Russia cuts gas supply to Ukraine

MOSCOW - Russia cut gas supplies to Ukraine overnight (NZ time) in a dispute that appeared to hit deliveries to a wintry Europe.

The Russian state monopoly, Gazprom, said it had cut supplies to Ukraine by a quarter -- the level of Ukraine's own imports -- after Kiev refused to sign a new contract requiring it to pay four times as much.

The switch-off already seemed to be making itself felt further west, with deliveries down in Hungary and Poland.

Western Europe imports 25 per cent of its gas from Russia and most of that is delivered by pipelines running across Ukraine. The European Union said it did not expect shortages but was concerned by the standoff.

Ukraine's Naftogaz energy company accused Russia of brinkmanship that was jeopardising Europe's supplies. European gas demand is near peak levels because of freezing weather.

Though Russia says it is purely a business dispute, the row has fed concern that the Kremlin is prepared to use its vast energy resources as a political weapon.

Ukraine's Western-leaning president, Viktor Yushchenko, has irked Moscow by trying to take his ex-Soviet state on Russia's western border into NATO and the European Union.

Ukrainian officials say that is why the Kremlin is punishing Ukraine with such a huge price increase while letting more Moscow-friendly ex-Soviet states such as Belarus pay far less.

Yushchenko stuck to his position that Ukraine was prepared to pay Moscow's asking price, but not immediately.

"Ukraine is ready to move to a market price from 2006. We do not need loans, we are ready to pay ... But it should not be a virtual price but a real price following the European model," he said after a 3-hour crisis meeting with top officials.

Moscow wants to raise the price of gas it sells to Ukraine to US$230 per 1,000 cubic metres from the current US$50 -- a level that reflects Soviet-era subsidised rates.

Gazprom spokesman Sergei Kupriyanov said enough gas was still being piped via Ukraine to maintain deliveries to other countries, and if they were not getting all their gas, it meant Ukraine was tapping into it.

Eighty per cent of Russian gas exports to western Europe pass through Ukraine.

"We have information from the ground that shows Ukraine has started illegally siphoning off Russian gas destined for European consumers," Kupriyanov said.

The chief European importers of Russian gas are Germany, Italy and France, which would have to draw down reserves or seek alternative supplies if there was a major supply disruption.

Energy ministers of Germany, Italy, France and Austria have made a joint appeal to Moscow and Kiev to ensure a steady flow of gas despite the stand-off. Energy officials from EU member states hold an emergency meeting on January 4.

Officials say Ukraine has enough in reserve to see households through the winter, but are making no comment on the security of supplies to industry.

- REUTERS