Moscow, Kiev locked into another gas dispute – who pays rebels' bills

Russia is threatening to turn off the taps, claiming that Kiev needs to pay for the gas that Russia's Gazprom is directing to rebel-held eastern Ukraine. Europe's own gas supplies could be affected if a shutdown occurs.

Alexander Demianchuk/Reuters/File
The company logo of Russian natural gas producer Gazprom is seen on an advertisement installed on the roof of a building in St. Petersburg, Russia, in November 2013.

Russia and Ukraine are once again locked in a quarrel over gas payments, and Moscow is threatening to turn off the tap.

But unlike previous "gas wars" between Russia and Ukraine, which were rooted in fundamental differences, this time it appears to be an odd technical disagreement over who should pay for gas consumed by the rebel Donetsk and Luhansk "republics" in eastern Ukraine.

For Europeans, who depend on Russian gas delivered through a Ukrainian pipeline, there is a dreary sense of deja vu as they gird themselves for potential energy disruptions in the next few days.

The head of Russia's state natural gas monopoly Gazprom, Alexei Miller, said gas supplies may be cut off as early as Thursday over Ukraine's alleged failure to make its pre-payments for gas under a deal mediated by the European Union last October. He warned that a shut down could "create serious risks for transit gas to Europe," if Ukrainians began siphoning gas to downstream customers for their own use.

The new argument over gas started last week, when Kiev sharply reduced the amount of gas it supplied to the rebel territories, leading Gazprom to start delivering gas to them directly. It was a propaganda victory for Moscow, but Gazprom insisted on handing the bill for the extra gas to Ukraine's Naftogaz company.

The Ukrainians argue that the reduction in supplies to Donetsk and Luhansk was not political, but the result of pipeline damage sustained during last week's heavy fighting near Debaltseve.

Andriy Kobolev, the head of Naftogaz, told Ukrainian TV today that Kiev has already restored gas supplies to the rebel areas, but that it's not prepared to pay for "illegal" Russian gas deliveries that Ukraine had no supervision over.

The EU, caught in the middle again, is urging Moscow and Kiev to return to the bargaining table and find a compromise as soon as possible.

"Naftogaz has been pretty good about metering all the gas that passes through its system, and being transparent about that, so it's not surprising that they don't feel like paying for gas that's shipped to [the rebel regions] without their knowledge or control," says Mikhail Krutikhin, a partner at RusEnergy, a Moscow-based energy consultancy. "They suspect there is some kind of smuggling operations going on."

Mr. Krutikhin says this gas war is a contrived form of psychological pressure being exerted by Moscow at a critical moment when Ukraine is facing financial collapse and the implosion of its national currency, the hryvnia. Things appear so bad in Kiev that the Central Bank closed down currency markets Wednesday in a frantic effort to stem capital flight.

"The message to Europe right now is: don't try helping Ukraine, or there can be trouble with your gas supplies. They might even close the taps down for a few days, just to make that very clear."

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