Gas dispute deepens as Ukraine rejects Russian loan

Ukraine has dug in its heels in a bitter dispute with Russia over gas deliveries, with its president Viktor Yushchenko rejecting Vladimir Putin’s offer of a multi-billion loan to help the country adjust to a huge increase in Moscow prices.

With Russia threatening to stop supplying 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 would not freeze and its factories would not go dark if Moscow followed through on its threat.

At a second day of talks in Moscow yesterday, Russian authorities stuck by their demand that Ukraine pay more than four times the current price, and no agreement was reached. The negotiations will resume today.

Meanwhile, Russia tightened the screw 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%.

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 badly strained by the ascendancy of the Westward-leaning Yushchenko a year ago.

Russia’s state-run natural gas monopoly Gazprom says it plans to halt gas deliveries to Ukraine on January 1 unless Kiev agrees to pay about £130 (€189) per thousand cubic meters – it currently pays £30 (€43).

“This is a price that Ukraine will never accept,” the ITAR-Tass news agency and Russia’s NTV television quoted Yushchenko as saying yesterday. 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 increase would cripple the energy-intensive steel and heavy industries that are a key component of the struggling country’s economy.

Yushchenko said Ukraine wanted a transition period of about three years to adjust to higher prices and that an “objective” price for the Russian gas in Ukraine was now £42-£45 (€61-€65), according to his office.

President Putin indicated that was unacceptable, saying in the Moscow talks that Russia could no longer subsidise 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 lend Ukraine up to £2bn (€2.9bn) to help it meet the higher price. “Even by Russian standards, this is a huge sum,” he said.

Yushchenko rejected the offer, expressing thanks for the proposal but saying: “Ukraine does not need these credits.

“Ukraine will rely on its own resources under a clear, correctly and objectively formed price.”