Russia demands Ukraine payment, raising fears of new gas war

Reuters

* PM Medvedev says payment problems critical

* Ukraine says monitoring situation

* Analyst says danger of new gas war

By Vladimir Soldatkin

MOSCOW, Oct 29 (Reuters) - Russian gas export monopolyGazprom demanded Ukraine pay an overdue gas bill urgently onTuesday, raising fears of a new "gas war" and increasingpressure on Kiev as it tries to build ties with Europe.

Prime Minister Dmitry Medvedev described the paymentproblems as critical, ahead of Kiev's signing next month ofagreements with the European Union which would mark a historicshift away from former imperial master Moscow.

Using language that harked back to earlier spats in whichMoscow cut off gas to Ukraine, hitting onward deliveries toEurope, Medvedev told Gazprom CEO Alexei Miller Kievhad not taken the payments seriously enough in recent talks.

"The (problems) exist and they are absolutely critical," hesaid at a government meeting.

Miller said Ukraine had been given until Oct. 1 to pay fornatural gas deliveries in August, but no payment had yet beenreceived. He said Gazprom had also paid Ukraine $1 billion upfront to pump gas though its territory to Europe.

"The situation with Ukraine's gas payments is coming to theboil. Ukraine has failed to pay fully for August supply," Millertold the meeting. Earlier he said he was "extremely concerned".

Ukraine's state oil and gas firm, Naftogaz, declined tocomment on Gazprom's remarks, but Prime Minister Mykola Azarovsaid the government was "monitoring the issue".

"This primarily is a question concerning two companies andthey have to sort things out," Azarov's press service said.

WARNING OF GAS WAR RISK

Russia and Ukraine have waged two gas wars over prices inthe winters of 2006 and 2009, with Moscow halting deliveries notonly to Ukraine but to the rest of Europe, forcing some in theEuropean Union to seek alternative sources of energy.

President Vladimir Putin wants Ukraine to join a Moscow-ledcustoms union and Russia has put pressure on its neighbour,which faces large payments to service its debt over the next 18months, by tightening customs rules and banning some imports.

Earlier this year, Russia hinted that gas prices which Kievhas called "exorbitant" could be cut if it joined the customsunion, which unites Russia with two other former Sovietrepublics, Kazakhstan and Belarus.

Medvedev said Russia could resort to a system of advancepayments if Ukraine did not respond to its demands.

"There is a danger of a new gas war with Ukraine, where theeconomy is struggling," said Sergei Vakhrameyev, an analyst withAnkorinvest brokerage in Moscow.

"The situation of past years, when gas flows to Europehalted could be repeated again."

Putin and Ukrainian President Viktor Yanukovich met in theBlack Sea resort of Sochi on Sunday for bilateral talks,although neither side has commented on what was discussed.

Ukraine, which imports nearly all its gas from Russia, paysabout $400 per 1,000 cubic metres, slightly higher than theaverage price paid by European customers.

Naftogaz said earlier this month it had 17 billion cubicmetres of gas in storage, enough to get through the winter.

Gazprom ships more than half of its gas to Europe viaUkraine. This year it aims to increase exports to Europe, whereit provides a quarter of gas needs, to 152 billion cubic metresfrom 138 bcm last year.

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