Kiev, Gazprom Race to End Debt Dispute

European governments looked on over the weekend as Moscow and Kiev prepared to untangle their latest dispute over natural gas after Gazprom threatened on Friday to reduce shipments of the fuel starting Tuesday.

Ukraine on Sunday night was to dispatch the head of state energy company Naftogaz, Oleg Dubina, and two of his deputies for talks in Moscow, a company spokesman said.

Gazprom set Monday as the deadline to settle a purported debt of $1.5 billion for previous deliveries. It threatened to reduce Ukraine's supplies beginning 10 a.m. Tuesday, the same day Ukrainian President Viktor Yushchenko is scheduled to fly into Moscow for talks on bilateral cooperation.

Yushchenko on Saturday told Prime Minister Yulia Tymoshenko to take personal control of resolving the dispute, head of the Presidential Secretariat Viktor Baloga said, Interfax reported.

Gazprom chief executive Alexei Miller had sent a telegram to Yushchenko asking him to assist in the dispute, Baloga said Saturday.

European gas consumers keep a close watch on relations between Ukraine and Gazprom because the company supplies more than one-quarter of Europe's gas needs, and 80 percent of those deliveries transit Ukraine. A pricing dispute between Moscow and Kiev resulted in a brief disruption of supply to Europe in 2006.

The current spat broke out Thursday after Gazprom accused Ukraine of refusing to pay for more expensive Russian gas that the country has been receiving since the start of this year. Ukraine normally gets Central Asian gas carried by Gazprom, which costs $179.5 per 1,000 cubic meters, but the cheaper deliveries failed to meet the demand because of cold weather in the supplying countries, Gazprom said. In January, Gazprom covered the shortage with its own gas, priced at $314.7 per 1,000 cubic meters.

Ukraine owes $500 million for the 1.5 billion cubic meters of that Russian gas, Gazprom said.

Gazprom spokesman Sergei Kupriyanov said Sunday that Gazprom warned Naftogaz in January of the more expensive supplies and Naftogaz did not decline the deliveries.

In total, Ukraine ran up a bill of $1.5 billion, which includes deliveries of Central Asian gas, the company said.

Andrei Knutov, a spokesman for gas trader RosUkrEnergo, which buys the gas from Gazprom to supply Ukraine, said the debt for Central Asian gas was for last year's deliveries.

Ukraine's First Deputy Prime Minister Oleksandr Turchinov admitted Sunday, however, that Ukraine owed money to Gazprom for supplies but said Naftogaz would pay it back only if Gazprom agreed to sign a contract for direct supply, cutting out middlemen, Interfax reported.

Alfa Bank analysts Konstantin Batunin and Natalia Pushkina said Gazprom and Ukraine depended too much on each other to allow the standoff to spin out of control.

"Despite the occasional eruption of short-term tensions, both Gazprom and Ukraine should arrive at an amicable solution to their problem," they said in a Friday note to investors.