Yushchenko Accuses Russians Of ‘Blackmail’

KIEV, Ukraine -- President Viktor Yushchenko on Tuesday referred to Russia's mounting pressure to immediately quadruple natural gas prices it supplies to Ukraine as "blackmail" and suggested Kiev's position was strong enough to win the dispute.

Ukrainian President Viktor Yushchenko gestures during a news conference in Kiev, December 20, 2005.

Yushchenko made comments in response to threats by Russian state gas giant Gazprom to cut off gas supplies to Ukraine completely unless the country agrees to accept the substantial price hike.

"It's blackmail," Yushchenko told reporters after a press conference. "I don't think the authorities on both sides will lower themselves to such a tone, to such ways" of resolving the dispute.

Gazprom last week announced it plans to charge Ukraine $230/1,000 cubic meters of gas it supplies to Ukraine from Jan. 1, 2006, up from $50/1,000 cu m currently. Analysts said such price hike would immediately make unprofitable most of chemical and steel companies, lead to massive layoffs and economic contraction.

Ukraine has been refusing to accept the price hike by citing a 10-year agreement signed three years ago between Gazprom and Naftogaz Ukrayiny.

A special clause in the agreement, signed last year, fixed prices of Russian gas at $50/1,000 cu m through the end of 2009, while Naftogaz fixed tariffs for shipping Russian gas to Europe for the same period.

Analysts said the clause makes Gazprom legally vulnerable in the dispute should the matter be taken to the Stockholm International Arbitration Court, the venue for resolving the dispute.

Prime Minister Yuriy Yekhanurov said Ukraine was ready to take the dispute to the court, but technically wasn't able to do so as Russia had never submitted a written notice to cancel the agreement. Russia and Gazprom have been apparently making only verbal statements, putting pressure on Ukraine to accept a new agreement.

"We have the agreement. If there are problems, they will be decided in the Stockholm court," Yekhanurov said at a press conference Tuesday. "So far we have not had any written requests to break the agreement."

The escalating dispute between Ukraine and Russia is watched across Europe amid fears that it could lead to disruptions of Russian gas supplies to European customers via Ukrainian pipelines. Ukraine ships about 85% of Russian gas exports to Europe, mostly to Germany and France.

Gazprom itself is under increasing pressure from European customers to end the uncertainty and to sign a deal with Ukraine that would guarantee deliveries of gas in 2006.

Russia on Tuesday, for the first time over the past nine months, sought to calm down those fears among European customers and pledged to keep gas supplies at volumes meeting the European demands in full.

"I am confident that a very good tradition, according to which Gazprom and Russia have never broken their obligations before European customers, will not be breached," Russian Foreign Minister Sergei Lavrov said in Moscow on Tuesday.

The comment de-facto means that Gazprom would probably stay away from cutting gas supplies to Ukraine on Jan. 1, 2006, as otherwise it would run risk that European gas supplies would be affected, analysts said.

Source: Ukrainian Journal