Russia, Ukraine Talk to Avert Gas Cutoff

In a chilling replay of 2006's mid-winter showdown, Gazprom has threatened to halt gas deliveries to Ukraine on Jan. 1 over disputed back payments

Gazprom and the Ukrainian government—both hit hard by the economic crisis—plan to hold another round of gas price negotiations on Tuesday (30 December) in a long-running dispute which might again disrupt EU supplies.

The last-ditch meeting in Moscow comes after inconclusive talks on Monday over Kiev's debt to Gazprom.

The Russian gas monopoly has threatened to cut supplies from 1 January if the €1.42 billion bill—a figure disputed by Kiev—is not fully paid.

Russian Prime Minister Vladimir Putin added extra pressure on Monday saying "they don't want to pay," after speaking on the phone for "almost an hour" with Ukrainian President Viktor Yushchenko, he told reporters.

Gazprom spokesman Sergei Kupriyanov said there was a "50-50 chance" Russia will cut gas deliveries if the two sides fail to come to an agreement.

"Gazprom is doing everything possible to avoid any disruption of gas deliveries to Europe," company chief Alexei Miller wrote in a letter to European clients. "However, if events develop along an unfavourable scenario, the problem of Ukrainian transit will be a common problem for Russia and Europe."

Gazprom says it will continue to pump EU-bound gas to Ukraine even if supplies for Ukraine itself are halted, however. Kiev has pledged not to siphon off fuel destined for other countries, and says it has several months' worth of gas in storage.

A similar dispute in 2006 saw deliveries to the EU interrupted in a shock event causing long-term European energy security fears.

Frail economic and political situation

The debt puts Ukraine in a fragile political and economic situation. The country already got an €11.7 billion loan from the International Monetary Fund after its stock market plunged during the financial crunch, with demand for major exports such as steel, oil products and chemicals also slipping.

The gas crisis has also fuelled animosity between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko, the leaders of the 2004 Orange Revolution.

Many of Ukraine's pro-western politicians suspect Russia of using the dispute to undermine Kiev's leaders, who want to loosen Moscow's hold over its neighbour and move Ukraine towards NATO and the EU.

But Gazprom also has economic reasons for pushing for the cash, as it finds itself strongly indebted amid the global crisis.

Only a year ago, Gazprom was aspiring to be the largest corporation in the world, on the back of high oil prices and political backing from the Kremlin, the New York Times writes. Back then, it had already achieved third place judging by market capitalisation, behind Exxon Mobil and General Electric.

But today, Gazprom has tumbled to 35th place in the world, has a debt of €35 billion and is negotiating a government bailout worth €3.9 billion, the US newspaper reports.

Almost half of Ukrainians back EU membership

Meanwhile, most Ukrainians are still supportive of their country joining the EU one day in the future, a recent poll has shown, with 44.7 percent in favour, 35.2 against and 20 percent undecided.

The Kiev Post poll conducted from 17-24 December marked a slight drop from an earlier survey which had 47.2 percent favouring EU accession.

Most respondents indicated low economic development, insufficient reforms and corruption as the main obstacles for Ukraine's EU bid.

Before it's here, it's on the Bloomberg Terminal.