European Union relations with Moscow are set quickly to come under further strain when the Czech Republic assumes the EU presidency on Thursday

European Union relations with Moscow are set quickly to come under further strain when the Czech Republic assumes the EU presidency on Thursday.

The Czech Republic, which will become the first former Warsaw Pact country to hold the presidency, has made a priority of a scheme to establish closer ties with former Soviet states, irrespective of Russian concerns of encroachment close to its borders.

Karol Schwarzenberg, Czech foreign minister, said: "We have to have do something for our neighbours to the east. It's our duty to help them, to help develop the rule of law and a civil society."

Moscow views the scheme – which is called the Eastern Partnership and includes Georgia, Belarus and Ukraine – as a further Western move into what it regards as its sphere of influence.

Relations with Moscow are already fraught after this year's conflict with Georgia, tensions over the supply of gas and a war of words with Nato. But Mr Schwarzenberg stressed that the EU's relations with the former Soviet states were its own affair and that Russia should not interfere.

"We have many issues that should be discussed with Russia but I think our relations with those states are a matter for them and the European Union," he told the Daily Telegraph. "We don't discuss it with the Americans, for example, so why should we discuss it with the Russians?"

"It is very difficult if somebody is suspicious about everything," the minister continued, "but I do think that it is in the best interests of Russia that these countries become stabilised. The programme is not anti-Russian." The partnership aims to offer closer economic and political ties with Europe in return for improvements in governance and was drawn up by Poland and Sweden earlier this year. Alexandra Vondra, the Czech deputy prime minister, hopes it will make 2009 "an eastern year" for the EU after this year's focus on the Mediterranean region.

The partnership stops short of offering membership to the eastern states involved but Radek Sikorski, Poland's foreign minister, hopes that once the EU recovers from "enlargement fatigue", joining the bloc "becomes natural" for the six.

Mr Schwarzenberg warned that the EU's relations with Moscow should come under the spotlight immediately if Russia carried out its threat to cut gas supplies to Ukraine unless Kiev signed a new contract for energy supplies.

The Czech Republic has until now been far from the forefront of the drive for deeper integration in the EU. Led by a weak, staunchly pro-US minority government, the country has not yet ratified the EU's Lisbon reform treaty, is in no rush to adopt the euro currency and is cautious on any shift of power to Brussels from the national level.

Vaclav Klaus, Czech president, has made EU-bashing one of his core topics and refuses to hoist the EU flag at Prague Castle.

"Our strength could be in mediation. When the big three [France, Germany and the UK] are not on board, you have an opportunity to do that," Mr Vondra has said.

31.12.2008, 09.37

KIEV, December 31 (Itar-Tass) -- Naftogaz Ukrainy received a notification from the National Bank of Ukraine on transferring one billion and 522.8 million dollars to the RosUkrEnergo company, Switzerland, to repay partially the gas debt to Russia, the Ukrainian television said on Wednesday.

“The money was assigned, the Swiss side – RosUkrEnergo confirmed that the funds were transferred to its account,” Naftogaz reaffirmed. According to the company, the funds were transferred for Russia’s gas supplies for November and the advanced payment for December 2008. In January 2009 lawyers of Naftogaz Ukrainy and RosUkrEnergo will begin talks on mutual claims.

Naftogaz’s debt was earlier estimated at 2.1 billion dollars together with penalty sanctions in November-December 2008. Meanwhile, Naftogaz also stated that RosUkrEnergo breached its contract liabilities.

The National Bank of Ukraine reaffirmed that 1,5 billion dollars at the exchange rate of 7.7 hrivnas per dollar were transferred to Naftogaz on Tuesday.

Naftogaz spokesman Valentin Zemlyansky said on Tuesday evening that the company paid 1.5 billion dollars for Russia’s gas. “The payment of penalty sanctions should be discussed only after the contract has expired as of January 1,” he believes.

Ukrainian presidential envoy on international issues of energy security Bogdan Sokolovsky said contracts on Central Asian gas supplies from Russia to Ukraine may be signed already on Wednesday. He noted that Naftogaz Ukrainy paid fully for the imported Russian gas in 2008, “so, the process of drafting contracts for further gas supplies was unblocked.”

Naftogaz Ukrainy signed with RosUkrEnergo, “which was and remains the only supplier of imported national gas to Ukraine,” a contract for delivering 49.8 billion cubic meters of gas during 2008 at the price of 179.5 dollars for 1,000 cubic meters. The Russia gas major Gazprom owns 50 percent of the stock in RosUkrEnergo, Ukrainian businessman Dmitry Firtash – 45 percent, and Ivan Fursin – five percent.

In 2009 Ukraine intends to refuse from mediating services of the RosUkrEnergo company and plans to sign a direct contract between Gazprom and Naftogaz Ukrainy.

MOSCOW, December 31 (Itar-Tass) - Reporters covering the knotty talks between the Russian gas giant Gazprom and Ukraine’s national oil and gas monopoly Naftogaz Ukrainy, as well as executives from both corporations engaged in these talks are all heading for an H-hour, as only one day is left for settling the problems of Ukraine’s debts for the previously consumed natural gas and signing an agreement on supplies in 2009.

If the two corporations fail to agree on the method of debt repayment before the Chimes of the Savior’s Tower in the Kremlin chime midnight of December 31, Ukraine will face the prospect of having neither the supplies agreement nor gas as of January 1.

Gazpom executives have made it clear to their Ukrainian counterparts on many occasions the corporation cannot sign a new agreement on gas supplies until the Ukrainian side pays off the overdue debts.

“If Ukraine doesn’t repay its debts before the end of the day December 31, Gazprom won’t have any grounds for pumping gas there,” the gas giant’s CEO Alexei Miller said.

Spokespeople for the Secretariat of Ukrainian President Viktor Yushchenko said Tuesday night that “payments have been made not only for December, but also for January in the form of front money,” but Gazprom’s official representative Sergei Kupriyanov said on this the corporation hadn’t seen the money for the outgoing year yet and the talks for 2009 were in progress.

The joint-venture RosUkrEnergo, the mediator in transactions between Gazprom and Naftogaz Ukrainy that is due to remit the monies to the Russian side, has not received anything either, its official spokesman Andrei Knutov said.

The two countries’ leaders joined the efforts to untangle the problem. Russian Prime Minister Vladimir Putin and Ukrainian President Viktor Yushchenko had an hour-long telephone conversation Monday.

“Viktor Andreyevich /Yushchenko/ and I spent an hour on the line but we didn’t agree on anything because they don’t want to pay,” Putin told reporters after the conversation.

The Russian side has begun technical preparations for a possible slashing of supplies to Ukraine. A special operative steering staff has been set up for the purpose.

“The staff has come down to business,” Alexei Miller warned.

“Shutting supplies as of January 1 won’t be a technical problem in any way,” Sergei Kupriyanov added to this.

Ukraine is ready to tackle the possible developments, too, with Naftogaz Ukrainy’s press secretary Vitaly Zemlyansky saying the country will not face any serious problems even if it stops getting the fuel as of January 1, as it has enough gas to support normal life through to the end of this winter.

Naftogaz executives said earlier the country has more than 16 billion cubic meters of gas in underground storage tanks.

Specialists feel pessimistic about these claims, though, as these tank farms work mostly for exports and three-fourths of them are located at a distance of 200 or so kilometers away from the country’s western border, not in the central or heavily industrialized eastern parts of the country.

Experts indicate that even if Ukraine steps up production of gas at its own deposits to the maximum and combines it with the maximum takeaway of gas from the underground tanks, the resultant availability of the fuel will still be 30 million cubic meters to 50 million cubic meters smaller than the averaged daily consumption.

Europeans watch the collisions at the talks on the supplies agreement as intensely as the Russians and Ukrainians do. Gazprom has already informed its European counterparts on the situation and many representatives of the EU have expressed their hope for an earliest possible resolution of the dispute over debts and prices.

Andris Piebalgs, the EU energy commissioner said this is the third such crisis in relations between Russia and Ukraine and it undermines Russia’s reputation as a supplier of energy resources and Ukraine’s reputation of a transit state.

Many European countries have had to do calculations for how long their reserves of gas will suffice should Ukraine begin to siphon gas from transit pipelines.

Gazprom executives do not rule out a possibility of the latter.

They recall that Russia and Ukraine have two separate agreements on supplies of gas to Ukraine and on its transits to Europe, reasoning that the Ukrainian side has all the grounds for fulfilling its obligations, but the peculiar features of how the Ukrainians fulfill their obligations in terms of supplies to the domestic markets make it possible to surmise that the transit contract will not be fulfilled in the final run.

The transit agreement was signed January 4, 2006, for a period of five years. The problem is that there is practically no alternative network for exporting gas other than across the Ukrainian territory.

Ukraine hoped to return the accumulated unpaid reserves of gas to Russia in the form of a return of debt, but Gazprom executives turned this proposal down politely. One of them said that even the IKEA stores have a 30-day return deadline and gas agreements do not envision this opportunity at all.

As an option for settling the dispute, Gazprom proposed front payments for transits to Europe at the current rate of 1.7 U.S. dollars for pumping 1,000 cubic meters of gas per 100 kilometers, but Naftogaz’s press secretary Vitaly Zemlyansky said this proposal is not discussed even as a working one.

On the face of it, news agencies issued opposite reports Monday claiming that Gazprom might prepay Naftogaz’s transit services and Naftogaz could use the monies thus received for paying up the gas pumped into underground tank facilities earlier.

There was no official confirmation of these reports, however,

The memorandum that Prime Ministers Vladimir Putin of Russia and Yulia Timoshenko of Ukraine signed October 2 contained provisions on a stage-by-stage transition to European-level prices on the condition of a full repayment of debts.

If the latter does not happen, Gazprom executives warn that the effectuation of European-level prices can be a momentary one, which means that the estimated price will stand at 418 U.S. dollars per 1,000 cubic meters as of January 1.

A similar conflict three years ago ended in a shutting of Ukraine-bound pipelines by Russia and the start of siphoning by Ukraine.

Talks stumbled over the price for gas and the conditions of supplies then, but following a ‘gas vacation’ of 2006 but the sides signed an agreement eventually.

One can only hope now that the sides will tap a solution this time before the Kremlin Chimes strike midnight.

December 31, 2008, 9:07