Gazprom: Ukraine Refused Offers on 2006 Gas Deliveries

MOSCOW – Russia's state-controlled natural gas monopoly said early Sunday that Ukraine had refused its last offer on the terms of natural gas deliveries and transit in 2006, setting the stage for Moscow to close the taps on New Year's Day.

The announcement came after a midnight deadline Gazprom and President Vladimir Putin had given Ukraine to decide on what price it would pay next year.

Gazprom spokesman Sergei Kupriyanov told The Associated Press that Gazprom had sent its Ukrainian counterpart a signed contract offering the terms Putin had hours earlier: to maintain Ukraine's current fuel price for three months if Kiev agreed to pay more thereafter.

Putin said his offer was only valid until the end of the day — 10 hours before a threatened cutoff of supplies to Ukraine.

"Literally 40 minutes ago, we received an official answer from the Ukrainian side," Kupriyanov said. The answer said: "'We cannot sign it,' and that is all."

His statement put a cap on a day of conflicting statements from Moscow and Kiev. Ukraine's TV5 late Saturday had carried a statement by the Ukrainian gas company, Naftogaz, that "the leaderships of NAK Naftogaz and OAO Gazprom have agreed over the telephone to unchanged prices of natural gas and gas transit for the 1st quarter of 2006."

But it did not answer the key question of what price Naftogaz would pay after that.

Prior to Putin's offer, Gazprom demanded that Ukraine pay $230 — more than four times the current price of $50 — per 1,000 cubic meters of gas, and vowing to halt supplies to Ukraine at 10 a.m. Sunday (2 a.m. EST) unless an agreement is reached.

Ukraine wants an increase that would bring what it pays closer to world prices to be phased in gradually. President Viktor Yushchenko said late Friday that the most it is willing to pay now is $80 (euro68).

The showdown has underlined the tension boiling between the historically linked, mostly Slavic ex-Soviet republics since the West-leaning Yushchenko — who wants to reduce Moscow's clout in his country — beat his Russian-backed rival in a bitter electoral battle a year ago.

Much of the dispute has been played out through the media. Russian television channels showed Putin on Saturday hearing the latest on the negotiations from Gazprom chief Alexei Miller, then making his offer.

"I'm ordering the government and Gazprom to conduct gas supplies to Ukraine in the first quarter of 2006 on the terms and at the prices of 2005, if the Ukrainian partners by the end of the day sign a contract proposed by Gazprom to transfer to free-market prices starting from the second quarter," Putin said during a session of the presidential Security Council. "If there is no clear response, we will consider that our proposal has been rejected."

Gazprom has said the price hike marks a long-overdue transfer to free-market price mechanisms. However, Andrei Illarionov, Putin's former economic adviser, denounced it Saturday as a political move signaling a rise of neo-imperialist trends in Kremlin policy.

Illarionov said the Kremlin had asked him to help cast the price hike as a free-market measure, but that he resigned this week because the move "had no relation not only to liberal economic policy, but to economic policy at all."

Russia, which supplies about half of the European Union's gas — most of which flows through Ukraine — has moved in advance to blame Ukraine for any disruption in supplies to Gazprom's Western clients.

Gazprom informed European customers that, once it stops deliveries intended for Ukrainian use, supplies to other countries could be restricted if Kiev siphons off gas meant for transit further west.