Putin: Ukraine gas debt could affect Europe

Russian president warns Europe could face shutdown of gas supplies if its leaders do not help Ukraine to settle debt.

Russia warned to cut off gas deliveries to Ukraine which would block supplies to Europe [Reuters] [Reuters]

Russian President Vladimir Putin has urged European leaders to quickly help Ukraine settle its gas debt to Russia, or possibly face a shutdown of Russian natural gas supplies flowing though Ukrainian pipelines to the continent.

Putin’s letter to 18 leaders, released on Thursday by the Kremlin, is part of Russia’s efforts to keep an upper hand over its struggling neighbour, which is teetering on the verge of financial ruin and is facing a pro-Russian separatist mutiny in the east, the Associated Press news agency reported.

“The fact that our European partners have unilaterally withdrawn from the concerted efforts to resolve the Ukrainian crisis, and even from holding consultations with the Russian side, leaves Russia no alternative,” Putin said. 

Putin’s move raises the spectre of a new gas dispute between Russia and Ukraine that could affect much of Europe.

In 2009, Moscow turned off supplies to Kiev, leading to the shutdown of Russian gas moving across Ukrainian pipelines to other European countries.

The amount that Putin claims Ukraine owes is growing by billions every day. In the letter, Putin said Ukraine owes Russia $17bn in gas discounts and potentially another $18.4bn incurred by Ukraine as a minimal take-or-pay fine under their 2009 gas contract.

He added, on top of that $35.4bn, Russia also holds $3bn in Ukrainian government bonds.

The amount is far greater than the estimated $14bn bailout that the International Monetary Fund is considering for Ukraine.

Advance payments

Putin warned that Ukraine’s mounting debt was forcing Moscow to demand advance payments for further gas supplies.

He warned that if Ukraine failed to make such payments, Russia’s state-controlled gas giant Gazprom will “completely or partially cease gas deliveries”.

Putin told the leaders that a possible shutdown of Russian gas supplies will increase the risk of Ukraine siphoning off gas that intended for Europe and will make it difficult to accumulate sufficient reserves for next winter.

He urged quick talks between Russia and European consumers of Russian gas to prevent a looming shutdown of supplies.

He said Russia may decide to help its struggling neighbour “not in a unilateral way, but on equal conditions with our European partners.”

“It is also essential to take into account the actual investments, contributions and expenditures that Russia has shouldered by itself alone for such a long time in supporting Ukraine,” he wrote in the letter.

“Only such an approach would be fair and balanced and only such an approach can lead to success. “

Putin has been tightening the economic screws on the cash-strapped Kiev government since it came to power in February, after Ukraine’s Russia-leaning president fled the country after months of protest sparked by his decision to ditch an EU trade pact in favour of closer ties with Russia.

Starting this month, Russia state energy giant Gazprom scrapped all discounts on gas to Ukraine, meaning a 70 percent price hike that will add to the debt figure.

Source: AP