Russia Cuts Off Ukraine's Gas Supply

Russian gas monopoly Gazprom said it cut all gas supplies to Ukraine on Thursday morning after talks broke down over payments for past shipments and a price for 2009.

Gazprom spokesman Igor Volobuyev said the cuts began as planned at 10 a.m. (0700GMT and 2 a.m. EST) Thursday.

A spokesman for Ukrainian gas company Naftogaz confirmed a steady drop in supplies.

There are fears that a cutoff could lead to a repetition of a January 2006 gas crisis. Then, a similar dispute between Russia and Ukraine briefly interrupted gas shipments to many European countries. Ukraine controls the pipelines through which Russia supplies most of its customers in Europe.

While cutting gas to Ukraine, Gazprom said it also has increased the gas pumped through pipelines that mainly serve Europe, which gets about a quarter of its gas from Russia.

Russian Prime Minister Vladimir Putin has warned Ukraine against diverting gas intended for other customers, saying that could have "quite serious consequences for the transit country itself" by damaging relations with Europe.

Ukraine's president and prime minister issued a statement saying they would guarantee the uninterrupted transit of natural gas through Ukrainian territory to Europe.

Natural gas is used for heating and to generate electricity, and the cutoff comes as Europe approaches the depths of winter. Naftogaz director Oleh Dubina has said that Ukraine has enough gas in reserve to last it through early April.

The deadlock over gas supplies reflects the deep political split between Moscow and Kiev.

Ukrainian President Viktor Yushchenko has angered the Kremlin through his efforts to build ties to Western Europe and his support of Georgia in its August war with Russia.

Ukraine's position in the dispute is further complicated by divisions in the country's leadership. Yushchenko and Prime Minister Yulia Tymoshenko, bitter political rivals, are at odds over gas policy and relations with Russia, among other issues.

Gazprom had warned it would cut gas supplies unless Ukraine paid off all of a $2.1 billion debt and signed a deal setting prices for 2009 deliveries by midnight. Neither was done.

Naftogaz paid $1.5 billion to the Swiss-based gas trader Rosukrenergo, which it says covers the debt. But Gazprom CEO Alexei Miller said late Wednesday that Gazprom had not yet received the money. Gazprom claims Ukraine owes $600 million more in fines for late payment.

Rosukrenergo is half owned by Gazprom. It was not immediately clear why the money had not been transferred to Gazprom.

"This is an issue of Gazprom's dealings with Rosukrenergo," Naftogaz spokesman Valentyn Zemlyansky said. "Naftogaz has fulfilled all its obligations."

The other stumbling block was the failure to sign a contract for 2009 gas deliveries.

Gazprom had first insisted that Ukraine pay $418 per 1,000 cubic meters of gas in 2009, more than double the $179.5 it paid the previous year.

On Wednesday, Gazprom offered a contract with gas set at $250, which Ukrainian officials said was still too high.

Yushchenko and Tymoshenko offered early Thursday to pay Russia $201 per 1,000 cubic meters of gas if Russia agrees to pay $2 per 1,000 cubic meters per 60 miles in future transit fees for use of Ukraine's pipeline network.

Russia has said the $250 offer is contingent on the current transit fee of $1.70 remaining unchanged.

While Gazprom's European customers now pay more than $400, the cost of gas is expected to fall sharply in the spring as a result of the steep drop in the price of oil.