HozNews

MOSCOW (AFP) - - Russia halted supply of natural gas to Ukraine on Thursday after the two ex-Soviet neighbors failed to agree on payment terms, sparking fresh concerns about the security of energy resources controlled by Moscow.

State-run gas giant Gazprom confirmed that supply to Ukraine had been shut off at precisely 10:00 am (0700) as planned following the expiry at midnight New Year’s Eve of the old contract.

“We have reduced supply of gas to Ukraine by 100 percent,” Gazprom spokesman Sergei Kupriyanov told reporters, putting the volume at 110 cubic metres per day.

Ukraine’s gas company, Naftogaz, separately confirmed that the volume of gas it was receiving from Russia had dropped, but promised that transit of supplies meant for customers downstream in Europe would be guaranteed.

The halt in Russian gas supply to Ukraine instantly recalled a similar cutoff in January 2006. This time however Ukraine and the EU say they have enough gas reserves to see them through the winter.

Another Gazprom spokesman said the flow of more than 300 million cubic metres per day of gas that transits through Ukraine but is destined for clients further afield in Europe was continuing unabated.

There were no immediate reports of shortfalls outside Ukraine.

Around one-fourth of the gas used in the European Union — more than 40 percent of the gas imported by the bloc — comes from Russia, 80 percent of it moving in pipelines that pass through Ukraine.

The supply cutoff came after Gazprom said Ukraine had failed to pay in full for the gas it imported from Russia in November and December — billed at 1.6 billion dollars — along with late payment fees totalling 450 million dollars.

The two countries also failed to reach agreement by the midnight Wednesday deadline on a new contract for 2009 delivery.

Kiev said it did not accept Gazprom’s proposed 2009 price of 250 million dollars per cubic metre, although this rate is substantially lower then that paid by most of Russia’s gas clients in Europe.

The Russian gas giant also accused Ukraine of threatening to steal gas meant for other European customers and Prime Minister Vladimir Putin warned Wednesday that Kiev would face “severe consequences” if it did so.

Ukraine never disputed the November-December arrears demanded by Gazprom.

However it paid, at the last minute, only 1.5 billion dollars of the 1.6 billion dollars demanded by Gazprom for the gas, not explaining the shortfall.

Ukraine, which remains gripped by sharp tensions within its national leadership accompanied by major economic problems, was far less enthusiastic about paying the late fees by Gazprom’s Wednesday deadline.

The cutoff marked the second time in three years that Gazprom has cut supply to Ukraine and could harm the image of both countries as reliable energy partners.

At a late-night New Year’s Eve briefing Wednesday, Gazprom put the blame for the crisis squarely on Kiev.

In addition to the commercial dimension, Putin and Russian President Dmitry Medvedev have fiercely criticised Ukrainian President Viktor Yushchenko for what they say are his US-dictated policies.

Political insiders in Moscow say their anger with Yushchenko, fueled most recently by reports that Ukraine aided Georgia in its brief war with Russia last August, has played a central role in the latest energy crisis.

Russia and Ukraine were united in a single state — the Soviet Union — where such considerations did not exist, until the Soviet collapse in 1991.

Russia has said that as an independent state, Ukraine will have to pay market rates for gas and Putin has asserted that if the West wants Russia to continue selling at Soviet-style subsidized rates it should pay the difference.