Ukraine threatens to take Russia to court over gas

KIEV — Ukraine on Saturday rejected Russia’s latest gas price hike and threatened to take its energy-rich neighbour to arbitration court over a dispute that could imperil deliveries to western Europe.

Prime Minister Arseniy Yatsenyuk said Russia’s two rate increases in three days were a form of “economic aggression” aimed at punishing Ukraine’s new leaders for overthrowing a Moscow-backed regime last month.

Russia’s natural gas giant Gazprom this week raised the price of Ukrainian gas by 81 percent -- to $485.50 (354.30 euros) from $268.50 for 1,000 cubic metres -- requiring the ex-Soviet state to pay the highest rate of any of its European clients.

The decision threatens to further fan a furious diplomatic row over Ukraine’s future between Moscow and the West that has left Kremlin insiders facing sanctions and more diplomatic isolation than at any stage since the 1989 fall of the Berlin Wall.

“Political pressure is unacceptable. And we do not accept the price of $500 (per 1,000 cubic metres of gas),” Yatsenyuk told a cabinet meeting called to get a handle on the economic crisis that threatens to escalate tensions in the culturally splintered nation of 46 million.

“Russia was unable to seize Ukraine by means of military aggression. Now, they are implementing plans to seize Ukraine through economic aggression.”

Yatsenyuk said Ukraine was ready to continue purchasing Russian gas at the old rate of $268.50 because this was “an acceptable price”.

But he added that Ukraine must prepare for the possibility that “Russia will either limit or halt deliveries of gas to Ukraine” in the coming weeks or months.

Gazprom’s western European clients saw their deliveries limited in 2006 and 2010 when the gas giant -- long accused of raising the rates of neighbours who seek closer ties to the West -- halted supplies to Ukraine due to disagreements over price.

The state gas company supplies about a third of EU nations’ demand despite efforts by Brussels to limit energy dependence on Russia amid its crackdown on domestic dissent and increasingly militant foreign stance.

Nearly 40 percent of that gas flows through Ukraine while the remainder travels along the Nord Stream undersea pipeline to Germany and another link through Belarus and Poland.

Ukrainian Energy Minister Yuriy Prodan said Kiev was ready to take Gazprom to arbitration court in Stockholm if Moscow refused to negotiate over a lower price.

“If we fail to agree, we are going to go to arbitration court, as the current contract allows us to do,” Prodan warned.

The budding gas war adds another layer of concern to a crisis that has seen Russia mass tens of thousands of troops along Ukraine’s eastern border after annexing its Black Sea peninsula of Crimea last month.

The Unites States has responded by boosting NATO’s defence of eastern European nations and trying to isolate Russian President Vladimir Putin on the world stage.

US Vice President Joe Biden vowed on Friday to work with Ukraine and other allies to prevent Russia from using energy as a “political weapon”.

And both German Chancellor Angela Merkel and EU foreign policy chief Catherine Ashton said on Saturday that Europe -- once divided in the face of Putin’s new expansionist streak -- was ready to impose broader economic sanctions against Russia if it pushed any harder against Ukraine.

“If the territorial integrity of Ukraine continues to be violated, then we will have to introduce economic sanctions,” said Merkel.

“Might does not make right,” she told a congress of her Christian Democratic Party.

Ashton also proclaimed that Europe was “prepared to take measures” against Russia.

“We are united to deal with threats against Ukraine,” she told an informal meeting of EU foreign ministers in Athens.

Yatsenyuk said he was busy trying to seal agreements with Ukraine’s western neighbours on gas deliveries that would cost about $150 per thousand cubic metres less than the price charged by Gazprom.

Ukraine has already received small quantities from Poland and Hungary despite the displeasure voiced over such shipments by Russia.

Yatsenyuk said he was also keen to secure an agreement with Slovakia -- a country that receives all its gas from Russia and has been unwilling to complicate relations with Gazprom in the past.

He added that Ukraine’s energy minister would hold talks on Tuesday in Brussels about so-called “reverse flow” deliveries of gas to Ukraine.

“We need specifics from our European partners,” said Yatsenyuk.

Gazprom chief Alexei Miller responded by warning that Russia would be looking closely at any independent deals its client states reached with Ukraine.

“European companies that are ready to provide reverse flow deliveries to Ukraine should take a very careful -- very careful -- look at the legitimacy of such sorts of operations,” said Miller.

“A pipeline cannot work in forward and reverse flow regimes at the same time,” he told Russian state television.

But Ukraine’s energy minister insisted that Kiev had no intention of diverting Gazprom deliveries intended for its European clients.

“There will be no theft,” Prodan said.