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Saturday, Apr 12, 2014

World

Risk of "gas war" grows as Ukraine halts payments to Russia

Reuters | Saturday, Apr 12, 2014

A pressure gauge is seen at an underground gas storage facility in the village of Mryn, 120 km (75 miles) north of Kiev in this May 21, 2013 file photo.

KIEV - Ukraine said on Saturday it was suspending payments to Russia for deliveries of gas, ratcheting up the tension in a standoff that has the potential to leave European Union states cut off from the Russian gas supplies on which they depend.

In eastern Ukraine, where groups of pro-Russian activists have been emboldened by the Kremlin's annexation of the Crimean Peninsula, a band of armed men in mismatched camouflage outfits seized a police station in the town of Slaviansk.

Russia and Ukraine have been locked in confrontation since protests in Kiev forced the Moscow-backed president from office, and the Kremlin sent troops into Crimea. Now, the gas dispute threatens to spread the impact across Europe.

A large proportion of the natural gas which EU states buy from Russia is pumped via Ukrainian territory, so if Russia makes good on a threat to cut off Ukraine for non-payment of its bills, customers further west will have supplies disrupted.

Andriy Kobolev, chief executive of Ukraine's state-run energy company Naftogaz, said the increased price Russia was demanding for its gas was unjustified and unacceptable. "Accordingly, we have suspended payments for the period of the price negotiations," Kobolev was quoted as saying in an interview with Ukraine's Zerkalo Nedely newspaper.

In fact, Ukraine has de facto stopped payments already because it failed to make an instalment of over US$500 million (S$624 million) due earlier this month to Russian state gas giant Gazprom.

But the decision to formally suspend payments shows there is no sign of a compromise with Moscow, and may push the two sides closer to a repeat of past "gas wars", when Ukraine's gas was cut off, with a knock-on effect on supplies to EU states.

Kiev and Brussels have been scrambling to blunt the impact of any decision by Moscow to cut off gas to Ukraine.

In particular, they are working out ways to keep supplies flowing to EU states, and for those countries to then pump the gas to Ukraine by reversing the flow in their pipelines.

Moscow says it does not want to turn off Ukraine's gas if it can be avoided, and that it will honour all commitments to supply its EU customers. Gazprom could not immediately be reached for comment on Saturday.

ARMED MEN

The dispute over Ukraine, precipitated by the overthrow of Ukrainian president Viktor Yanukovich after he rejected closer ties to the EU, has brought Russia's relations with the West to their most fraught state since the end of the Cold War in 1991.

In Slaviansk, masked men armed with pistols and rifles stood guard near the police station as hundreds of locals gathered around, some building barricades with car tyres, according to a Reuters photographer on the scene.

They were wearing orange and black ribbons, a symbol of the Soviet victory in World War II that has been adopted by pro-Russian separatists in Ukraine.

Slaviansk is in the Donetsk region about 150 km (90 miles) from the Russia-Ukraine border. Pro-Russian groups have also occupied public buildings in the cities of Donetsk and Luhansk, and are demanding autonomy from Kiev.

Officials in Kiev's Western-leaning interim government say Russian forces may be preparing to cross the frontier into Ukraine on the pretext of protecting the pro-Russian activists from persecution, though Moscow denies this.

Ukrainian Interior Minister Arsen Avakov said police would deal very firmly with the group in Slaviansk. "There is a difference between protesters and terrorists," he wrote on his Facebook page.

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