Last week, Russian President Dmitry Medvedev told Gazprom's chief executive to take a hard line with Kiev if it didn't pay the $2.4 billion for gas shipments that Moscow says it owes.
But Moscow is still pushing for price increases, saying it can't afford to continue offering Kiev discounted gas. And with Ukraine in the grip of a financial crisis, and fuel and oil prices falling, Kiev is taking a hard line against Gazprom's demands.
Cash-strapped Ukrainian gas company Naftogaz doesn't have the money to pay its debt, a company spokesman said. Ukraine has shut steel mills and chemical factories in response to the collapse in global commodity prices. Industrial output fell by nearly 20% in October.
Ukrainian officials were irked by Mr. Medvedev's threat. "One can always hear such declarations by various [Russian] leaders every year when negotiations over gas enter their final phase," said Oleksandr Shlapak, a spokesman for Ukrainian President Viktor Yushchenko, on Tuesday.
Flareups over gas prices have been an annual ritual between Moscow and Kiev since Russia shut off supplies in a pricing fight in January 2006. That action led to a brief interruption of exports to Europe, as most of the deliveries were carried in pipelines across Ukraine. Western governments accused Moscow of using its vast energy resources as a political weapon, a charge the Kremlin denied.
Still, Ukraine pays $179.50 per thousand cubic meters, far below the roughly $500 price that Gazprom's Western European customers pay.
Earlier this year, Moscow and Kiev agreed in principle to a three-year transition period starting in 2009 that would bring Ukraine's prices in line with world levels.
But gas prices are set based on those for oil, with a lag of several months, and analysts expect a sharp drop, possibly to as low as $200 per thousand cubic meters, in European prices by the end of next year.
Further complicating the gas discussions is a political standoff in Ukraine between onetime allies Mr. Yushchenko and Prime Minister Yulia Tymoshenko.
"Neither wants to risk a dispute with Russia," said Yuri Vitrenko, head of Kiev private-equity group Amstar Europe. "Tymoshenko is afraid that a dispute with Russia would hurt her presidential campaign next year."
Analysts see the move as driven by her desire to keep the Kremlin from disrupting her likely bid to succeed Mr. Yushchenko in the January 2010 presidential election.
Author: Jo Amey
