Russia Fumes Over Gas Bill From Ukraine

MOSCOW, Russia -- Russia threatened to fine Ukraine for failing to buy enough natural gas in the first quarter, increasing pressure on its neighbor at a time when the World Bank said Kiev's economy was contracting fast.

Gazprom chief, Alexei Miller

Alexei Miller, chief executive of Russia's state-run gas giant OAO Gazprom, said in an interview that the corporation was in talks with its Ukrainian counterparts regarding possible sanctions over lower-than-agreed-upon gas imports.

"We are discussing this with our Ukrainian colleagues. This is spelled out in our agreements," he said.

The threat dealt a further blow to Ukraine, which is facing anger sparked by the authorities' handling of the economic crisis and political wrangling over the date of the next presidential election.

Gazprom had previously said it wouldn't impose fines, in recognition of Ukraine's dire financial plight.

Russia's apparent rethink comes after Ukraine's leaders -- squeezed between traditional loyalty to former Soviet master Moscow and a desire to move closer to the West -- angered the Kremlin by signing an agreement in Brussels to overhaul Ukraine's aging pipeline network.

Adding to Kiev's woes, the World Bank predicted on Tuesday Ukraine's economy would contract 9% this year, rather than the 4% it had forecast before. Things could get worse, it added.

"We...still see downside risks to this forecast should the external environment deteriorate further and/or the authorities delay critical anticrisis steps," the bank said.

The World Bank also predicted that inflation, fueled by a big devaluation of the hryvnia currency, would spiral to 16.4% this year against an earlier forecast of 13.6%.

Inflation last year was even higher at 22.3%.

Source: The Wall Street Journal