Ukraine, Russia Tussle over Natural Gas

Russia's Kremlin is threatening to shut off natural gas supplies to Ukraine if Kiev refuses to accept a threefold increase in the price of Russian natural gas. Ukraine officials say such a price hike would ruin the economy and threaten vital gas links to the rest of Europe.

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STEVE INSKEEP, host:

Now here's one snapshot of the energy market overseas. Russia is one of the world's big suppliers, and it's threatening to shut off natural gas supplies to Ukraine unless the price triples. Ukraine officials say such a price hike would ruin the economy and threaten vital gas links to the rest of Europe. Here's NPR's Gregory Feifer.

GREGORY FEIFER reporting:

The two former Soviet countries have fought over gas since the collapse of communism when prices were subsidized, but the current crisis over Russia's plans to triple the price of gas now has them close to the brink. Last week technicians with the Russian natural gas monopoly Gazprom took part in televised drills shutting down pipelines.

Unidentified Man: (Foreign language spoken)

FEIFER: Ukraine depends on Russia for about a third of its gas needs. Earlier this year Gazprom said it would bill Kiev what it charges its customers in Western Europe. Ukrainian President Viktor Yushchenko says the economy couldn't withstand the shock. He calls for a gradual transition and says Moscow's position is irresponsible.

President VIKTOR YUSHCHENKO (Ukraine): (Through Translator) I think the most important thing is not to allow the politicization of this question from both the Ukrainian and Russian sides.

FEIFER: As Ukrainian officials were holding talks at Gazprom's Moscow headquarters last Friday, Russian officials threatened to raise prices more than tenfold. Andrei Kakoshen(ph) is a Russian member of Parliament.

Mr. ANDREI KAKOSHEN (Russian Parliament Member): (Through Translator) The current authorities in Ukraine have pushed the matter toward a very serious dead end.

FEIFER: The standoff is more complicated than the simple matter of prices. Currently no money changes hand between Russia and Ukraine. Moscow supplies Kiev with gas in return for use of Ukraine's pipelines to send its gas to Western Europe. Ukraine is threatening to charge more for the service. It's also considering increasing the rent Russia pays for its navy's Black Sea fleet, which is based out of the Ukrainian port of Sevastopol. Russian officials dismiss Kiev's position. Gazprom export chief Alexander Medvedev says if Ukraine doesn't want to pay the full amount for Russian gas, it should give Moscow a stake in its pipeline industry instead.

Mr. ALEXANDER MEDVEDEV (Gazprom): (Through Translator) That would easily enable Ukraine to adapt its industry to the switch to European prices over the course of three to five years.

FEIFER: But Kiev counters Gazprom wants to take over its gas transport industry and remove Ukraine's main lever of influence in Moscow. Many Ukrainians believe the dispute isn't over fair market prices. They say Russian President Vladimir Putin wants to see Yushchenko and his Orange Revolution fail and is using energy as a foreign policy tool. Putin was badly stung last year after publicly backing Yushchenko's opponent in rigged presidential elections. Some believe the gas dispute is timed to hurt Yushchenko's administration ahead of parliamentary elections next March. Yuri Boiko is a former head of Ukraine's main oil and gas company. He says the issues has become so politicized, only direct talks between both presidents could solve the impasse.

Mr. YURI BOIKO (Former Head of Ukraine's Main Oil And Gas Company): When Ukraine decided to go ...(unintelligible) when Ukraine decided to go to euro to ...(unintelligible) Russia said, OK, you are going to euro. This way, you must pay for the gas as euro ...(unintelligible) but they are not ready to do this.

FEIFER: Constantine Tikanovski(ph) is co-head of a small chemical company outside Kiev. He says many companies that depend on gas, mostly in the chemicals and metal industries, won't survive a steep price hike.

Mr. CONSTANTINE TIKANOVSKI (Ukraine): (Through Translator) The Ukrainian economy has kept going mainly through trade of semi-finished goods. Energy companies contribute a very large amount to those products, so raising prices for oil and gas will really lead to the collapse of the Ukrainian economy.

FEIFER: As Gazprom gets ready to shut down its gas supplies, there's no sign of compromise. Both sides say they may sue in international courts if no agreement is reached by Sunday. Gregory Feifer, NPR News, Moscow.

INSKEEP: It's MORNING EDITION from NPR News.

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