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Ukraine will pay its $2 billion Russian gas bill

Ukraine said Tuesday that will avoid a Kremlin cutoff in gas supplies. European gas customers breathed sighs of relief.

By Correspondent / December 31, 2008

SOURCE: EIA/AFP

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Moscow

In what is becoming an unpleasant New Year tradition, Russia again threatened to cut off Ukraine's gas supplies if the struggling post-Soviet state failed to pay off at least $2 billion in arrears by Dec. 31.

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By Tuesday evening, Ukraine appeared to have averted a cutoff by borrowing money from the country's two biggest state banks. A spokesman from Russia's state gas monopoly, Gazprom, said that no money has been received yet.

Even if the immediate crisis is resolved, the underlying tensions between Russia and Ukraine remain – and could result in another standoff later.

Ukraine is floundering amid financial paralysis and is racked by political conflict between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko. Europeans are watching developments closely, worried that any extended cutoff of the main energy artery between Russia and the West could leave them facing serious disruptions this winter.

Europe depends on Russia for some 40 percent of its natural-gas consumption, and most of that arrives via a Soviet-era pipeline through Ukraine.

Gazprom, itself requesting a government bailout, insists that the Ukraine dispute is purely commercial, and has appealed to Europeans for "understanding." Some Ukrainians, however, claim there is a political subtext to Russia's demands and warn that the Kremlin's real target is their government's aspirations to join NATO and draw Ukraine closer to the European Union.

"The Kremlin is showing that we can be rewarded for good geopolitical choices, and punished for bad ones," says Alexei Kolomiyets, president of the independent Institute of Euro-Atlantic Integration in Ukraine's capital, Kiev. "Energy supplies are the main instrument of pressure upon us, and we are left with very few options. It's quite possible that there can be interruptions in the gas supply to Europe in coming weeks."

Mr. Kolomiyets points to Belarus, a Russian ally granted a significant price cut this week on its already subsidized rates for Russian gas, as an example of how some are rewarded for making the "right" choices. "We hear that the Belarussian Parliament will recognize the [Russian-sponsored] republics of South Ossetia and Abkhazia in Georgia," in return for being given a favorable gas deal, he says. "This is an obvious object lesson for others."

But Russian experts allege it's Ukraine that's complicating the issue, by pursuing anti-Moscow policies while enjoying subsidized Russian gas. "Russia doesn't want to influence Ukrainian politics," Kremlin-connected analyst Gleb Pavlovsky told the independent Interfax news agency Monday. "The Russian position is simple: Get the money, step back, and leave Ukraine to its own devices."

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