Ukraine official predicts continued Russian gas supply to Europe

Business Materials 8 February 2008 17:54 (UTC +04:00)

( dpa ) - A senior Ukrainian official on Friday predicted continued Russian gas supplies to Europe, despite a warning by the energy giant Gazprom it could shut off Ukraine and points westward as early as next week.

"The gas will continue to flow, you can turn on your burners with confidence," said Oleksander Turchinov, Ukraine's Vice Prime Minister. "There is not going to be a cut off."

Turchinov is a key official in Ukraine's pro-Europe government, and a close associate of Prime Minister Yulia Tymoshenko. He is a former head of Ukraine's national intelligence agency the SBU.

Gazprom officials complained earlier this week that Ukraine had run up a 1.5 billion dollar debt for gas imported but not paid for, and set a Monday deadline for resolving the bill.

"What is happening is that change in the structure of gas purchases is taking place...we are moving from middleman companies to a direct relationship between Ukraine and Gazprom," Turchinov said.

"Detailed talks will begin on February 11 (the Gazprom deadline), and I think we will reach this goal," he said. "But there will be no breaks in supply."

Arguments between Gazprom and Ukraine over the size of Ukraine's debt for natural gas are chronic, and often nerve-wracking for Europe, which receives some 80 per cent of Gazprom's exports via pipelines crossing Ukraine.

A late 2005 pricing dispute led to Gazprom declaring the Ukrainians cut off, at which the Ukrainians siphoned a portion of the gas moving onward to Europe as transit payment.

That disagreement was resolved in a week, but retail gas prices as far away as France spiked as a result.

The present conflict has resulted, Turchinov said, from the failure of two middleman companies, one inside Ukraine and one outside Ukraine, to transfer payment for gas used from the Ukrainian national gas distribution company Naftohaz-Ukrainy to Gazprom.

Calculation of actual debt is hazy, as Gazprom holds a 50 per cent stake in the RusUkrEnergo, the Swiss middleman company outside Ukraine; while Naftohaz-Ukrainy holds a 50 per cent stake in UkrGaz- Energo, the middleman joint venture company inside Ukraine.

Turchinov has long been a top critic of both middleman companies, saying they artificially inflate the cost of Russian gas sold to Ukraine, and dangerously extend Russian Gazprom's influence over Ukraine's natural gas distribution network.

Turchinov's comments came one day after his boss Tymoshenko in a 1+1 national television interview told viewers her government considered direct payments by Ukraine to Russia for natural gas a top priority.

Ukraine possesses sufficient natural gas reserves not only to cover its own needs, but to continue stable supplies to Europe, she said.