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Russia cuts gas supply to Ukraine as tensions soar


By NATALIYA VASILYEVA and DAVID McHUGH
Associated Press

MOSCOW (AP) -- Russia halted natural gas deliveries to Ukraine on Monday, spurning Ukraine's offer to pay some of its multibillion-dollar gas debt and demanding upfront payments for future supplies.

The decision, coming amid deep tensions over eastern Ukraine, provoked strong words from both sides but does not immediately affect the crucial flow of Russian gas to Europe. Ukraine has enough reserves to last until December, according to the head of its state gas company Naftogaz.

Still, the Russian move could disrupt Europe's long-term energy supplies if the issue is not resolved, analysts said. Previous gas disputes left Ukraine and some Balkan nations shivering for nearly two weeks in the dead of winter.

The gas conflict is part of a wider dispute over whether Ukraine aligns itself with Russia or with the 28-nation European Union and comes amid a crisis in relations following Russia's annexation of Ukraine's Crimean Peninsula in March. Ukraine accuses Russia of supporting an armed separatist insurgency in its eastern regions, which Russia denies.

Ukraine's new president, meanwhile, said Monday that he will propose a detailed peace plan this week that includes a cease-fire with the separatist rebels. But before that happens, the armed forces must secure control over Ukraine's porous border with Russia, President Petro Poroshenko said at a meeting of his national security council.

"As soon as the border is closed, we can immediately declare a cease-fire," he said. "Declaring a cease-fire while the border is open would be irresponsible."

Russia-Ukraine Gas Dispute Unnerves Markets

There was no immediate response from the separatists to Poroshenko's comments.

Ukraine, one of the most energy inefficient countries in Europe, has been chronically behind on payments for the Russian natural gas needed to heat its homes and fuel its industries. In addition, Russia had been giving its neighbor cut-rate sweetheart deals on gas for various political reasons, a practice that came to a halt April 1.

Russia had demanded $1.95 billion by Monday for past-due bills. At talks over the weekend in Kiev, Ukraine was ready to accept a compromise of paying $1 billion now and more later, but Russia rejected the offer, the European Commission said.

Sergei Kupriyanov, spokesman for the Russian gas giant Gazprom, said since Ukraine missed the deadline, from now on it had to pay in advance for energy. Yet that's a nearly impossible demand for the cash-strapped nation, which is fighting an insurgency and investigating possibly billions lost to corruption under its former pro-Russian president, Viktor Yanukovych.

Europe gets about 30 percent of its gas from Russia, and about half of that goes through the pipelines across Ukraine. In 2013, Ukraine imported nearly 26 billion cubic meters of gas from Russia, just over half of its annual consumption.

Kupriyanov said Russian gas supplies for Europe will continue through Ukrainian pipelines as planned and warned Ukraine to make sure they reach European customers.

Analyst Tim Ash at Standard Bank PLC said Ukraine could in theory simply take what it wants, since gas deliveries in the pipelines are intermingled. That would result in a shortage in gas to Europe that could hinder building up enough stored gas ahead of the critical winter heating season.

"This is unlikely to bring a short-term hit to gas supply in Europe, but it will build up problems for the winter unless a deal is reached quickly," he said in an email.

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

At a news conference in Moscow, Alexei Miller, the CEO of Gazprom, berated the Ukrainian government, saying it scoffed at compromise and was deliberately turning commercial negotiations into a political discourse.

"Ukraine will get as much gas as it pays for," Miller said Monday. "The risks to the (gas) transit are there and they're significant."

He said in order to prevent serious disruptions to energy supplies in winte r, Ukraine needs to pump in gas to its underground storages before mid-October. The current amount of gas in storage is not enough for Europe to last through the winter, he said.

In Kiev, Ukrainian Prime Minister Arseniy Yatsenyuk angrily rejected the Russian position, putting Gazprom's move on par with the annexation of Crimea and the pro-Russia insurgency in eastern Ukraine.

"We won't subsidize Gazprom," he said. "Ukrainians will not take $5 billion per year (out of their pockets) to let Russia spend this money on weapons, tanks and planes to bomb Ukrainian territory."

Gazprom had tolerated the late payments but now says Ukraine owes a total of $4.458 billion for gas from last year and this year.

In December, Russia offered Yanukovych a discounted price of $268.50 per thousand cubic meters after he backed out of an economic and political agreement with the EU. But Russia annulled all price discounts after Yanukovych was chased from power in February following months of protests, raising the gas price to $485 per thousand cubic meters starting April 1.

Russia has offered a future price of $385, the price that Ukraine was paying until December, but Kiev has insisted on a lower price. Miller scoffed at that demand, saying it was significantly below European market prices.

In Moscow, Russian Prime Minister Dmitry Medvedev, at a meeting with the Gazprom chief and other officials, called the Ukrainian position "absurd" and said it amounted to blackmail over the pipelines.

Ukraine's energy minister, Yuriy Prodan, said Ukraine was prepared for the Russian cutoff.

"We are providing reliable transit of gas and supplies to domestic consumers," he said, adding that Ukraine could do that because of lower seasonal demand and previously stored gas.

In a related case, Gazprom announced Monday that it is suing Ukraine's Naftogaz in an international court for the $4.5 billion. Naftogaz said it has also filed a suit against Gazprom, seeking a "fair and market-based price" for gas, as well as a $6 billion repayment for what it said were overpayments for gas from 2010.

EU spokeswoman Sabine Berger said EU energy commissioner Guenther Oettinger remained committed to helping broker a deal between Kiev and Moscow.

One reason for EU involvement is the current state of Ukrainian gas reserves. Berger said they now stand at around 13.5 billion cubic meters but need to be at 18-20 billion cubic meters at the end of the summer for Europe to have enough gas this winter.

Berger said the EU was working toward a deal that could allow shipments of gas to Ukraine via Slovakia.

Ukrainian consumers, however, will be facing higher prices no matter what Russia does. Previous governments had sold gas to consumers at about a fifth of what Naftogaz pays for it - leaving little incentive to conserve and saddling the government with huge deficits.

Ukraine's new government is in the process of raising domestic gas prices, a condition of its $17 billion bailout loan from the International Monetary Fund.

--

McHugh reported from Kiev, Ukraine. Vladimir Isachenkov in Moscow and John-Thor Dahlburg in Brussels contributed to this report.

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edwbiker June 16 2014 at 4:01 PM

I prefer the comments from AOL readers. Huff Post edits out anything conservative and that makes it look like EVERYONE is a liberal. AOL seems to let anyone say what they want so long as you don't swear, etc. No more articles from HP please.

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50 replies
renner1234 June 16 2014 at 4:12 PM

A european country does not want to pay for the goods that is uses.

Interesting concept.

Oh I forgot the US Obama administration is doing the same. 17 trillion in debt.

Flag Reply +63 rate up
29 replies
furchaserdave June 16 2014 at 4:16 PM

first of all Putin has done nothing wrong. we created and started a violent overthrow of a democratically elected government, and now call the citizens of Ukraine that are upset about it insurgents and terrorists. how pathetic can we be? 90% of Ukraine is Russian in one way or another. 60% of the citizens call Russian their motherland. so when the polls showed most of the nation favored stronger ties with Russia rather than the corrupt EU, we started a violent protest and increased the tensions until it boiled over into a violent overthrow. WE overthrew a DEMOCRATIC government, a real one, not like our false one, because we didn't like how it turned out. can you imagine what we would do if Russia tried that move with one of our neighboring countries? Putin defended it's people that openly wanted ties to Russia. we are the ones who openly had operatives in Ukraine, not Russia. all evidence we showed was found untrue. and this pathetic administration says it is Russian aggression

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43 replies
oldtexx June 16 2014 at 4:10 PM

Can't blame Putin. What's he supposed to do, furnish them with free energy? Russia and the Ukraine were about to strike a deal that involved a closer relationship between the two so our CIA stirred up riots and deposed the duly-elected Ukrainian president and inserted a puppet ruler more to the USA's liking. OK, now let him rule and pay his bills. When was the last time the US was successful at nation-building anyway?

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6 replies
duey35 June 16 2014 at 4:03 PM

This is why no nation should be dependant on any other nation.

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6 replies
wetjetsail June 16 2014 at 4:49 PM

Too many Putin loving commies on this site. Do any of them care that USA in the Budapest Agreement of 1994 promised to protect Ukraine borders from Russia if they gave their nuclear weopons to Russia. Ukraine, which was the 3rd largest nuclear power in world, gave up 5,000 weapons believing USA. And what happens, Russia takes over Crimea and grabs one of the largest oil reserves in the world in the Black Sea. WTF. I hate the KGB commies that blog lies on this site.

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17 replies
freeradicals June 16 2014 at 4:00 PM

Apparently, the Olympics was a giant di ck extender for Putin. Same thing happened to Hitler.

Flag Reply +33 rate up
10 replies
sfpent June 16 2014 at 4:02 PM

Looks like an opportunity for US companies to sell/ship liquified natural gas to the EU and Ukraine.

Flag Reply +27 rate up
18 replies
bailey.willie June 16 2014 at 4:02 PM

OBAMA WHAT ARE YOUR PLANS NOW. GO STICK YOUR HEAD IN THE SAND TRAP AND HOPE EVERYTHING WORKS OUT. GET O0FF YOUR ASS AND DO SOMETHING RIGHT OR WRONG AT LEASE DO SOMETHING

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35 replies
Lauderdale Sand June 16 2014 at 4:16 PM

Looks like Mr. Putin has a few sanctions of his own. What did they expect?

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1 reply
Ed Lauderdale Sand June 16 2014 at 4:27 PM

It looks like they expected a country that they keep claiming to be at war with while comparing it's leader to Hitler to keep supplying them energy, preferably at below market rates even though they don't pay their bill on time. They're apparently pretty far from being the brightest bulbs on the tree.

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4 replies
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