Russian Prime Minister Vladimir Putin has ordered the country's state-controlled gas giant Gazprom to reduce gas supplies to Europe via the Ukrainian transit pipelines as Russia accuses Kiev of stealing gas from the pipelines after it had cut off supplies to Ukraine on 1 January 2009.

Russia had cut off gas supplies to Ukraine, which Moscow alleges did not pay Russian state-owned energy giant Gasprom a total of $2 billion debt on gas supplied last year.

Russia handed over a bill for $805 million to Ukraine for November, $862 million for December and $450 million in fines for late payment. (See: Gazprom to cut off European gas supplies as Russia-Ukraine talks fail)

Ukraine refused to pay the fines and refused to sign a new contract with a hike in gas prices. In the previous contract, Ukraine paid $180 per 1,000 cubic meters of gas, while the new contract more than doubled the charge to $418 for the same amount of gas, which Russia subsequently reduced to $250.

Ukraine rejected even the reduced price and in turn imposed new financial terms asking Gazprom to increase the pipeline supply rates it paid for transporting the gas to Europe using Ukraine's pipelines.

After cutting off the gas supplies, Russia had accused Ukraine of stealing gas from the Europe-bound transit pipelines and Putin ordered Gazprom to cut the gas supply by 65.3m cubic metres a day to the Ukrainian transit system, the same volume Russia accused Ukraine of stealing each day.

Ukraine, in turn, has refuted the charge of stealing any gas but admitted removing 25 million cubic metres every day to meet with the ''technical gas requirement'' to send the gas to Europe.
 
Ukrainian gas company, Naftogaz has said that Gazprom's subsidiary Moldovagaz was siphoning 10 million cubic meters per day from a branch pipeline in Moldova causing a drop in supply to the Balkans such as Romania and Bulgaria.

The Moldovan government hotly refuted the accusation and called it a "provocation" deliberately made to cover up Kiev's gas robbery.  

Ukraine's fuel and energy ministry said his country would  increase transit fees 10-fold unless Gazprom accepted a fair price for gas supplied to Europe and has also asked a local court to annul the gas transit agreements with Russia. 

"The Fuel and Energy Ministry has filed a suit in a Kiev court asking it to recognise as no longer valid agreements on the transit of Russian gas over Ukrainian territory, which were active until the end of 2010," the ministry said in a statement.

The energy ministry said that since the agreement was signed by an official from Naftogaz, the deal was not valid as the official did not have the government's authority to sign the agreement.

Gazprom responded by saying that a Ukrainian court had no authority in passing any order on the transit agreement, which was signed under Swedish law.

In the meanwhile Gazprom has increased its gas supplies to Europe through gas pipelines that go through Belarus and the Blue-Stream pipeline under the Black Sea.

Croatia, Greece, and the Czech Republic have all said that dispute has led to short supply of gas from Russia while Bulgaria said supplies have dropped by 15 per cent but it has enough reserves for a month at current consumption levels.

Hungary and Romania have its supplies reduced by 20 per cent and both said that they had enough reserves, while the Czech Republic said its gas supply was less by 5 per cent and it was making up its deficit from reserves and supplies from Norway.

Poland and Germany were not affected because their gas is supplied by the pipelines from Belarus.