Gazprom threatens to cut gas supplies to Ukraine

Russian President Dmitry Medvedev and energy giant Gazprom have warned European nations that it will be forced to cut off gas supplies starting 1 January 2009, if Ukraine does not pay over $2 billion in gas supply debt.

Gazprom said on Wednesday that it will cut off gas supplies to Ukraine if it did not pay its $1.67 billion debt for gas supplies and $450 million in fines with the Russian President saying Ukraine's economy will face "sanctions and demands" from Russia if Kiev does not pay up its gas debt to the last rouble.

Gazprom chief Alexei Miller has shot off a letter to European clients saying, "Gazprom is doing everything possible to avoid any disruption of gas deliveries to Europe, however, if events develop along an unfavourable scenario, the problem of Ukrainian transit will be a common problem for Russia and Europe."

Talks last week on the long standing problem between Gazprom and Ukraine's state energy firm, Naftogaz failed to find a solution on the debts issue leading to escalation of tensions between Moscow and Kiev with the Russian President threatening to impose sanctions on Ukraine.

Ukraine has not paid $805 million for November, $862 million for December and $450 million in fines for late payment. Naftogaz says that it is not in a position to pay the debt.

Russia has turned down Ukrainian President Viktor Yushchenko's plea for the debt to be restructured, by which Naftogaz could make the payments over several months as well as the company may return some of the gas held in storage to Gazprom.