Gas dispute deepens as Ukraine rejects Russian loan
(AP)
Updated: 2005-12-30 09:50

Ukraine has dug in its heels in a bitter dispute with Russia over gas deliveries, with President Viktor Yushchenko rejecting Vladimir Putin's offer of a multibillion-dollar loan to help Kiev adjust to a huge hike in Moscow's price tag for its gas.

With Russia threatening to stop supplying gas to Ukraine on New Year's Day if no solution is found, Ukraine's state-run gas company said the nation's 48 million people will not freeze and its factories will not go dark if Moscow follows through on its threat.

At a second day of talks Thursday in Moscow, Russian authorities stuck by their demand that Ukraine pay more than four times the current price, and no agreement was reached. The negotiations were to resume Friday.

Russian President Vladimir Putin, center, meets with Head of the Ukrainian national state gas company Naftogas Alexei Ivchenko, right, and Ukrainian Energy Minister Ivan Plachkov, left, in the Novo-Ogaryovo residence outside Moscow, Thursday, Dec. 29, 2005. [AP]

Meanwhile, Russia tightened the screws by signing a new deal to purchase gas from Turkmenistan that analysts said would leave the Central Asian nation with less to sell to Ukraine _ which relies on Russia for about a third of its gas and Turkmenistan for 45 percent.

The dispute has further damaged relations between Russia and Ukraine, two mostly Slavic, Orthodox Christian ex-Soviet republics whose common history goes back centuries but whose ties have been badly strained by the ascendancy of the Westward-leaning Yushchenko a year ago.

Russia's state-run natural gas monopoly OAO Gazprom says it plans to halt gas deliveries to Ukraine on January 1 unless Kiev agrees to pay about US$230 (euro195) per thousand cubic meters _ up from the US$50 (euro42) it pays now.

"This is a price that Ukraine will never accept," the ITAR-Tass news agency and Russia's NTV television quoted Yushchenko as saying Thursday. According to ITAR-Tass, he added that the Russian price was "a provocation."

Ukrainian officials say they want a price increase phased in gradually and claim the sudden huge hike would cripple the energy-intensive steel and heavy industries that are a key component of the struggling country's economy.

Graphic showing distribution of gas pipelines in Ukraine.[AFP]

Yushchenko said Ukraine wants a transition period of about three years to adjust to higher prices, and that an "objective" price for the Russian gas in Ukraine now is US$75-80 (euro63-euro68), according to his office.

Putin indicated that was unacceptable, saying in the Moscow talks that Russia could no longer subsidize gas deliveries to Ukraine and that Kiev must pay a market rate based on average European prices.

In comments shown repeatedly on state-controlled Russian television stations, Putin said Russia offered to loan Ukraine up to US$3.6 billion (euro3 million) to help it pay the higher price. "Even by Russian standards, this is a huge sum," he said.

Yushchenko rejected the offer, expressing thanks for the proposal but saying "Ukraine does not need these credits."

"Ukraine will rely on its own resources under a clear, correctly and objectively formed price," Yushchenko's office quoted him as saying.