Gas dispute deepens as Ukraine rejects Russian loan |

Gas dispute deepens as Ukraine rejects Russian loan

Associated Press Writer

KIEV, Ukraine – Ukraine dug in its heels Thursday in a bitter dispute with Russia over gas deliveries, with President Viktor Yushchenko rejecting Vladimir Putin’s offer of a multibillion-dollar loan to help Kiev adjust to a huge hike in Moscow’s price tag for its gas.With Russia threatening to stop selling gas to Ukraine on New Year’s Day if no solution is found, Ukraine’s state-run gas company said the nation’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 nation with less to sell to Ukraine – which relies on Russia for about a third of its gas and Turkmenistan for 45 percent.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 sales to Ukraine on Jan. 1 unless Kiev agrees to pay about $230 per thousand cubic meters – 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 gradually and claim the sudden huge hike would cripple the energy-intensive steel and heavy industries that 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, 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 Kiev 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.Gazprom also supplies about half the gas consumed by the European Union and most of that goes through pipelines that cross Ukraine, raising concerns that the dispute could affect supplies to the West. Gazprom has pledged that European customers won’t be affected.A spokesman for Ukraine’s state-run gas provider Naftogaz questioned that. If Gazprom stops selling to Ukraine, “they can probably reduce gas pressure in the pipelines,” Dmytro Marunich told The Associated Press. He said that “will probably affect other European customers.”However, Gazprom would be unlikely to risk alienating European countries with a full shutdown of the flow through Ukrainian pipelines, which handle about 80 percent of the Russian gas going to the EU.Ukraine maintains gas storage facilities with a capacity of about 40 percent of the country’s annual consumption. Marunich declined to say how much was in storage, but said the country has enough “to keep us afloat through the fall and winter under normal circumstances.”Gazprom said Thursday it had agreed to buy 30 billion cubic meters from Turkmenistan at $65 per 1,000 cubic meters. It said 15 billion cubic meters would be delivered from Turkmenistan in the first quarter of 2006, and that terms for 2007 sales would be decided later in 2006.Analysts say Turkmenistan was expected to produce 65 billion cubic meters of gas next year. Piping 30 billion to Russia and reserving 20 billion for internal use and exports to Iran leaves about 15 billion for Ukraine – far short of the 35 billion it wanted.”The signing of this contract means that less gas will be left for Ukraine – for their direct purchases,” said Valery Nesterov, oil and gas analyst with Troika Dialogue brokerage in Moscow. “In this gas dispute, Russia gets another instrument of pressure over Ukraine.”Vail, Colorado

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