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Quick jump to below stories:
Russia cuts gas to Ukraine over price dispute
Ukraine Vows to Divert Russian Gas Exports
Russia Denies Compromise With Ukraine

Russia cuts gas to Ukraine over price dispute

Yushchenko calls move by Gazprom 'unacceptable'

January 1, 2006

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

MOSCOW, Russia (CNN) -- Russia's state-owned natural gas monopoly Gazprom suspended the flow of natural gas to Ukraine over a pricing dispute Sunday, a move the Ukrainian president decried as "unacceptable."

Gazprom said it would begin shutting gas supplies to Ukraine after Ukrainian officials said they would not sign a new gas-price agreement proposed by Russian President Vladimir Putin, the Russian news agency Interfax reported.

"Every family has to get access to gas because it is a necessity," said a resident of Kiev, Ukraine's capital. "We never thought they could be so rude and inhumane."

Gazprom, which supplies around one third of Ukraine's natural gas, has increased the price of gas from around $50 per 1,000 cubic meters of natural gas to $230 per 1,000 cubic meters of gas -- a four-fold increase.

Ukrainian officials have balked at the price hike, and see the increase as Russia's attempt to penalize the former Soviet republic for its Western-leaning foreign policy.

"This is not a subject for discussion," Ukrainian President Viktor Yushchenko told a reporter. "It is unacceptable not because the price is so high but because it is unfounded economically."

Putin offered a last minute compromise, calling for gas prices to be frozen at the old level for the first quarter of 2006 if Ukraine agreed to price increases after that.

Gazprom officials said they were told by Ukraine that they would not sign the compromise agreement. That offer expired with the coming of the new year.

A spokesman for Naftogaz, Ukraine's natural gas company, said there was enough gas for the immediate future to heat homes and power its industry.

"Gas is not flowing at all through some transit routes, which can lead to a fall in pressure in all the pipelines and limit the overall supply of gas to Ukraine and Europe," The Associated Press quoted Eduard Zaniuk as saying.

Ukraine announced last week it had signed an extension of its agreement with Turkmenistan, which supplies about half of Ukraine's natural gas supply.

While a gas supply crisis is not expected immediately, experts project that Ukraine will run out of natural gas sometime around the summer.

Western Europe is watching the Ukraine-Russia battle anxiously because the same pipelines that take Russia's gas to Ukraine go on to Western Europe, supplying it with more than a quarter of its natural gas needs.

The fear is that there could be a disruption in European gas supplies because of the dispute.

The European Commission will meet this week to discuss contingency plans. The Russians -- and the Ukrainians -- both promise their dispute won't disrupt western Europe's supply.

U.S. State Department spokesman Sean McCormack said Washington "regrets" the move.

"Such an abrupt step creates insecurity in the energy sector in the region and raises serious questions about the use of energy to exert political pressure," McCormack said in a written statement.

"As we have told both Russia and Ukraine, we support a move toward market pricing for energy but believe that such a change should be introduced over time rather than suddenly and unilaterally."

CNN's Ryan Chilcote contributed to this report

Copyright 2006 CNN. All rights reserved.This material may not be published, broadcast, rewritten, or redistributed. Associated Press contributed to this report

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Ukraine Vows to Divert Russian Gas Exports

By Judy Dempsey
The New York Times
December 28, 2005

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

BERLIN, Dec. 27 - A dispute between Ukraine and Gazprom, Russia's state-owned natural gas monopoly, grew more intense Tuesday as Ukraine threatened to take a portion of the gas exports that Russia sends to Europe. Gazprom called such a move theft.

A nationalist group in Ukraine demonstrated against plans by a Russian company to raise natural gas prices.

The verbal sparring intensified as Gazprom insisted that it would more than quadruple the price of natural gas exports to Ukraine, and the Ukrainian prime minister asserted that Ukraine had a right to take 15 percent of the gas that Gazprom exports through Ukraine to Western Europe.

Gazprom has said it will shut off gas exports to Ukraine on Sunday if the country fails to agree to the new price. Ukraine's president, Viktor Yushchenko, has said the country will accept higher prices, but only if they are phased in over two years.

The acrimony reflects a determination by Russia and Ukraine to stand firm in a dispute that could have long-term consequences for the foreign policy of both nations.

"If Ukraine holds out and manages to strike a compromise with Russia, then Russia's ambitions to restore its influence in this part of the former Soviet empire could be finished," said Bruce Jackson, president of Project on Transitional Democracies, a United States group that has supported former Communist countries joining NATO.

"This is Russia's last chance to influence Ukraine," he said. "And it is no coincidence that it is using energy as its tool against President Yushchenko before Ukraine's parliamentary elections that take place in March."

Since the Orange Revolution in Ukraine last year, in which Mr. Yushchenko was elected president, Ukraine's foreign policy has shifted toward the European Union and NATO.

While the Kremlin has accepted its former satellites in the Baltic States and throughout Eastern and Central Europe joining those groupings, it has been reluctant to see Ukraine go in the same direction because of its size, geography and importance to Russia's foreign policy goals and economic interests.

Energy experts said Gazprom's tough statement against Ukraine reflected that struggle.

For weeks, Ukraine has said it would be willing to increase the price it pays for gas from Russia as well as place all its energy relations with Russia on a cash basis instead of a semi-barter system. But it wanted a two-year transition period, during which it was prepared to gradually raise the prices to European levels, raise domestic energy prices and introduce energy-saving changes.

Mr. Yushchenko and President Vladimir V. Putin agreed Tuesday that Mr. Yushchenko would send the Ukrainian energy minister, Ivan Plachkov, to Moscow on Wednesday in an effort to reach a compromise.

Their conversation came hours after Ukraine's prime minister, Yury I. Yekhanurov, said the country could take 15 percent of the gas Russia exports via Ukraine to Western Europe. More than 80 percent of the gas Russia exports to Western Europe goes through Ukraine.

Gazprom said the price of gas and the price of shipping it were not comparable and that any siphoning by Ukraine of Russian gas destined for Europe would be considered theft.

"The price of 150 cubic meters of gas is not the same as the transit cost for this volume of gas," Gazprom said. "Ukraine refuses to understand that."

Alexander Medvedev, deputy chairman of Gazprom, said the company was simply applying market principles to Ukraine. "Since the E.U. has applied a market economy status to Ukraine then Ukraine should live up to that," he said during a recent interview.

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Russia Denies Compromise With Ukraine

By Jim Heintz

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

Russia on Tuesday denied reports that it was ready to compromise on demands that Ukraine pay four times as much for Russian gas, a dispute that threatens to cut off about a third of the gas that Ukraine relies on for heat and industry.

The denial, made by Russian energy minister Viktor Khristenko, came hours after Ukraine's energy minister claimed that a compromise had been reached in the politically charged dispute. Ukraine's relations with the Kremlin have been stiff since Ukrainian President Viktor Yushchenko came to power in January on a platform of moving Ukraine into closer integration with the West.

President Vladimir Putin and Yushchenko spoke by telephone Tuesday evening about the brewing crisis, Yushchenko's office said. Ukraine's energy minister is to come to Moscow on Wednesday for talks, the president's office said.

About a third of Ukraine's natural gas comes from Russia and Ukrainian officials say jacking the price up from the current $50 per 1,000 cubic meters could cripple Ukraine's energy-intensive heavy industry and impede the country's efforts to boost its economy. Russia's state-controlled Gazprom gas monopoly argues that Ukraine should pay $220-$230, more in line with world prices and portrays the demand as putting the gas sphere in line with market-economy demands.

In the United States, natural gas futures traded near $11 per 1,000 cubic feet Tuesday on the New York Mercantile Exchange.

Ukraine, a country of 48 million, doesn't argue with the market-economy theory and Yushchenko's office said he told Putin Tuesday that he supports price liberalization. But Ukraine wants the price increases to be phased in over a period of five years.

However, Khristenko, in remarks shown on state-controlled Channel One television, said "no other offers will be made."

Gazprom says it is prepared to shut off gas to Ukraine on Jan. 1 if an agreement isn't reached. Officials in both countries have raised the prospect of sending the issue to the Arbitration Institute in Stockholm, Sweden, which both sides recognize as a neutral body for resolving trade disputes. But the institute cannot undertake the case unless both parties request it.

Earlier Tuesday, Ukrainian Energy Minister Ivan Plachkov said at a round-table discussion that an agreement had been reached for a gradual phase-in of gas price increases, his spokeswoman Lilya Klochko said. However, a Gazprom spokesman quickly denied that any agreement had been reached and Plachkov's office could not be reached later for clarification.

Despite Russia's arguments that market forces demand the price increase, Gazprom is charging significantly less to some ex-Soviet countries. On Tuesday, the company reached agreement to sell gas to Belarus for $46.68 (about euro37) per 1,000 cubic meters - just 20 percent of what it wants Ukraine to pay. Belarus is closely allied to Moscow.

The Russia-Ukraine dispute also has raised concerns about gas supplies to Europe - about half the natural gas consumed in the European Union comes from Gazprom and most of that is shipped in pipelines that cross Ukraine.

On Tuesday, Ukrainian Prime Minister Yuriy Yekhanurov claimed Ukraine has the right to take 15 percent of the Europe-bound gas shipments that cross Ukraine.

Ukrainian companies "have the legal right to take 150 cubic meters of gas from every 1,000 as a transit fee" under the contract with Gazprom, he said in comments released by his office.

Sergei Kuprianov, a Gazprom spokesman, called the claim "legally illiterate" and Khristenko said "there cannot be talk of 15 percent, or 10 percent or 2 percent."

Ukraine uses almost 80 billion cubic meters (312 billion cubic feet) of gas annually, receiving 25 billion cubic meters from Russia, and 36 billion cubic meters from Turkmenistan, pumped via Russia. Ukraine itself produces some 18 billion cubic meters.

Plachkov said that Ukraine and Turkmenistan have signed a deal on gas imports, but declined to announce the price. News reports said Yushchenko will announce prices for the Turkmen gas in his New Year's address to the nation.

Natural gas is one of the key export commodities for Russia, whose economy heavily depends on exports of natural resources.

As the price dispute intensified, Ukrainian officials began suggesting that the country hike the rent it charges Moscow for the Russian Navy's Black Sea Fleet facilities in Ukraine. The port in Sevastopol provides the Russian navy its only convenient access to the Mediterranean.

Russian Defense Minister Sergei Ivanov sharply warned Tuesday that any rent increase could have "fatal" consequences. But his Ukrainian counterpart Anatoliy Grytsenko said no rent hike would be made unilaterally.

Copyright 2005 Associated Press

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