Deadline passes for Ukraine-Russia gas deal

The deadline for Ukraine to agree to a new gas deal with Russian energy giant Gazprom has passed. Ukraine had until 6pm Moscow time (3pm GMT) to reach a deal, or risk supplies being cut. The Presidents of both countries are meeting in Moscow and are holdi

Earlier, President Yushchenko said he's ready to find common ground despite all the problems:

“Of course there are issues that we need to discuss separately, maybe they are very sensitive. We are ready for the dialogue. We understand Russia has always been our strategic partner and we will deal with Russia on that basis”.

Clock is ticking for Ukraine

The Ukrainian government says the $US 1.5 billion debt has built up because of the complication of two Russian-Ukrainian intermediary companies.

Ukraine's Prime Minister Yulia Timoshenko says the bill will be paid and wants to do away with the intermediaries and deal directly with Gazprom.

In response Gazprom says it will restructure the gas supply arrangements once the debt is paid.

The company has also invited an independent organisation to monitor gas transit through Ukraine.

Russia is stressing that there'll be no repeat of previous problems: Gazprom may turn off taps to Ukraine but this will have no consequences for European consumers.

“The main result of the talks is that the gas deliveries will not be cut off until 6 p.m. We have the whole day for negotiations to try and strike a deal,” said Sergey Kupriyanov, Gazprom spokesperson.

Problematic background

The current row is far from being the first one in the turbulent energy relationship between Russia and Ukraine.

On New Year's Day 2006 Gazprom stopped its gas supplies to Ukraine following a long dispute. For some years Russia's ex-Soviet neighbour had been acquiring Russian gas at a price almost five times lower than Europe.

In March 2005 Ukraine proposed a transition to market relations with Russia cancelling earlier agreements for Russian gas transportation. In return, Gazprom announced new market prices for Ukraine, which it refused to pay. After months of deadlock and clear notice the country was cut off.

At the same time European gas supplies turned out to be disrupted as well.

A compromise deal was reached four days after the cut-off, with both sides agreeing to stick to market prices in their gas relations.

Under the new agreement Ukraine bought natural gas from a middleman company, RosUkrEnergo. This company acquired Russian gas for $US 230 per thousand cubic metres, mixing it with gas from central Asian republics and selling it to Ukraine for $US 95.

But last October Gazprom issued another warning over a $US 1.3 billion debt for the gas used by Ukraine in 2007. Back then Kiev hurriedly handed over the required sum. Now it owes $US 1.5 billion more.