Clock Ticks Down To New Russia-Ukraine Gas Conflict

MOSCOW, Russia -- Time is running out for Russia and Ukraine to reach a last minute deal by midnight at New Year to prevent a Russian cut of gas deliveries to its neighbour and a possible bitter diplomatic conflict.

The newly built Bobrovnytska gas compressor and holding station is pictured near Kiev.

Instead of awaiting the traditional champagne toasts for New Year, Russian and Ukrainian gas executives have cancelled their holiday plans as the sides try to strike a deal over Kiev's two billion dollars of unpaid gas debts.

Russian energy giant Gazprom has warned it will cut off supplies to Ukraine if the debt is not settled, saying that a new contract needs to be signed by January 1 and no deal can be inked without the money being paid.

Gazprom's board of directors, which is chaired by Russian Deputy Prime Minister Viktor Zubkov, is to hold an extraordinary meeting on Monday to discuss the situation.

"I think it's 50-50," Gazprom spokesman Sergei Kupriyanov said in an radio interview Saturday when asked if Russia would cut gas deliveries or if the two sides would clinch a last minute deal.

A cut in deliveries could even hit west European consumers, who receive Russian gas that transits across Ukraine and were affected by a similar conflict in January 2006.

Such a move would intensify tensions between Moscow and Ukraine's pro-Western government already inflamed by Ukrainian support for Georgia in its August war with Russia.

Russia found the sight of Ukrainian President Viktor Yushchenko visiting Tbilisi to give his support during the war hard to swallow and the gas standoff is the consequence, said Russian analyst Alexei Malashenko.

"Putting pressure on Ukraine over gas has become an obsession of Russian politicians," said Malashenko of the Carnegie Centre in Moscow.

According to Kupriyanov, the Ukrainian side has already made clear it cannot pay the debts comprising 805 million dollars for November, 862 million dollars for December and 450 million dollars in penalties for late payment.

He said the two sides would use the last days to find a non-monetary solution to the conflict, possibly involving the money that Russia pays for the transit of gas across Ukraine.

"I hope that in the remaining days we will succeed in doing this," said Kupriyanov.

In a stark warning, Russian President Dmitry Medvedev told Ukraine's government last week to pay up to the "last ruble" or face gas cuts or even sanctions against its wider economy.

"If Ukraine does not pay we will use a whole arsenal of possibilities and it is completely clear that there can be no illusions there," Medvedev said in an interview with Russian television.

"We cannot carry on like this. They should just pay up."

The negotiations are further complicated by Gazprom's desire to raise prices for Ukraine closer to those paid by western European customers.

Ukraine currently pays Russia 179.5 dollars for 1,000 cubic metres of gas but Gazprom has warned that price could rise to 400 dollars for 1,000 cubic metres from next year.

Gazprom has vowed to fulfil its obligations to Europe but has also warned it cannot rule out disruptions to west European supplies if Ukraine siphons off transit gas during a crisis.

"Russia is carrying out a psychological war to force Ukraine to sign the contract under its conditions," said Ukrainian political analyst Volodymyr Fesenko.

"Gazprom could make European consumers suffer from the crisis so that Europe puts pressure on Ukraine," he added.

Ukraine, which has tense relations with Moscow, is expected by analysts to plunge into recession next year as a result of the economic crisis and suffers from political turmoil amid a feud between its president and prime minister.

Source: AFP

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