Financial Times: Russia prepares to turn off gas to Ukraine: The dispute has demonstrated Russia's increasing self-confidence as one of the world's biggest energy suppliers, but provoked alarm in western Europe, which gets 25 per cent of its gas from Russia: Posted 1 January 2006

By Neil Buckley in Moscow, Raphael Minder in Brussels and Roman Olearchyk in Lviv, Ukraine

Published: December 30 2005

Russia was on Friday night preparing to turn off gas to Ukraine on Sunday for the first time since the collapse of the Soviet Union, posing a threat to the stability of supplies to western Europe.

Moscow stuck to demands on Friday for a nearly five-fold increase in the price Ukraine pays for Russian natural gas in a move to eradicate subsidies.

But Ukraine insisted it needed a period of transition to market prices to avoid huge damage to its industry and economy. It was expected to present a new proposal on Friday night in an attempt to defuse the acrimonious row between the former Soviet neighbours.

The dispute has demonstrated Russia's increasing self-confidence as one of the world's biggest energy suppliers, but provoked alarm in western Europe, which gets 25 per cent of its gas from Russia - most of it through the massive Brotherhood pipeline across Ukraine.

The European Commission said it would host an emergency meeting on Wednesday of energy officials from the 25 European Union states to discuss possible sharing of gas reserves and other contingency measures, should Russia carry out its threat.

Russia showed no sign of backing down from the threat to stop pumping the portion of gas usually taken by Ukraine into the export pipeline from Sunday, if Kiev does not agree to a price rise from $50 to $230 per 1,000 cubic metres.

Viktor Yushchenko, the Ukrainian president, said in a television interview on Friday night the maximum Kiev was prepared to pay next year was $80.

Alexei Miller, chief executive of Gazprom, Russia's state-controlled natural gas company, said its actions would be "clear and resolute", if no agreement was reached. He rejected a proposal from Mr Yushchenko to freeze current prices for 10 days while independent experts assessed a fair price - although Russian president Vladimir Putin had on Friday night given no formal response.

"If Ukraine does not sign a gas delivery contract with us before the beginning of 2006, all gas shipments from the territory of the Russian Federation to consumers in Ukraine will be stopped at 10am Moscow time on January 1," Mr Miller said.

Russian television is preparing to broadcast live the turning off of supplies at Gazprom's Moscow control room.

Both sides suggested on Friday that gas exports to central and western Europe would not be affected. But Ukraine said earlier this week it had the right to take 15 per cent of gas passing through the export pipeline as a transit fee.

Gazprom said in a letter to European customers it "could not exclude the risk" that Ukraine would take unsanctioned gas from the pipeline.

Ukraine gets about 25bn cu m of its 80bn cu m annual consumption from Russia, with 36bn cu m coming from the former Soviet republic of Turkmenistan. Officials said on Friday Ukraine had enough gas in underground storage to enable it to meet its needs through the winter.

Ukrainian consumers have accepted the assurances with little sign of concern. In Lviv, an 800,000-strong city close to the Polish border which relies on gas for much of its heating, residents were busy shopping on Friday ahead of New Year celebrations.

"There is no panic on the streets nor in the halls of government," said Oleksandr Danylyuk, advisor to Yuri Yekhanurov, Ukraine's prime minister.

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