THE WALL STREET JOURNAL: Ukraine Refuses Latest Russian Gas Offer: "Mr. Putin said his offer was only valid until the end of the day -- 10 hours before a threatened cutoff of supplies to Ukraine.": "Russia, which supplies about half of the European Union's gas -- most of which flows through Ukraine -- has moved in advance to blame Ukraine for any disruption in supplies to Gazprom's Western clients.": Posted Sunday 1 January 2006

MOSCOW -- Russia's state-controlled natural gas monopoly Gazprom said early Sunday that Ukraine had rejected a final offer on natural gas deliveries in 2006, setting the stage for Moscow to close the taps later on New Year's Day.

The announcement came after a midnight deadline the Russian state-controlled gas company and President Vladimir Putin had given Ukraine to decide on what price it would pay next year.

Gazprom spokesman Sergei Kupriyanov told The Associated Press that Gazprom had sent its Ukrainian counterpart a signed contract offering the terms Mr. Putin had hours earlier: to maintain Ukraine's current fuel price for three months if Kiev agreed to pay more thereafter.

Mr. Putin said his offer was only valid until the end of the day -- 10 hours before a threatened cutoff of supplies to Ukraine.

"We received an official answer from the Ukrainian side," Mr. Kupriyanov said. The answer said: "'We cannot sign it," and that is all."

His statement capped a day of conflicting statements from Moscow and Kiev. Ukraine's TV5 late Saturday had carried a statement by the Ukrainian gas company, Naftogaz, that "the leaderships of NAK Naftogaz and OAO Gazprom have agreed over the telephone to unchanged prices of natural gas and gas transit for the 1st quarter of 2006."

But it did not answer the key question of what price Naftogaz would pay after that.

The Interfax news agency quoted Ukrainian Fuel and Energy Minister Ivan Plachkov as saying that Ukraine and Russia "will sign an appropriate set of documents during the first four months of 2006."

"That will be followed with final agreements on price formulas and fees for the transit of Russian gas through Ukraine," he was quoted as saying. "There will be gas."

Ukrainian officials have said they were prepared in principle to pay market prices -- but that those had yet to be determined.

"As far as Putin's statement is concerned, we are accepting the proposal about the transfer to market prices, but both sides will have to negotiate and agree about the figures," said Valentyn Mondriyevsky, a spokesman for Ukrainian Prime Minister Yuriy Yekhanurov.

Gazprom is demanding that Ukraine pay $230 -- more than four times the current price of $50 -- per 1,000 cubic meters of gas, and vowed to halt supplies to Ukraine at 10 a.m. Sunday (0700 GMT) unless an agreement is reached.

Ukraine wants an increase that would bring what it pays closer to world prices to be phased in gradually. President Viktor Yushchenko said late Friday that the most it is willing to pay now is $80.

The showdown has underlined the tension boiling between the historically linked, mostly Slavic ex-Soviet republics since the West-leaning Yushchenko -- who wants to reduce Moscow's clout in his country -- beat his Russian-backed rival in a bitter electoral battle a year ago.

Much of the dispute has been played out through the media. Russian television channels showed Mr. Putin Saturday hearing the latest on the negotiations from Gazprom chief Alexei Miller, then making his offer.

"I'm ordering the government and Gazprom to conduct gas supplies to Ukraine in the first quarter of 2006 on the terms and at the prices of 2005, if the Ukrainian partners by the end of the day sign a contract proposed by Gazprom to transfer to free-market prices starting from the second quarter," Mr. Putin said during a session of the presidential Security Council. "If there is no clear response, we will consider that our proposal has been rejected."

Mr. Yushchenko said in remarks broadcast by the TV5 station later Saturday: "All problems can be solved through a market approach, and, therefore through a price Ukraine can afford." He did not elaborate.

The Ukrainian president's office said that in a telephone conversation with Mr. Putin earlier in the day, Mr. Yushchenko emphasized that "it's extremely important that the sides refrain from political or economic pressures. I believe we will reach a compromise."

During the first quarter, Gazprom has offered to deliver Turkmen gas to Ukraine at the same price as Russian gas -- lower than the Turkmen price of $60 per 1,000 cubic meters in Ukraine's agreement with Turkmenistan, Mr. Kupriyanov said.

Russia, which supplies about half of the European Union's gas -- most of which flows through Ukraine -- has moved in advance to blame Ukraine for any disruption in supplies to Gazprom's Western clients.

Gazprom informed European customers that, once it stops deliveries intended for Ukrainian use, supplies to other countries could be restricted if Kiev siphons off gas meant for transit further west.

Copyright © 2005 Associated Press