Wednesday November 11, 2009

Steal our gas, Europe will suffer: Putin warns Kiev

By Gleb Bryanski and Natalya Zinets

MOSCOW/KIEV (Reuters) - Russia will cut gas deliveries to Europe if Ukraine siphons off supplies crossing its territory, Prime Minister Vladimir Putin said on Wednesday, in a warning that raised the spectre of another gas dispute.

Russia's Prime Minister Vladimir Putin meets with leaders of the United Russia political party at his Novo-Ogaryovo residence outside Moscow, October 30, 2009. (REUTERS/Ria Novosti/Pool/Alexei Nikolsky/Files)

Putin's tough rhetoric followed assurances by his Ukrainian counterpart, Yulia Tymoshenko, that Kiev would be able to meet its obligations to pay for Russian gas and deliver it to Europe after Moscow agreed to waive fines for reduced purchases.

"If they don't pay for gas supplies for internal consumption in Ukraine, they won't receive it," Putin said. "If they don't receive it, then it's likely they will siphon it from the export pipeline.

"As soon as siphoning begins, we will cut supplies. So don't come to us on the question of reliability."

Europe, reliant on Russian gas shipped via Ukraine for a fifth of its demand, is eager to avoid a repeat of a stand-off in January that severed shipments for more than two weeks at the height of a freezing midwinter.

The likelihood of a repeat appeared to cool when Russia agreed to waive fines that it could have imposed on Ukraine for taking less gas than contracted in 2009, but Moscow has stepped up pressure on Kiev in recent weeks.

Putin said political infighting ahead of a Jan. 17 Ukrainian presidential election was holding up payments for gas.

"The financial means to pay are there," he said. "The IMF has confirmed this to us. The problem is that a pre-election battle is happening there."

Ukraine plans to use money supplied by the International Monetary Fund (IMF) to help pay for Russian gas. Moscow argues that this finance, coupled with Russia's lenience on contracted volumes, should enable Ukraine to pay.

Prime Minister Tymoshenko, a front-runner in the elections, admitted that Ukraine had difficulty meeting its latest $500 million instalment for October shipments ahead of the Nov. 7 deadline.

But she said on Wednesday that cooperation with Russia would allow Ukraine to guarantee both payment for Russian gas and the transit of gas to the European Union.

"We have adjusted the volumes of gas for Ukraine and today we have Russia's solid position that there will be no fines. And in 2010, we have come to an agreement on supplies at the volumes of gas Ukraine needs," Tymoshenko said.

"We can guarantee that -- if such cooperation continues -- we will under no circumstances break our obligations to the EU in terms of transporting gas, nor our obligation to Russia on paying for gas that has been used."

ALTERNATIVE ROUTES

Russia has been trying to persuade European customers wary of further disruptions of the necessity of alternative supply routes, particularly its Nord Stream and South Stream pipelines, both of which would bypass Ukraine.

Having recently won support from Sweden, Finland and Denmark on the Nord Stream project, Russia is now turning its attention to tying up support for its southern route.

"Additional routes are essential for supplying hydrocarbons to our main partners in Europe. This will increase stability and reliability, and discipline our transit partners," Putin said.

He was speaking after a meeting with Austrian Chancellor Werner Faymann. Putin said Russia and Austria were preparing an agreement on cooperation toward the realisation of South Stream.

South Stream, backed by Russian gas export monopoly Gazprom and Italy's Eni SpA, would involve several European states across which the pipeline would run to a planned western terminus in Austria.

The rival Nabucco pipeline project, however, is led by an Austrian energy company, OMV. This project is backed by the European Union as a means to curb the bloc's dependency on Russia by pumping gas from the Caspian and Middle East.

Faymann said he did not consider the projects as rivals.

"We don't consider all of the existing projects for the diversification of gas supplies to be competing with each other," he said. All of them will lead to the strengthening of our energy security."

(Writing by Robin Paxton)

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