymoshenko. Ms Tymoshenko has been courting Russia in recent months.

“This could well be a critical issue in the election where Tymoshenko could point to better ties with Russia,” said Chris Weafer, chief strategist at Uralsib investment bank in Moscow.

“Gas relations between Ukraine and Russia are hostage to the political situation in Ukraine,” said Valery Nesterov, energy analyst at Troika Dialog investment bank in Moscow.

Source: Financial Times