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Gazprom reduces pressure in gas pipeline, supplies to Europe continue in full

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MOSCOW, January 1 (RIA Novosti) - Russian energy giant Gazprom has begun to reduce pressure in the natural gas pipeline to Ukraine, gas deliveries to Europe are continuing in full volume, a Gazprom spokesman said Sunday.

"We were forced to start reducing pressure in the pipe, but gas exports to Europe are continuing in full volume," press secretary Sergei Kupriyanov.

"We were willing to meet Ukraine halfway," Kupriyanov said.

In a bid to help settle the price dispute between Russia President Vladimir Putin ordered the Russian government, Saturday, to continue deliveries to Ukraine in Q1 2006 at the 2005 price if Ukraine signed a new contract on the move to a market price of $220-$230 per 1,000 cu m December 31, 2005.

"Ukraine rejected the option, which shows that the Ukrainian authorities had planned a conflict in advance, i.e. planned to tap, or simply steal, gas intended for European consumers," Kupriyanov said.

He acknowledged that Ukraine's refusal meant "catastrophic consequences" for its economy and "the fraternal Ukrainian people" and said Gazprom was continuing to work on the problem.

Gazprom CEO Alexei Miller first threatened to cut off natural gas supplies to Ukraine December 13 when he appeared on Russia Today, the first satellite English-language TV channel in Russia.

"Gazprom will cut off deliveries to Ukraine if no compromise is reached till January 1, 2006," Miller said, adding the current contracts expired December 31.

At the same time, Miller assured gas transit to European markets would not be disrupted.

In the final days of 2005, the two countries held intensive talks, considering various options to avoid turning off the gas tap. Ukraine proposed signing documents to ensure supplies in 2006 before a new contract was signed.

President Putin offered a $3.6 billion commercial loan to Ukraine to help it finance gas imports in 2006 at the new price.

"We are ready to give a commercial loan directly to Naftogaz to be secured by a leading international bank, either European or American," Putin told the participants in the gas talks December 29.

However, Ukrainian President Viktor Yushchenko turned down the offer. "Ukraine will pay for itself," he said, but thanked the Russian leader for the offer.

Gazprom also said that Ukraine could give Russia assets in its gas transport system as payment for supplies.

"We have proposed ways to cushion the move to the market price of $230 for the Ukrainian economy," Gazprom Deputy Board Chairman Alexander Medvedev said.

Ukraine, for its part, repeatedly insisted that it was entitled to 15% of Russian gas flowing to Europe as a transit fee.

Gazprom said it would qualify such tapping as theft and appeal to the Stockholm arbitration court.

The gas dispute erupted when Gazprom, which is expected to lift the "ring fence" from around its stock to make it available for foreigners, said it was raising the price for Ukraine from the current $50 to a European-level price of $230 per cu m of natural gas, i.e. more than four times.

In March 2005, Kiev suggested to switching over to cash settlements for gas transit. Russia responded by demanding to raise the gas price to $160. Ukraine rejected the demand in late November, and Gazprom decided to raise the price further to $230.

Ukraine, which depends on Russian gas for heating and heavy industry, insists on the price of $80 per 1,000 cu m in Q1 2006 and on a gradual move to market prices within several years.

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