Russia tells Ukraine to pay upfront for gas, likely to cut supplies

A worker turns a valve at an underground gas storage facility near Striy in western Ukraine in this May 21, 2014 file photo. Russian gas exporter Gazprom said on Monday that Ukraine had failed to pay at least part of its gas debts by a 0600 GMT
A worker turns a valve at an underground gas storage facility near Striy in western Ukraine in this May 21, 2014 file photo. Russian gas exporter Gazprom said on Monday that Ukraine had failed to pay at least part of its gas debts by a 0600 GMT (2pm, Singapore time) deadline and would now have to pay up front for deliveries, suggesting that supplies could be cut. -- PHOTO: REUTERS

MOSCOW (REUTERS) - Russian gas exporter Gazprom said on Monday that Ukraine had failed to pay at least part of its gas debts by a 0600 GMT (2pm, Singapore time) deadline and would now have to pay up front for deliveries, suggesting that supplies could be cut.

Kiev and Moscow failed to agree overnight on the price of future gas deliveries in a deal needed to secure flows to Ukraine and safeguard onward supplies to the European Union.

A gas cut would further complicate efforts to try to end the worst crisis in relations between the two neighbours since Soviet times and find a truce in eastern Ukraine, where Ukrainian troops are fighting pro-Russian rebels.

Russian officials said Mr Alexei Miller, Gazprom's chief executive, and Energy Minister Alexander Novak would meet President Vladimir Putin later on Monday and then a decision would be taken on the gas issue.

Gazprom, which offered a discount to Kiev on its gas supplies, said that from now on Ukraine would only get the gas that it paid for, and that Kiev had not paid for June.

"Today, from 10:00 a.m. Moscow time, Gazprom, according to the existing contract, moved Naftogaz to prepayment for gas supplies ... Starting today, the Ukrainian company will only get the Russian gas it has paid for," it said.

Gazprom had demanded Kiev pay off at least US$1.45 billion (S$1.81 billion) of a gas debt that it puts at more than US$4 billion by the deadline, or face supply cuts and the prospect of paying up front.

A spokesman could not be reached for further comment.

Naftogaz declined to comment, saying it would issue a statement later in the day, but the Ukrainian pipeline operator Ukrtransgaz said it was operating normally.

Russian shares fell sharply on Monday morning. The dollar-denominated RTS index was down 2.5 per cent to 1341 points at 0630 GMT, with Gazprom down 2.0 per cent at 143.47 roubles.

Talks brokered by the European Commission broke down in Kiev in the early hours, with the sides unable to reach agreement on prices and on changes to a 2009 contract that locks Ukraine into paying the highest price in Europe.

Russia has offered to waive an export duty, bringing down prices by about one-fifth to US$385 per 1,000 cubic metres, but Kiev argues Moscow could use the threat of the discount's removal to keep Ukraine in its sphere of influence.

European Energy Commissioner Guenther Oettinger said Moscow had declined a compromise proposal during the talks in which Kiev would pay US$1 billion immediately and then make monthly debt payments to Gazprom. Ukraine would also pay US$385 per 1,000 cubic metres in winter and around US$300 in the summer months.