Financial Times FT.com

Russia and Ukraine reignite gas dispute

By Isabel Gorst in Moscow, Joshua Chaffin in Brussels and Roman Olearchyk in Kiev

Published: January 12 2009 19:13 | Last updated: January 13 2009 12:51

The European Union faced a renewed threat to its energy security on Tuesday after Gazprom accused Ukraine of blocking transit pipelines carrying gas to Europe hours after supplies resumed ending a six day cut off.

Alexander Medvedev, the deputy chief executive of Gazprom, said on Tuesday, “We believed yesterday that the door for Russian gas was open, but again it has been blocked by the Ukrainian side”.

Naftogaz, Ukraine’s state gas company, in response said it could not transport Russian gas to Europe. Oleh Dubyna, chairman of Naftogaz, said his company could not accept the offer by Gazprom to pump gas down one pipeline – not the typical route used to supply the Balkans – as it would have been technically impossible without cutting gas supplies to eastern regions of Ukraine.

”We did not open the valve because there is no capability” to pump gas down the route Gazprom sought” Mr Dubyna said. ”We are ready to transport these volumes [down the normal routes.] But the Russian side refused,” he added.

Hours earlier, Gazprom announced that gas supplies to Europe via Ukrainian pipelines had resumed.

But on Tuesday Ukraine accused Gazprom of deliberately destabilising the gas transit system by feeding supplies into a single pipeline bound for the Balkans.

Bohdan Sokolovsky, energy advisor to Ukraine’s president, Viktor Yushchenko, said, “They have purposely done this to complicate the flow of gas and then blame us. We have asked them to pump the gas into all pipelines to allow for the optimal flow of gas to Europe.

On Monday the EU brokered a deal allowing deployment of an international mission to monitor gas transit lines crossing Ukraine, a breakthrough which was believed to have ended the dispute .

The putative deal – finally signed by Russia and Ukraine on Monday following delays at the weekend – called for the two countries and the EU to dispatch dozens of monitors to pumping stations along supply routes to verify gas shipments

But in a sign of continued tensions, Alexander Medvedev, Gazprom’s deputy chief executive, on Monday warned that Gazprom could sue Ukraine for up to $800m (€594m, £528m) in damages incurred from the dispute and would insist that Ukraine settle any claims by European gas buyers hit by supply disruptions.

“Our lawyers are preparing all defensive measures. Even if such lawsuits theoretically crop up, we will re-address them [to Ukraine],” Mr Medvedev told Eko Moskvy radio station.

Russia and Ukraine continued to squabble over key points Monday night, including the issue of who should pay for so-called “technical gas” – fuel to keep pumping stations and compressors working in the transit process.

Russian officials said they would cut off supplies if Ukraine, in their words, siphoned gas for this purpose.

Igor Sechin, Russia’s deputy prime minister, said Ukraine could turn to the EU for help in financing gas purchases, although EU officials took a dim view of the idea.

Mr Piebalgs said the monitors would help the EU to determine who was at fault if gas shipments failed to arrive. The EU relies on Russia for a quarter of its gas needs, with 80 per cent of that flowing through Ukrainian pipes.

Oksana Reinhardt, an analyst at Deutsche Bank, predicted that European gas buyers hit by the crisis would hesitate to take legal action against Gazprom or Ukraine because it was impossible to establish legally which party was to blame.

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