Ukraine tries to keep Russian gas supplies coming but faces severe financial trouble

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A man boils water for tea outside a damaged apartment building, disconnected from cooking gas and electricity, in Debaltseve, Ukraine, Thursday, Feb. 26, 2015. After weeks of relentless fighting, which inflicted severe damage to most buildings the embattled Ukrainian rail hub of Debaltseve fell last week to Russia-backed separatists. (AP Photo/Vadim Ghirda)


MOSCOW — Cash-strapped Ukraine sought to buy time in its effort to ensure continued gas supplies from Russia, making a $15 million payment Friday to Moscow as it waits for international rescue loans to arrive.

But Moscow says the sum will cover only an additional day, leaving a potential gas cutoff looming Tuesday.

That increases the pressure on Ukraine to strike a deal at a meeting Monday with Russian officials in Brussels — a showdown that comes amid rising fears in Europe that energy supplies could be threatened by a shutdown to Ukraine.

With Ukraine's economy on the brink of collapse and money from a 15.5 billion-euro ($17.5 billion) bailout deal from the International Monetary Fund that has not yet reached Ukrainian coffers, it is unclear how capable — or how willing — Kiev is to strike a long-term deal with Moscow.

Following a bruising dispute over prices and energy debt that raised fears of supply disruptions once again in Europe in the middle of winter, Russia and Ukraine signed a deal in October requiring Kiev to pay in advance for gas shipments.

Russian President Vladimir Putin and other government officials warned earlier this week that Russia would cut off supplies to Ukraine by the end of the month unless Kiev makes the due pre-payments.

Ukraine, meanwhile, accuses Russia of failing to abide by its contractual obligations. On Friday, Ukraine's state-run Naftogaz said Gazprom had for several days not been supplying it with the amount of gas for which it has paid.

"Naftogaz expects to receive the declared amount of gas paid for — no more and no less, and through agreed gas entry points," said company spokeswoman Alyona Osmolovskaya.

Analysts say Ukraine seems to be pursuing a strategy of survival as it hopes to renegotiate its supply deals in coming talks. Rather than a pre-payment system, Ukraine would like a pay-as-you-go approach to its supplies, according to Andrew Neff, analyst at research firm IHS.

"They want to throw out the old contract," he said.

Russian Energy Minister Alexander Novak said Friday that Moscow would continue gas deliveries to Europe even in the event of a cutoff to Ukraine, but that it could not guarantee Kiev would not illegally siphon off gas for its own consumption.

"If there are no payments from Tuesday, then the deliveries will stop," he said in comments carried by Russian news agencies. "Given that the Ukrainian side does not have the volumes to fully ensure its needs... then there is a risk that it will snatch (gas) from the export pipeline."

A similar dispute erupted in 2009, when Russia first cut off supplies to Ukraine and later to Europe, after it accused Kiev of siphoning off funds earmarked for export. That left many households in southeastern Europe without heating in the freezing winter.

Some European states have attempted to provide Ukraine with gas through reverse flows — that is, by sending Russian gas back to Ukraine after receiving their share through pipelines that travel across the country. Those states, however, have faced pressure from Russia as a result. So far, only around 5 billion cubic meters is delivered from Hungary, Slovakia and Poland.

Slovakia has the capacity to deliver about 14.6 billion cubic meters of gas per year to Ukraine through reverse flows, although it currently delivers much less. Poland has been sending gas to Ukraine by reverse flow since 2010, but discontinued deliveries for a few days in September in response to Gazprom's reduction of gas deliveries to Poland.

Another roadblock to a deal could be deliveries to Ukraine's war-torn east, where fighting between Kiev's forces and Russia-backed rebels has killed nearly 5,800 people since April.

Last week, Ukraine cut gas supplies to eastern areas controlled by the rebels, prompting Russia to pump gas directly to the area. Russia said the deliveries should be counted as a part of the overall volume of its gas exports to Ukraine, but Kiev protested, saying it could not manage the distribution of gas in areas outside its control.

Putin on Wednesday angrily denounced Ukraine's decision to halt gas supplies to eastern regions, home to 4.5 million mostly Russian-speaking people, saying it "smacks of genocide."

"If the Ukrainian authorities consider it part of their territory, they should be fully responsible for the situation there," he said. "And if it's not so, they should openly say that."


Peter Leonard in Kiev, Ukraine, Karel Janicek in Prague, Czech Republic, and Monika Scislowska in Warsaw, Poland contributed reporting.

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