Russia halts gas supply to Ukraine as dispute over unpaid bill escalates

Dispute over unpaid bill escalates, with rest of Europe caught in crossfire

PUBLISHED : Tuesday, 17 June, 2014, 4:22am
UPDATED : Tuesday, 17 June, 2014, 5:32pm


Russia yesterday cut off gas supplies to Ukraine amid a bitter dispute over a huge unpaid bill that risks disrupting supplies to the rest of Europe, and further inflames tensions between the two neighbours.

The decision does not immediately affect the gas flow to Europe, but it could disrupt the long-term energy supply to the region if the issue is not resolved.

Andriy Kobolev, head of Ukraine's Naftogaz company, said Russia had cut the supply of gas to the country but that Ukraine could manage without Russian gas until December.

Sergei Kupriyanov, spokesman for Russia's Gazprom, said it would now demand that Ukraine pay in advance for any future deliveries. It said the country owed it a total of US$4.458 billion for gas from last year and this year.

Ukraine was ready to accept a compromise in talks in Kiev of paying US$1 billion now and more later, but Russia did not accept the offer, the European Commission said.

A crisis in relations followed Russia's annexation of Crimea in March. Ukraine accuses Russia of supporting a separatist insurgency in its eastern regions.

The pipeline to Ukraine also carries gas meant for Europe, but Kupriyanov said that the supply to Europe would continue as planned. Ukraine must make sure the gas reaches European customers, he said.

However, Gazprom has notified the European Commission of "a possible disruption in the gas transit" in case Ukraine decides to siphon off the gas.

Analyst Tim Ash at Standard Bank said Russia was likely to cut off only the gas meant for Ukraine, but that Ukraine could in theory simply take what it wanted since the gas was intermingled. That would result in a shortage in pipelines to Europe that could hinder the build-up of stored gas ahead of the winter heating season.

Bulgaria, Slovakia and Hungary get 80 per cent or more of their gas from Russia, while Poland, Austria and Slovenia get around 60 per cent.

Amid mounting tensions, Russian Foreign Minister Sergey Lavrov said yesterday he would never again speak to his Ukrainian counterpart, who showed up at a weekend protest in Kiev and used a popular Ukrainian swearword to denounce Russian President Vladimir Putin.

Ukrainian demonstrators spattered the Russian embassy in Kiev with paint and eggs on Saturday after pro-Russian separatists shot down a Ukrainian military transport plane, killing all 49 people aboard. In Moscow, police detained several men who were throwing flares at the Ukrainian embassy.

Gazprom chief Alexei Miller said that Russia had wanted a payment of US$1.95 billion for past-due bills by yesterday.

"Ukraine will get as much gas as it pays for," Miller said. He emphasised that to buy any gas from Russia, Ukraine first had to settle the US$1.95 billion debt.

Gazprom is suing Naftogaz in an international court for the US$4.5 billion debt. Naftogaz said it had also filed a suit against Gazprom, seeking a "fair and market-based price" for gas, as well as repayment of US$6 billion for what it said were overpayments for gas from 2010.

Ukrainian Prime Minister Arseniy Yatsenyuk angrily rejected the Russian position, saying his country would not "subsidise … Gazprom".