MOSCOW (Dow Jones)--Russia halted deliveries of natural gas to Ukraine Thursday after Moscow failed to agree a new supply deal with its neighbor during last-minute talks the previous evening, but flows of Russian gas to Europe continued as normal.
A delegation from Kiev was locked in negotiations at the headquarters of Russian gas monopoly OAO Gazprom (GAZP.RS) Wednesday as Ukraine's supply contract expired Dec. 31, but Ukraine rejected a Russian offer to increase 2009 prices, prompting Gazprom to switch off the taps.
Gazprom said Ukrainian negotiators weren't even authorized to sign a new deal Wednesday.
"The problem's not agreeing a price. The problem's that our Ukrainian colleagues weren't prepared to sign a new contract as they didn't have a mandate to do so," Gazprom spokesman Sergei Kupryanov told a news conference broadcast on state television. Gazprom had proposed a 40% jump in gas prices to Ukraine, an offer Kiev rejected.
Kupryanov said a Ukrainian proposal to pay $201 per 1,000 cubic meters of gas, compared with $179.5 in 2008, was only received Thursday.
Earlier this week Ukraine began paying its $2 billion in arrears to Gazprom for gas delivered in November and December and Kupryanov said negotiations would continue.
He said 110 million cubic meters in daily gas shipments to Ukraine had been halted in full from 0700 GMT Thursday, but that exports to Europe through Ukraine would continue, totaling 326 million cubic meters a day.
A similar standoff between Russia and Ukraine in 2006 saw Kiev disrupt gas deliveries to Europe, which relies on Russia for a quarter of its gas needs.
Stoking fears of a repeat, Ukraine's state-controlled energy firm Naftogaz Wednesday sent a letter to Gazprom threatening to confiscate shipments transiting Ukraine on their way to Europe from Jan. 1.
But on Thursday the company changed its tune, insisting deliveries to Europe were continuing as scheduled.
"We're securing gas transit to Europe in compliance with Gazprom orders," Naftogaz spokesman Valentyn Zemlyansky told the Interfax news agency.
Ukraine's Foreign Ministry also guaranteed the safe passage of Russian gas to Europe, the agency reported.
It also said Poland's gas monopoly PGNiG hadn't seen any reduction in flows from Russia.
Kiev wants the rates for the transit of Russian gas to Europe to be raised to at least "$2 per 1,000 cubic meters per 100 kilometers," compared with the $1.70 Russia now pays, according to a joint statement by President Viktor Yushchenko and Prime Minister Yulia Tymoshenko.
Meanwhile, the new Czech European Union presidency insisted Moscow and Kiev must honor their commitments to provide natural gas to Europe, AFP reported.
Yushchenko has written to European Commission President Jose Manuel Barroso in a bid to involve the EU in the resolution of the Ukrainian-Russian gas dispute but is still awaiting a reply, Interfax said.
Analysts say both Ukraine and Europe have sufficient gas in underground storage to cope with disruptions to supplies from Russia.