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Ukraine must pay cash for gas

Russia has ratcheted up pressure on Ukraine, with President Vladimir Putin saying in a letter released Thursday that it only will deliver gas to its struggling neighbour next month if it pays in advance.

Putin first warned of the move in April in a letter to European leaders whose nations are customers of Russian state-controlled Gazprom natural gas giant. He said that Moscow would switch to pre-paid deliveries if Ukraine, which serves as a major conduit for Russian gas supplies to Europe, failed to start settling its mounting gas debt.

In the second letter released by the Kremlin Thursday, Putin said that a meeting involving Russian, Ukrainian and the European Union officials has failed to settle the issue. He said that Ukraine's gas debt to Russia has kept rising and reached $3.5 billion, even though Ukraine has received $3.2 billion bailout from the International Monetary Fund.

"Given the circumstances, the Russian company has issued an advance invoice for gas deliveries to Ukraine, which is completely in accordance with the contract, and after June 1 gas deliveries will be limited to the amount prepaid by the Ukrainian company," Putin said in the letter.

The move is part of Russia's efforts to retain control over its struggling neighbour, which has been teetering on the verge of financial collapse and facing a mutiny in the east, where pro-Russian separatists seized administrative buildings, fought government troops and declared two regions independent following Sunday's referendum.

In his letter, Putin sought to cast the move as a purely economic decision, saying that Russia is "still open to continue consultations and work together with European countries in order to normalize the situation."

"We also hope that the European Commission will more actively engage in the dialogue in order to work out specific and fair solutions that will help stabilize the Ukrainian economy," he added.

Ukraine has said it could start paying off the debt if Moscow restores the gas discounts cancelled following the ouster of pro-Russian President Viktor Yanukovych. He fled to Russia in February after months of protests, triggered by his decision to dump a pact with the EU in favour of closer ties with Moscow.

Gazprom has scrapped a discount granted to Yanukovych in December and then another rebate linked to a 2010 deal on Russian navy presence in Ukraine's Crimea, which Moscow annexed in March. Canceling the discounts raised the price by 80 per cent, which has quickly swelled the Ukrainian debt.

A possible halt in gas supplies could affect European customers as it did during previous pricing disputes, when Ukraine siphoned Russian gas intended for Europe. However, the threat of a halt in supplies comes in the summer, and the impact would likely be far less severe than a January 2009 shutdown that left European customers freezing amid a harsh winter. Gazprom also has built a new pipeline bypassing Ukraine and increased the capacity of existing ones.

The Canadian Press

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