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Gazprom toughens position in dispute with Ukraine over natural gas prices

MOSCOW - Russia's state-controlled gas company said Sunday that it was hiking the price it wants Ukraine to pay for natural gas, hardening its position in a dispute that has decreased supplies to Europe.

MOSCOW - Russia's state-controlled gas company said Sunday that it was hiking the price it wants Ukraine to pay for natural gas, hardening its position in a dispute that has decreased supplies to Europe.

Gazprom CEO Alexei Miller said the company wanted US$450 per 1,000 cubic metres, up from its last offer of $418 though still less than the $500 it charges other European countries.

Ukraine's state gas company accused Gazprom of being unwilling to seek a compromise and said any price increase should be accompanied by a similar hike in the fee Ukraine gets from Russia to move gas through its pipelines to other countries.

Russia's tough stance in the negotiations may reflect both political and economic considerations. Gazprom, which once aspired to be the largest corporation in the world, has been hit hard by the financial crisis and is deep in debt.

The negotiations also have been hampered by strained relations between the Kremlin and Ukraine's West-leaning government. Kyiv has angered Moscow by seeking to join NATO and by supporting Georgia during its August war with Russia.

Last year, Ukraine paid $179.50 per 1,000 cubic metres. Its state company, Naftogaz, refused Gazprom's offer of $250 before negotiations over a 2009 contract broke down Wednesday, prompting Gazprom to shut down gas supplies to Ukraine.

Gazprom has continued to send gas to Europe, which relies on the Russian company for a quarter of its natural gas. But 80 per cent of the gas Gazprom sends west passes through the same pipelines that supply Ukraine, and over the past four days the pressure in the pipelines has dropped.

Some European countries - Bulgaria, the Czech Republic, Hungary, Poland and Romania - have reported a decline in supplies. Ukraine has said it has sufficient gas reserves to meet its needs for weeks.

Gazprom said it hoped Sunday's offer would bring Naftogaz back to the table as soon as possible, but Naftogaz remained unbowed.

"We are open for negotiations if there are reasonable proposals that correspond to European market conditions," Naftogaz spokesman Valentyn Zemlyansky told The Associated Press. "If the price for gas is $450, then the transit fee will rise accordingly."

European countries now pay about $500 per 1,000 cubic meters, including transit costs, but the price is expected to decline significantly as the gas market begins to reflect the fall in world oil prices.

The system requires a minimum amount of gas to maintain pipeline pressure.

Russia has accused Ukraine of siphoning off gas from Russian shipments, while Ukraine has accused Gazprom of refusing to supply the gas that the system needs in order to pump fuel to Europe.

"Then they say that Ukraine is stealing it," Zemlyansky said.

Gazprom has said it is fulfilling all of its transit obligations and insisted that the extra gas is Ukraine's responsibility.

Gazprom also has been pumping more gas to Europe via pipelines in Belarus and the Blue Stream pipeline that sends gas to Turkey.

Bulgaria's pipeline operator said Sunday that Russian gas supplies have dropped by up to 15 per cent. Bulgargaz CEO Dimitar Gogov told Bulgarian National Radio that the situation was not yet critical. Bulgaria gets 90 per cent of the gas it uses from Russia.

Joanna Zakrzewska, spokeswoman for Poland's gas monopoly PGNiG, said deliveries arriving via Ukraine have dropped 11 per cent. She said the shortfall in deliveries via Ukraine is being made up for in its entirety via transit routes through Belarus.

Martin Chalupsky, spokesman for Czech gas importer RWE Transgas, told Czech public radio Sunday that deliveries through a pipeline crossing Ukraine have dropped five per cent. He said the deficit was being made up with supplies arriving from Norway and from the country's reserves.

Germany, one of Gazprom's biggest customers, has been receiving its gas in full, said Martin Weyand, head of the country's BDEW energy industry association.

During a similar dispute between Ukraine and Russia in 2006, several European countries saw their gas supplies drop by 30 per cent or more.

This time Gazprom's customers were better prepared, having built up substantial reserves. Gazprom also has taken additional steps to guarantee supplies.

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