Russian energy giant Gazprom began reducing pressure in the natural gas pipeline to Ukraine at 7 a.m. GMT Sunday after Ukraine declined to sign a contract for deliveries in 2006 at the market price of $230 per 1,000 cu m, i.e. more than four times last year's price.
Gazprom spokesman Sergei Kupriyanov said Gazprom had started cutting supplies to Ukraine by 120 million cubic meters a day, but added deliveries to Europe were continuing in full.
At the same time, the Russian Foreign Ministry said in a statement Sunday that Ukraine would be to blame for possible complications in deliveries to Europe.
"We expect Ukraine to ensure uninterrupted natural gas transit via its territory to European Union countries in line with its international obligations and take every measure to prevent gas flowing to Europe from being tapped," the ministry said.
The Foreign Ministry said Ukraine's gas transit obligations were stipulated in the European energy charter.
Ukraine's national natural gas company Naftogaz said in a statement posted on its Web site Sunday that the cut-off of Russian gas supplies to Ukraine might result in the reduction of deliveries to Europe.
Later in the day Gazprom reported, citing indicators at gas-measuring plants on Ukraine's western border, that Ukraine had started tapping Russian gas illegally. The energy giant promised to specify losses January 2.
Kupriyanov said gas feeding had dropped in four out of the five gas-measuring plants on Ukraine's western border as of 4 p.m. Moscow time (1 p.m. GMT)
"We are witnessing gas supplies decline practically in all directions," he said. "This is the gas intended for exports that Ukraine is tapping."
In the final days of 2005, Russia made several proposals to Ukraine as it said in a bid to cushion the move to the market price, which Ukraine insists is "economically ungrounded" and politically charged.
President Vladimir Putin ordered the Russian government, Saturday, to continue deliveries to Ukraine in Q1, 2006 under the 2005 terms if Ukraine signed a new contract December 31, 2005.
"Ukraine rejected the option, which shows that the Ukrainian authorities planned a conflict from the very beginning, i.e. to tap, or rather steal, gas intended for European consumers," Kupriyanov said, adding Gazprom was continuing to work on the problem.
Russia also offered Ukraine a $3.6 billion loan, Friday, to finance its gas imports in 2006, but Ukrainian President Viktor Yushchenko turned down the offer. He said: "Ukraine will pay for itself."
The Foreign Ministry said the Ukrainian authorities were using the "gas issue" to influence the domestic political situation and intentionally portray Russia as "an enemy." The ministry put entire blame for the failure to reach agreement on Ukraine.
It also accused Ukraine of "blackmailing" European countries by threatening to tap Europe-bound gas.
The same day, Naftogaz said it had sent Moscow a draft contract stipulating new market prices for Russian gas starting from Q2, 2006. Kupriyanov confirmed the receipt of the contract, but said Ukraine had not signed it.
"Naftogaz was only willing to agree to separate parameters for Q1 2006 indicated in the [new] contract," Kupriyanov said.
The price dispute between Russia's Gazprom and Ukraine would be settled when contracts on supplies and transit in 2006 have been signed, he said. Kupriyanov thereby responded to a statement made by Ukraine's national gas company Naftogaz that said Sunday it had accepted Gazprom's demands discussed December 31.
"We believe agreement will be reached when contracts to last throughout 2006 have been signed," Kupriyanov said.
In Ukraine, Prime Minister Yuriy Yekhanurov set up a special headquarters to prevent an energy crisis. Apart from the premier, it includes cabinet members and Naftogaz executives.
The HQ said public utility services and the population would be supplied with energy resources in full in any event.
President Yushchenko, for his part, said he planned to meet with foreign leaders to discuss the situation.
France and Germany said they would be able to provide their consumers with natural gas from other countries and their own accumulated reserves for some time.
The gas dispute erupted when Gazprom, which is lifting the "ring fence" from around its stock to make it available for foreigners, said it was raising prices for Ukraine.
Ukraine that heavily depends on Russian gas has resisted the decision. It argued the price hike for other former Soviet republics was considerably lower.
