Putin warns Ukraine of 'severe consequences' in gas dispute

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MOSCOW (AFP) — Russian Prime Minister Vladimir Putin warned Ukraine on Wednesday of "severe consequences" if it disrupted gas supplies to Europe, as another New Year's Eve energy dispute went down to the wire.

Any move by Ukraine to disrupt supply of Russian gas to Europe would violate its contractual obligation and would constitute "a completely different matter with very severe consequences for the transit country," Putin said.

Speaking in a televised meeting with President Dmitry Medvedev, Putin warned any tampering by Ukraine with gas meant for clients further downstream would harm its relations both with Russia and the EU countries that buy Russian gas.

Top officials of Russian state gas giant Gazprom told journalists earlier that Ukraine's gas company, Naftogaz, had handed over a letter containing a threat to disrupt Russian gas supplies to Europe.

The authenticity of the letter could not be independently verified. Ukraine's political leaders and Naftogaz officials have made no such threat in public. They did not however deny Wednesday the contents of the Naftogaz letter.

Putin said Ukraine remained bound by a contract signed in April 2007 for transit of Russian gas to Europe and said any deviation from this contract would be "absolutely incorrect" on both legal and economic grounds.

Medvedev also issued a stern warning to Ukraine.

"There is only one thing we can recommend to our Ukrainian partners: Make a rational decision quickly and do not subject your own citizens to very major complications," he said.

Earlier the deputy chief executive of gas giant Gazprom, Alexander Medvedev, said the threat to cut supplies had come in a letter sent by the Ukrainian state gas company Naftogaz in the course of 11th-hour negotiations in Moscow.

"We are in a situation when transit volumes to western Europe are in danger," Medvedev said at a news conference. "This position cannot be called anything but blackmail."

Putin added that Russia had offered Kiev a price for gas next year -- 250 dollars per 1,000 cubic metres -- below European prices on account of the economic crisis in Ukraine.

The powerful Russian prime minister said the talks had so far failed to produce a new agreement due to an "inter-clan struggle" among Ukraine's leaders.

Eighty percent of Russian gas supplies to the European Union pass through Ukrainian territory. Ukraine's leadership and top Naftogaz officials have so far publicly asserted that Kiev will guarantee Russian gas shipments to Europe.

However with hours to go before a midnight deadline set by Gazprom for the completion of negotiations, there appeared less and less chance of resolving the dispute over Gazprom's demands for over two billion dollars in back payments and fines for late payment.

Gazprom chief executive Alexei Miller Ukraine criticised Ukraine in withering terms and said there should be "no doubt" that supplies to Ukraine would be halted at 10:00 a.m. Moscow time (0700 GMT) on New Year's Day if no new deal were reached by midnight.

A spokesman for Naftogaz was defiant, saying Ukraine would make no last-minute payments relating to the crucial issue of fines for late payments.

"We will certainly pay nothing more today. The issue of fines must be settled through arbitration," Naftogaz spokesman Valentin Zemlyansky said.

A Ukrainian government source said Gazprom was making unreasonable demands in negotiations on supplies for gas for 2009.

Behind the scenes, analysts say the situation is somewhat different from a New Year gas conflict between Ukraine and Russia two years ago that briefly disrupted supplies to the European Union, as both Ukraine and the EU have large gas reserves in store.

Ukrainian and European officials have downplayed any immediate problems from a halt of Russian gas shipment to Ukraine, although a European Commission spokeswoman confirmed that EU Energy Commissioner Andris Piebalgs had been in talks with both sides "encouraging them to find a negotiated solution."

Gazprom says Ukraine owes 1.6 billion dollars for gas it imported in November and December. Ukraine never disputed those arrears, yet late Tuesday transferred just 1.5 billion to an account for payment to Gazprom.

Naftogaz did not explain the 100 million-dollar shortfall.

Gazprom has also demanded payment of 450 million dollars in penalties for late payment of the November-December shipments.

The countries of the European Union are heavily reliant on Russia for their natural gas supplies -- around one quarter comes from Russia, which possesses the world's largest known reserves.