Gas Delivery Dispute Hits EU

Russian gas deliveries to Hungary, Poland and Austria via Ukraine fell sharply Sunday even though the Russians assured EU officials that their countries would not be affected by the ongoing dispute with Ukraine over gas supplies.

The Russian state monopoly, Gazprom, said Sunday that it had cut gas supplies to Ukraine after it rejected a new contract quadrupling prices. The cut is exactly the level of Ukraine's own imports.

"As of now, all the gas supplies to Ukraine will be reduced to 120 million cubic metres per day," said Sergei Kuprianov, spokesperson for the gas giant. "That means we are only delivering gas to Ukraine which is for export to other countries. We expect Ukraine to stick to it’s obligation and fulfil it’s transit requirements."

Hungarian Economic Minister Janos Koka said that Gazprom told Hungary it is pumping the contracted amount into the pipeline, but reported that the gas did not reach the Hungarian-Ukrainian border.

"This is not just a Hungarian problem," he told Reuters. "This is a European Union problem and the EU will have to be the vehicle for finding the solution."

Heavily Dependent

Hungary is heavily dependent on Russian gas -- 80 percent of the country's gas needs are supplied from imports and 70 percent comes from Russia. As a result, Hungary's large gas consumers have been ordered to switch to oil where possible, Hungary's natural gas wholesaler MOL told Reuters.

Meanwhile, EU leaders are worried as Ukraine serves also as a transit country for one-fifth of all gas exports to Europe, particularly to Germany, Italy, France and Austria. So far only Hungary, Austria and Poland have reported decreases in their gas supply: 25, 18 and 14 percent respectively. Both Poland and Hungary joined the EU in 2004.

The European Commission, the EU's executive arm, has called a special meeting of its gas coordination group for Wednesday to discuss the Russia-Ukraine row.

Austria, which took over the EU presidency Sunday, as well as France, Germany and Italy have asked Russian and Ukrainian energy officials that gas supplies "be maintained to their full extent."

No Deal

Russia and Ukraine have been locked in a bitter gas price dispute for months, sparking concerns in European Union states that depend heavily on Russian energy supplies.

Kiev has so far been paying 50 dollars per 1,000 cubic meters (35,316 cubic feet) of natural gas from Russia. Gazprom, which controls a third of the world's natural gas reserves, wants $230 (195 euros), arguing that Soviet-era tariffs no longer apply and the price needs to be aligned with market rates. Kiev has said it can pay more over a transitional period, but Gazprom said it would shut down Ukraine's gas supply from January 1 unless Kiev agreed to the higher price immediately.

Ukrainian Prime Minister Yury Yekhanurov said last week that if Moscow stopped supplying Kiev, his country of 48 million people would have the right to take 15 percent of the gas transiting through its territory to western Europe.

Last-minute diplomatic moves by Russian President Vladimir Putin and Ukrainian President Viktor Yushchenko failed to prevent the stoppage.

Putin offered to maintain gas supplies at the current price until April but only on condition that a deal be struck by a midnight deadline on New Year and that Ukraine agree to a more than four-fold price increase thereafter.

Gazprom said Ukraine rejected the deal, though Ukrainian officials said late Saturday that they were "surprised" by the announcement and that Russia had agreed Ukraine could pay 50 dollars for the first quarter of 2006.

Russia maintains the dispute is purely commercial but Ukraine, which was once part of the Soviet Union but has been increasingly at odds with Russian authorities over its firmly pro-West orientation, says that it is under political pressure from Moscow.