8. FEAR OF GAS SHORTAGE AS UKRAINE REJECTS HUGE PRICE

RUSSIA THREATENS TO CUT SUPPLY AFTER TALKS FAIL

Analyst: Kremlin had no reason to “subsidise a hostile, anti-Russian regime.”

Tom Parfitt, Moscow, Luke Harding, Berlin

The Guardian, London, United Kingdom, Sat, Dec 31, 2005

Concerns were growing last night that gas supplies to western Europe could
be disrupted, after Russia and Ukraine failed to end a dispute over gas
prices.

The European Union said yesterday it would hold a meeting of energy
ministers next week to discuss the crisis. “The idea is to be ready for all
eventualities and to have a common approach,” said Amadeu Altafaj Tardio, a
spokesman for the European commission.

European officials insisted that fuel supplies to a winter-bound Europe were
not likely to be badly affected by the dispute, which followed an
announcement by the Russian state controlled gas monopoly Gazprom that it
was increasing the price of Siberian gas to Ukraine by 360%. The company has
given Kiev until Sunday to comply with the terms.

Ukraine urged Russia to suspend the increase, a demand that Gazprom
dismissed as unacceptable. The EU currently relies on Gazprom for 25% of its
gas supplies. Most of this is transported via Ukraine. If Russia makes good
its threat to cut off Ukraine’s supply, it will reduce the amount of gas
sent through the pipeline – which also carries Europe’s share.

“The commission is still optimistic that a deal can be reached,” Mr Tardio
said. “We have concerns because some member states are more dependent on
Russian gas than others.”

Viktor Yushchenko, the president of Ukraine, promised not to impede transit
supplies to Europe. But Gazprom warned that Kiev might divert exports
destined for Germany, Italy and France.

Earlier this week, Ukraine’s prime minister, Yuri Yekhanurov, said Kiev
would take 15% of the Russian gas crossing its territory if Moscow cut
delivery for Ukrainian domestic use. A Gazprom spokesman, Sergei

Kupriyanov, told the Guardian it could not prevent Ukraine siphoning

from transit pipelines. “Technically speaking, they could take all the gas,”

he said.

Germany, the company’s biggest client, urged Moscow and Kiev to strike a
deal as soon as possible to guarantee uninterrupted delivery. Several German
politicians urged Gerhard Schroder, Germany’s former chancellor and soon to
become chairman of the supervisory board of Gazprom’s pipeline subsidiary,
to use his influence with Russia’s president, Vladimir Putin, to defuse the
row.

If necessary, Gazprom will offset decreased exports to western Europe by
pumping more through its pipeline across Belarus, or using underground
storage reservoirs, it said yesterday.

Britain does not receive direct supplies from Russia, but a drop in supply
to Europe would mean less gas being pumped through the interconnector,

the pipeline that links the UK with the continent. Anthony Brenton, the UK
ambassador to Moscow, called for a smooth resolution of the conflict.

However, negotiations in Moscow ended with no breakthrough. In Kiev, Mr
Yushchenko called for the two countries to extend talks until January 10,
but Gazprom rejected the proposal.

Moscow wants to increase the price Kiev pays for gas from $50 (pounds 29)
per 1,000 cubic metres to $230, which it says is in line with market prices.
The move is widely interpreted as punishment for Ukraine seeking rapid
integration into the EU and Nato. Russia argues it cannot sustain the lower
price.

One Russian MP said that Moscow’s refusal to back down risked making it

look like an “energy bully”. Relations between the two former Soviet countries
deteriorated after Ukraine’s orange revolution last winter. Kirill Frolov, a
Moscow-based analyst, said the Kremlin had no reason to “subsidise a
hostile, anti-Russian regime.” (guardian.co.uk/ukraine)