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An ultimatum to Ukraine

Vladimir Radyuhin

Vladimir Putin firm that Kiev must pay more for Russian gas.

RUSSIAN PRESIDENT Vladimir Putin has told his Government to stop subsidising Ukraine's economy with cheap natural gas in what amounts to an ultimatum to the "orange revolution" leaders in Kiev.

The Russian economy will stand to lose $3.6 billion if gas prices for Ukraine are not raised, Mr. Putin told a Government meeting last Thursday. He said Russia was already losing $1 billion a year by surrendering to Ukraine the right to collect value-added tax on oil and gas supplied by Russia.

"This would be a burden on the Russian economy that would be hard to justify," the Russian leader told his Ministers. "Households in Ukraine pay less for gas today than Russian consumers. Considering that 25 million people in Russia live below the poverty line, and we face challenging gasification plans inside the country, we must find acceptable solutions both for our partners and for the Russian economy."

Kiev has refused to renegotiate gas prices citing a 10-year agreement with Moscow. The Russian side has published the text of the agreement to show it was only a framework accord that called for gas prices to be fixed by annual protocols.

Mr. Putin said Russia's European customers next year would pay $255 per 1,000 cubic metres of gas, five times what Ukraine pays today. Russia's Gazprom gas monopoly wants to raise the prices for Ukraine to $160 per 1,000 cubic metres.

"Ukraine has received significant amounts of money from privatisation and Western loans for energy projects this year," Mr. Putin said. "The total runs into billions of dollars. There's certainly enough to buy Russian gas at market prices."

Analysts said Ukraine, which heavily depends on Russian gas supplies, may face an economic collapse if Russia tripled its gas price. However, President Putin made it clear Russia would not relent. Gazprom said it could cut gas supplies to Ukraine if no agreement was reached before the year-end.

Moscow demanded a revision of gas prices in the wake of the pro-Western "orange revolution" in Ukraine a year ago. Mr. Putin's ultimatum to Ukraine came a day after NATO said it was holding the door open for Ukraine to become a member. Ukraine's Foreign Minister Boris Tarasyuk promised that within three years his country would be ready to qualify for NATO membership.

Under a new policy formulated this year, Russia is prepared to give economic concessions only to its close allies in the former Soviet Union.

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