This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2014/06/17/world/europe/russia-gazprom-increases-pressure-on-ukraine-in-gas-dispute.html

The article has changed 6 times. There is an RSS feed of changes available.

Version 3 Version 4
Gazprom Stops Supplying Natural Gas to Ukraine Gazprom Cuts Russia’s Natural Gas Supply to Ukraine
(about 14 hours later)
MOSCOW — The Russian energy giant Gazprom stopped supplying natural gas to Ukraine on Monday, warning that the reduction could diminish the amount of gas flowing to the rest of Europe and escalating the political crisis between the two countries. MOSCOW — Further aggravating already tense relations between Russia and Ukraine, the Russian energy giant Gazprom cut off natural gas supplies to its neighbor on Monday, warning that the reduction could diminish the amount of gas flowing to Europe.
After the government in Kiev failed to meet a 10 a.m. deadline imposed by Moscow to pay a nearly $2 billion installment for gas, Gazprom announced that it would no longer supply on credit. The cutoff came after Ukraine missed a Russian-imposed deadline Monday to pay a nearly $2 billion installment for past gas deliveries, with senior officials on both sides exchanging heated remarks blaming the other.
“Gazprom supplies to Ukraine only the amount that has been paid for, and the amount that has been paid for is zero,” a Gazprom spokesman, Sergei Kupriyanov, told reporters. It also coincided with a statement by the Ukrainian president, Petro O. Poroshenko, saying he would present a detailed cease-fire plan this week to end the fighting in eastern Ukraine. But it remained unclear how such a pact would be negotiated, in that Kiev has repeatedly said it would not talk with any separatists who had taken part in the uprising against the central government. For their part, the separatist leaders say Kiev has long ignored their concerns.
A source close to Gazprom said the gas flow into Ukraine had been reduced by the amount intended for Ukraine itself. The gas flowing into Ukraine as of Monday was meant only to transit the country to Europe. “Gazprom supplies to Ukraine only the amount that has been paid for, and the amount that has been paid for is zero,” Gazprom’s spokesman, Sergei Kupriyanov, told reporters.
All of the gas flowing into Ukraine as of 10 a.m. Monday was meant only for transporting across the country to Europe, the source said. The Ukrainian leadership accused Russia of fomenting a gas war on top of the violence for which it blames Moscow, while the Russian prime minister, Dmitri A. Medvedev, dismissed the entire Ukrainian leadership as “inadequate” in remarks on his Facebook page.
In Kiev, the energy minister, Yuri Prodan, told a cabinet meeting that “Gazprom has decreased deliveries of gas to zero,” local press reports said. On the surface, the dispute was about a large unpaid bill, nearly $4.5 billion in total, that Gazprom said Ukraine owed. The company, 50.01 percent owned by the Russian state, demanded that Kiev both settle its debt and pay in advance for future delivery before supplies resume.
Gazprom warned the authorities in Kiev that the Ukrainian gas company, Naftogaz, was obliged under existing contracts to ensure that European gas supplies transited the country without interruption. But Ukraine is disputing the size of the existing tab, and there is no agreement over future pricing nor whether an entirely new contract is warranted. Russia wants Ukraine to pay $385 per thousand cubic meters, like the rest of Europe, while Kiev is insisting on the favorable price of $268 per thousand cubic meters that it used to get as a former Soviet republic.
“The European Commission has received timely notification of possible interruptions in gas transit, in the event that Naftogaz Ukrainy siphons off gas from transit flows,” said a statement from Gazprom. But the gas showdown is rooted in two larger disputes.
The company, which is 50.01 percent owned by the Russian government, also said that it was filing a lawsuit in an arbitration court in Stockholm to force Ukraine to pay $4.5 billion for gas that had already been delivered. Gazprom has repeatedly insisted that the dispute is more about getting paid than about the political tensions between the two countries. First and foremost, the violence in eastern Ukraine between separatists devoted to Russia and the Ukrainian military is escalating, with 49 soldiers killed on Saturday when the separatists shot down a transport plane and demonstrators in Kiev marauded around the Russian Embassy in response.
Naftogaz responded by saying that it had filed a suit of its own in the Stockholm court against Gazprom to establish a fair market price for the gas. Naftogaz said the suit would also ask the court to fine Gazprom for what the Ukrainian company claims to be $6 billion in overcharging since 2010. In a statement, the Ukrainian prime minister, Arseniy P. Yatsenyuk, said that Russia’s move was part of a larger pattern of Kremlin aggression.
The Stockholm trade court, formally known as the Arbitration Institute of the Stockholm Chamber of Commerce, has long been used to settle East-West trade disputes because of Sweden’s neutrality. “This is not about gas,” Mr. Yatsenyuk said. “This is a general plan for the destruction of Ukraine.” He said the decision was the latest in a series of steps that “began with the annexation of Crimea, the Donbass terrorists, supplying Russian weapons and sending Russian bandits to the territory of Ukraine.”
In a statement, the Ukrainian prime minister, Arseniy P. Yatsenyuk, said that Russia’s move to cut off the gas supply was part of a larger pattern of aggression by the Kremlin. Second, Gazprom has provoked economic ire in Europe over its plans to build an alternative gas route under the Black Sea for the company’s exclusive use, contradicting Europe’s open access laws. That has put the future of what is known as the South Stream pipeline in doubt.
“This is not about gas,” Mr. Yatsenyuk said. “This is a general plan for the destruction of Ukraine.” He said the decision was the latest in a series of steps that “began with the annexation of Crimea, the Donbass territorists, supplying Russian weapons and sending Russian bandits to the territory of Ukraine.” Günther Oettinger, the European energy commissioner who has brokered the gas negotiations, said in Vienna that he would try to convene more talks this month. But he warned European Union members to maintain significant gas storage.
Mr. Yatsenyuk accused Russia of turning down a fair business offer as part of the broader geopolitical fight. “We have demonstrated to the world that we were willing to compromise,” he said. “A common compromise, proposed by the European Commission and Ukraine, was rejected by the Russians solely for political reasons.” Gazprom, which has sought for the past decade to convince the Europeans that it is a reliable supplier and not an arm of Russian foreign policy, painted the dispute as strictly commercial.
The European Commission, which has sought to mediate in the talks that started in early May, said in a statement overnight that there was still hope for an amicable resolution after the talks collapsed. “As the commission is convinced that a solution is still possible and in the interest of all parties concerned, it will reflect on the next steps and on when to bring the parties together again,” said the commission, which is the main policy-making arm of the European Union. “They must pay their debts,” Alexei Miller, the chief executive of Gazprom, told a news conference repeatedly, turning red in the face as he castigated Ukrainian efforts to link the dispute to the broader conflict.
In another sign that Russia planned to ratchet up the economic pressure, the country’s food safety watchdog, Rosselkhoznadzor, was reported to have announced an immediate ban on the import of Ukrainian potatoes after shipments were said to have been found carrying a parasitic worm. At his side, Russia’s energy minister, Alexander Novak, criticized those calling the gas shutdown an “escalation” of the overall tensions. “We are talking about fully legitimate demands from the Russian side and Gazprom,” he said, stressing that the two sides had sat down seven times this spring trying to forge a compromise.
The report, from Interfax Ukraine, said the ban was because of “repeated detections” of the parasite. Russia has cut off gas supplies to Ukraine twice before, in 2006 and 2009, both times during the winter months. Analysts noted that if you had to pick a month for a dispute over gas deliveries, June would be it. Demand is low, and given the mild winter in Europe, most countries have significant storage capacity.
Before the crisis, about a quarter of Ukrainian exports had gone to Russia, and Ukrainian factories had benefited from a growing demand in the defense sector and from rising consumer purchasing power in Russia. Mr. Miller said Ukraine probably had enough gas stored to see it through the early fall — remarks echoed by Ukrainian officials. More important, Ukraine is contractually obligated to continue shipping the gas that transits its territory via Europe; Russia said it was only reducing that portion of the gas that Ukraine uses.
Russia is expected to take further measures against Ukraine before June 27, when the government in Kiev is due to sign a long-delayed association agreement with the European Union. An earlier failure to sign that agreement precipitated the political crisis in Ukraine. Moscow has selectively banned imports in the past as a way to pressure government decisions in Kiev. About a fifth of the European Union’s supply of natural gas flows through Ukraine. Ukraine itself imported from Russia 63 percent of the natural gas it consumed in 2012, producing the remaining 37 percent domestically, according to the United States Energy Information Agency.
Gazprom had most recently ratcheted up the pressure on Ukraine by reducing gas supplies by about 50 percent in early March. The Russian tactics alarmed European officials because about a fifth of the European Union’s supply of natural gas flows through Ukraine. Crunch time will come at the end of July, when both Ukraine and the rest of Europe will start topping off storage tanks in anticipation of winter.
According to the United States Energy Information Agency, Ukraine imported from Russia 63 percent of the natural gas it consumed in 2012, producing the remaining 37 percent domestically. Earlier this year, Ukrainian officials said they had stockpiles to substitute for Russian imports for at least a month. Should Ukraine start siphoning off European supplies, Mr. Miller said Russia could increase the flow through the North Stream pipeline that runs under the Baltic Sea to Germany. But at least one-third of the supplies will still have to flow through Ukraine, said Laszlo Varro, who leads the gas, coal and power markets division of the Paris-based International Energy Agency. “Ukraine currently is essential to get Russian gas exports to Europe,” he said.
Russia and Ukraine have been negotiating for weeks over the price for gas, which Russia had been delivering at a subsidized rate that was lower than that which it charged European customers. Russia wants Ukraine to pay $385 per 1,000 cubic meters, which is the standard measure for gas in Europe. That figure was up from $268, an increase of about 44 percent. Both Ukraine and Russia have an interest in keeping supplies flowing. Ukraine is trying to become a European economic ally, due to sign an association agreement on June 27, while Russia does not need another source of tension after annexing Crimea, provoking Western sanctions.
Gazprom, the world’s largest natural gas producer, increased the price after Ukrainian protesters toppled the government, a Russian ally, in February. “Both will want to avoid any disruption of gas flows to Europe,” said Chris Weafer, a senior partner at Macro-Advisory, a consulting company for foreign firms doing business in the former Soviet Union.
Bitter divisions remain between Moscow and the new government in Kiev, which has accused the Kremlin of supporting an increasingly violent separatist movement in the east to destabilize the country.
The United States and Europe have imposed sanctions against some individuals connected to President Vladimir V. Putin of Russia and against a few banks over Moscow’s annexation of Crimea in March, but it has held off on a third round of punishment. The West has warned, however, that further sanctions would be imposed by the end of June if the violence in eastern Ukraine does not ebb.
Moscow has denied the allegations that it is covertly fueling the violence.
Although Russia has said that it will not respond directly to the sanctions, the prospect of reduced gas supplies to Europe is considered an indirect method of pressuring Europe. There are backup supplies in storage in Europe and the summer has been fairly warm, so if supplies were cut, it would still be weeks before the situation became critical.
Gazprom has cut off gas supplies twice before, in 2006 and 2009, over political and financial disputes.