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Published: Friday April 11, 2014 MYT 8:35:01 PM
Updated: Friday April 11, 2014 MYT 8:35:01 PM

Ukraine looks to Europe for gas as Russia ups pressure

KIEV (Reuters) - Ukraine said on Friday it would turn to Europe for gas and won a promise of help from Brussels after Russia warned it could cut supplies over Kiev's refusal to pay Moscow's "political, uneconomic price" for supplies.

Presenting a united front a day after President Vladimir Putin wrote to the European Union warning that its supplies could be disrupted if Ukraine failed to cover its bills, European officials said they had little to fear and would help Ukraine pay.

With Russia increasing the pressure on Ukraine's faltering economy, Ukrainian Energy Minister Yuri Prodan told parliament the EU would stand in solidarity with Kiev if Russia reduced supplies, making sure Moscow could not increase flows through alternative pipelines to bypass its neighbour.

"Ukraine cannot pay such a political, uneconomic price, so now we are negotiating with the European Union about reverse deliveries into Ukraine," Prodan said.

"We will make gas purchases from reverse flows urgently. On the conditions offered by European gas companies. We plan that they will be Germany's RWE and a French gas company."

The ministry's spokeswoman confirmed the French company was GDF Suez, adding no agreement had been signed as yet.

GDF Suez declined to comment.

Prodan said Ukraine needed European gas to build up its reserves as Russian gas was no longer being pumped into storage, adding Ukraine had unused capacity of 15 billion cubic metres.

Kiev has around 7 bcm in storage and says it needs 14-15 bcm to be able to guarantee transit to European consumers. Russia meets 30 percent of Europe's natural gas demand, and half of this goes through Ukraine.

Russia has nearly doubled the gas price it charges Ukraine, punishing an economy that for years was mismanaged by pro-Moscow President Viktor Yanukovich and has been in freefall since he was toppled in violent protests.

Kiev's new leaders accuse Moscow of using gas as a way of punishing them for pursuing closer ties with the EU, and the standoff has deepened the worst East-West crisis since the end of the Cold war in 1991.

Washington accused Moscow on Thursday of using energy as "a tool of coercion".

But on Friday, Kremlin spokesman Dmitry Peskov stepped up the pressure on Ukraine, reiterating that its gas debt was mounting and Kiev was failing to meet its payment obligations - a wording that could trigger the reduction of supplies.

He also criticised the EU for not responding to Putin's letter on the situation.

EU SOLIDARITY

European Energy Commissioner Guenther Oettinger advised against taking the threat of gas cuts at face value, saying Russia needed the revenue from gas deliveries.

He told Austria's ORF radio he was working on a plan to help Ukraine pay its gas bills to ensure its debts do not rise.

"I am preparing a solution that is part of the aid package that the IMF, the European Union and the World Bank is giving to Ukraine and from which payment for open bills will be possible," he said, adding he would meet Ukraine's energy and foreign ministers on Monday.

Russian state gas company Gazprom says Ukraine owes $2.2 billion (1.3 billion pounds) and Putin's warning has rekindled fears of the "gas wars" of 2006 and 2009, when Russia stopped supplies to Ukraine, disrupting onward supplies to Europe.

The European Commission, the EU executive, called on Russia to respect its gas commitments and urged Ukraine to respect its transit commitments. Germany said it saw no reason to fear an interruption in gas supplies.

Ukraine's search for alternative supplies has prompted Gazprom to question the legality of reversing flows to export gas from Europe to Ukraine.

Prodan said Ukraine could get small amounts of gas from Poland and Hungary and a bigger volume from Slovakia, but there were "political questions" to be solved.

Slovakia has called for talks with Ukraine, Russia and the European Commission to ensure it can export gas to Ukraine without violating existing contracts.

Russia, Ukraine, the EU and the United States are due to meet in Geneva on Thursday to talk about the Ukraine crisis.

Prodan also said Ukraine would turn to an arbitration tribunal in Stockholm to try to cancel a deal struck with Russia in 2009, when Kiev agreed an inflated price.

(additional reporting by Denis Dyomkin in Moscow, Alexandra Hudson in Berlin, Barbara Lewis in Brussels, Michael Shields in Vienna, Writing by Elizabeth Piper, Editing by Timothy Heritage and Will Waterman) nL6N0N322N

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