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. Last Updated: 07/27/2016

Gazprom Growls as Kiev Counts Votes

ReutersTymoshenko speaking with reporters on election day Sunday. She has a good chance of becoming prime minister.
Gazprom on Tuesday threatened to reduce gas supplies to Ukraine if it did not receive $1.3 billion it is owed, just as it was looking more likely that Western-leaning Yulia Tymoshenko would become Ukraine's next prime minister.

Gazprom said in a statement released late Tuesday that it had repeatedly asked Kiev to pay the bill, without any success.

"Gazprom will have to begin reducing natural gas supplies to consumers in Ukraine if the debt isn't settled in October," the statement said.

Ukraine's Naftogaz, which imports the gas, was caught off guard by the statement, company spokesman Dmitry Marunich said.

"We are studying the situation and why this figure arose in the statement by Gazprom," he said by telephone from Kiev.

Either Naftogaz or Ukraine's Fuel and Energy Ministry will issue a statement on the situation Wednesday, he said.

UkrGazEnergo, one of the companies involved in the transit chain, confirmed Tuesday that there was an outstanding debt from Naftogaz, although it did not name figures, Interfax reported.

By late Tuesday, election results in Ukraine were pointing toward a narrow victory for the Orange parties led by Tymoshenko and President Viktor Yushchenko.

Gazprom, however, said the timing of the announcement was not related to the election results.

"The debt that has been accrued is an objective fact and doesn't depend on who wins in the [elections] or heads the government," said company spokesman Sergei Kupriyanov.

Ilya Kochevrin, a spokesman for Gazprom's export arm, said in a conference call that the company did not raise the debt issue before or during Sunday's elections, in an effort to avoid accusations of attempting to influence the outcome.

Any reduction in shipments to Ukraine must not influence the flow of gas through Ukraine to Europe, Kochevrin said.

Gazprom said it had warned its European customers about the problem. The company accused Ukraine of siphoning off gas and causing gas supplies to European countries to fall for a few days in January 2006 after deliveries to Ukraine were halted over a pricing dispute.

The European Commission on Tuesday called on the two sides to resolve the dispute speedily.

Tymoshenko and Yushchenko cut a deal ahead of the vote that, in the case of an Orange victory, she would be named to replace Viktor Yanukovych as prime minister. The issue over the Gazprom debt would be the first problem she is faced with tackling.

It would also serve as an impetus for Tymoshenko to try to renegotiate the current gas supply deal, which she has long criticized because it involves an intermediary company, RosUkrEnergo, working between Naftogaz and Gazprom.

RosUkrEnergo, a joint venture between Gazprom and Ukrainian businessman Dmytro Firtash, ships the gas Gazprom buys in Turkmenistan to Ukraine. Yanukovych, the Russia-leaning leader of the Party of the Regions, has not questioned the arrangement, created after a 2005 pricing dispute.

Tymoshenko vowed Tuesday to prevent gas cuts this time around.

"We will do all it takes to cooperate with Russia in order to have no gas cuts," she told reporters in Kiev.

Tymoshenko blamed Yanukovych and Fuel and Energy Minister Yuriy Boyko for the problem and promised a criminal investigation into how the debt appeared.

She also said Ukraine would look to buy gas from Gazprom without intermediaries.

Former Russian Deputy Prime Minister Boris Nemtsov, who worked as an adviser to Yushchenko on Russian relations until October 2006, said a structure closer to Tymoshenko would replace RosUkrEnergo but that this would not influence Gazprom price targets for Ukraine.

A spokesperson for Group DF, the holding company that controls RosUkrEnergo, was unable to comment Tuesday, the company said in an e-mail.

Volodymyr Bronnikov, a parliament member with the Party of the Regions, said a price hike from Gazprom could come in response to an attempt by Tymoshenko to move Ukraine closer to the West.

"If Ukraine is an ordinary European country, then it must pay ordinary European prices for gas," Bronnikov said.

Ukraine now pays $130 per 1,000 cubic meters for gas from RosUkrEnergo. The country expects the price to go up to $145 per 1,000 cubic meters, in line with inflation, Economy Minister Anatoliy Kinakh said last week.

Gazprom's Kupriyanov said price talks had not yet begun but that they had to be completed before the end of November. He added that it was still too early to name the price Gazprom would seek.

Kupriyanov also said the talks would not be affected if Tymoshenko were appointed prime minister.

Russia's ambassador to Kiev, Viktor Chernomyrdin, said last week, however, that the price would depend on the Ukrainian government. He did not elaborate.

Alfa Bank Ukraine said in a research note Tuesday that Gazprom would likely raise the gas price for next year by more than 10 percent if Tymoshenko took over as prime minister. Alfa Bank's strategist in Kiev, Sergiy Kulpinski, said one Russian company with assets in Ukraine, locomotive maker Transmashholding, could lose government support if Tymoshenko becomes prime minister. The company bought 76 percent of Ukrainian locomotive maker Luganskteplovoz last year, but a Kiev court overturned the deal. Ukraine's State Property Fund, which answers to the prime minister, has filed an appeal.

A Transmashholding spokesman in Moscow, Artyom Ledenyov, declined to comment on the case.

In what might be a sign of things to come, Yushchenko on Tuesday suspended a joint venture with Russian businessman Alisher Usmanov to build an ore processing plant in Ukraine, the presidential press service said. Ukraine's State Property Fund was about to approve creation of the venture.

As prime minister, Tymoshenko would also likely seek closer cooperation with NATO. This could ultimately harm Ukrainian defense contractors by reducing cooperation with Russian defense and space technology companies, which place a lot of orders, said Bronnikov, of the Party of the Regions.

A harder pull toward the European Union is also likely. Ukraine's partnership and cooperation agreement with the EU runs out in March, and Tymoshenko will work to extend the pact, said Kostyantin Kuznetsov, an analyst at the Razumkov Center for Economic and Political Studies. He said Tymoshenko would also try to speed up Ukraine's accession to the World Trade Organization.