Russia has begun cutting gas supplies to Ukraine in an energy price dispute which has become a major political row.
Ukraine has rejected Russia's proposed fourfold price rise, saying it is politically motivated. Russia's President Vladimir Putin on Saturday made an offer of a three-month price freeze as long as Kiev agreed to pay the higher price after that. But Kiev rejected the offer, and Russia's state-owned Gazprom began shutting gas supplies early on Sunday.

Hours later, Ukraine's state energy company Naftogaz confirmed it had registered a reduction in gas supplies. The crisis has sparked fears that Russian exports to Western Europe could be hit, as most of the gas is channelled through Ukrainian pipelines, but Moscow insists there will be no disruption.

EU governments are convening a meeting of their gas industry experts in Brussels on 4 January to discuss the crisis.
Ukraine currently pays $50 per 1,000 cubic metres of gas. Gazprom wants to increase the price to what it says is the market rate of $230. Russian gas supplies account for about 30% of Ukraine's total consumption. The loss of those supplies will be a real problem in winter, says the BBC's economics correspondent Andrew Walker. Ukrainian gas industry officials say heating needs can be met from other supplies, but industrial customers might face reduced supplies, he says.

Putin offer

The Russian offer of a stay of execution was made by President Putin at a meeting of his powerful Security Council attended by Gazprom head Alexei Miller. Ukrainian Prime Minister Yuri Yekhanurov's spokesman said in response that Kiev did not object to market prices but "the exact figures must be negotiated". Hours later, a Gazprom spokesman announced that Ukraine had refused its final offer. "The official response has been received: Ukraine has turned down our offer," Sergei Kupriyanov said.

Ukraine insists that the planned price rise is politically motivated, in the wake of Kiev's Orange Revolution and the election of its pro-Western President, Viktor Yushchenko. In his New Year speech, Mr Yushchenko did not refer to the dispute directly but, looking back at the past year, said his country had defeated dictatorship and it was now time to work towards Ukraine's economic independence. Other countries which remain in Russia's sphere of influence continue to receive gas at below-market prices. Mr Yushchenko has said Ukraine is currently prepared to pay no more than $80 per 1,000 cubic metres of gas.

World prices

Gazprom has said the price increase is necessary to conform to world gas price levels. Ukraine has not objected to adjusting the market conditions but wants an increase to be phased in. Viktor Yushchenko, Ukraine's president, has said late on Friday that the most it is willing to pay now is $80.

Interfax on Sunday quoted Ivan Plachkov, Ukraine's fuel and energy minister, as saying that Ukraine and Russia "will sign an appropriate set of documents during the first four months of 2006". "That will be followed with final agreements on price formulas and fees for the transit of Russian gas through Ukraine," he was quoted as saying. "There will be gas."

The showdown has underlined the tension between the historically linked, mostly Slavic ex-Soviet republics since the West-leaning Yushchenko, who wants to reduce Moscow's clout in his country, beat his Russian-backed rival in a bitter electoral battle a year ago.

Source: Al Jazeera and BBC