Putin cuts European gas supplies via Ukraine

06 January 2009

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.(See: Gazprom threatens to cut gas supplies to )