By Vladimir Soldatkin and Sabina ZawadzkiMOSCOW/KIEV, Dec 31 (Reuters) - Russia's Gazprom gas export monopoly said on Wednesday its engineers were starting preparations for a Jan. 1 cut-off of gas to Ukraine that could have a knock-on effect on supplies to Europe
Russia has said it will turn off the taps to Ukraine unless a new contract on gas supplies is signed by midnight on Wednesday (2100 GMT), alarming European states that receive most of their Russian gas from pipelines crossing Ukraine.
Last-ditch talks to resolve a row over gas prices for next year turned acrimonious, with Russian Prime Minister Vladimir Putin accusing Kiev of planning to block Russian gas supplies to Europe if the switch-off goes ahead.
With less than five hours before the midnight deadline, a switch-off looked increasingly likely.
“Today at 1900 a special team started working on technical issues of supply cut-off,” a Gazprom official told reporters at the company’s headquarters in southern Moscow.
Putin, who has had fraught relations with Ukraine since a 2004 revolution brought pro-Western leaders to power in Kiev, warned of “serious consequences” for Ukraine if it used the row as a pretext to block Russian gas transit to Europe.
Ukraine earlier said it will ensure uninterrupted transit of Russian gas to Europe.
In a televised meeting with President Dmitry Medvedev, Putin said Gazprom was offering to sell Kiev gas at $250 per 1,000 cubic metres — a 40 percent increase on current prices but less than the amount paid by customers in Western Europe.
“Despite that, our Ukrainian partners are refusing to sign these agreements and this contract,” Putin was shown telling President Dmitry Medvedev on state television.
LAST-DITCH TALKS
Russian news agencies quoted a source with Ukraine’s state energy company Naftogaz as saying Ukrainian President Viktor Yushchenko had ordered the firm’s head to suspend talks in Moscow and return to Kiev.
A source with the delegation later said the Naftogaz chief was staying in Moscow to continue negotiations.
Ukraine’s Prime Minister Yulia Tymoshenko had planned to come to Moscow to try to unblock the dispute but later canceled her trip, a source close to the government told Reuters.
Gazprom has said unless a gas supply contract for 2009 is signed before midnight on Wednesday, it will turn off gas supplies to Ukraine at 0700 GMT on New Year’s Day.
The odds of a last-minute deal lengthened after Gazprom accused Ukraine of blackmailing Europe over gas transit across its territory and said it had not yet received the $2 billion Kiev said earlier it had transferred to settle gas debts.
“Frankly speaking, if yesterday we were putting the chances at 50:50, today it is maybe a 70:30 probability of a crisis scenario,” Gazprom spokesman Sergei Kupriyanov told a news conference.
European states are anxious to avoid a repeat of what happened in January 2006 when, during a similar row over arrears, Moscow cut off supplies to Ukraine, causing a brief fall in gas pressure for some European consumers.
Europe depends on Russia for a quarter of its gas supplies. Germany’s E.ON and BASF and Italy’s ENI are among the biggest customers.
Analysts say European states can last for several days without Russian supplies because a mild winter and reduced demand linked to the economic slowdown have left them with abundant gas reserves.
“While hoping that a deal can be reached tonight, we see no material negative consequences if the final agreement is delayed for a few days,” Russian investment bank Renaissance Capital said in a research note.
The gas row could further damage confidence in Ukraine’s struggling economy. The hryvnia currency suffered steep falls this month, and an International Monetary Fund loan has failed to halt an exodus by investors.
Russia denies any political motive behind the row, saying it is purely a business dispute and that it will do everything it can to maintain smooth supplies to Europe.
However, relations between Russia and Ukraine have been fraught, with Moscow fiercely critical of Kiev’s drive to join the NATO military alliance.
In previous disputes, Russia accused Ukraine of illegally siphoning off gas that was destined for European customers.
This year Ukraine says it has sufficient gas reserves to meet domestic demand, but it has warned that the fall in pressure in the pipeline system caused by a Gazprom cut-off could have a knock-on effect on deliveries to Europe. (Additional reporting by Pavel Polityuk in Kiev and Dmitri Zhdannikov in Moscow; Writing by Christian Lowe; Editing by Brian Moss)
