50% chance of Ukraine gas being cut off, says Russia

RUSSIAN ENERGY giant Gazprom says there is a "50-50" chance that it will stop pumping gas to Ukraine on January 1st, due to a row over unpaid bills that has sparked fears of fuel shortages in the European Union.

Kremlin-controlled Gazprom says it will not sign a gas contract for 2009 with Kiev until it pays about $2.1 billion (€1.5 billion) in debt, recalling the 2006 price dispute that led to a drop in fuel flow to countries as far west as France, Germany and Italy, which receive Russian gas through pipelines that cross Ukraine.

"I think it's 50-50," Gazprom spokesman Sergei Kupriyanov said when asked about the chances of whether Russia would cut gas deliveries or whether the sides would clinch a deal.

"In the final days of the year we are trying to find ways other than monetary ones to settle these debts." Mr Kupriyanov said Ukraine could pay its bills by waiving future fees for the transit of gas across its territory.

Kiev has previously rejected such a solution, but finds itself facing another major clash with Moscow at a time of political and economic turmoil.

Ukraine was granted a $16.4 billion (€11.7 billion) international loan after global financial turmoil hammered its stock market and currency, and industrial production plummeted as demand for major exports such as steel, oil products and chemicals wilted.

The gas crisis has also fuelled animosity between President Viktor Yushchenko and prime minister Yulia Tymoshenko, leaders of the 2004 Orange Revolution who are now at loggerheads and blame each other's greed and incompetence for their country's woes.

Many of Ukraine's pro-western politicians - and their allies in Europe and the US - suspect Russia of using the dispute to undermine Kiev's leaders, who want to loosen Moscow's hold over its neighbour and move Ukraine towards Nato and the EU.

"Gazprom is doing everything possible to avoid any disruption of gas deliveries to Europe," company chief Alexei Miller wrote in a letter to European clients. "However, if events develop along an unfavourable scenario, the problem of Ukrainian transit will be a common problem for Russia and Europe."

Gazprom says it will continue to pump EU-bound gas to Ukraine even if supplies for Ukraine itself are halted. Kiev has pledged not to siphon off fuel destined for other countries, and says it has several months' worth of gas in storage.