Gazprom to cut off European gas supplies as Russia-Ukraine talks fail

01 January 2009

Russia said last night that talks with Ukraine on the payment of the $2-billion gas supply debt and signing of the new gas supply contract has failed, forcing it to to turn off the gas supply, which could affect supplies to Europe if the standoff continues for long.

Ukraine had to pay the Russian state-owned energy giant Gasprom a total of $2 billion debt on gas supplied last year with an $805 million bill for November, $862 million for December and $450 million in fines for late payment.

Ukraine has said that it has cleared of all its 2008 dues by paying an intermediary firm $1.5 billion but has refused to pay the $450 million fine levied on it for late payment.

Ukraine has also 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 doubles the charge to $418 per for the same amount of gas.

During negotiations Gazprom then reduced the price to $250 per 1,000 cubic meters of gas, which Ukraine again rejected saying even thism was still too high as energy prices has dropped globally.

Putin has said that the $250 per 1,000 cubic meters of gas was a subsidised rate and a "humanitarian" gesture towards its neighbour since the international market price was $418 per 1,000 cubic meters of gas.