REUTERS/Aleksey Nikolskyi/RIA Novosti/Pool Russia’s President Vladimir Putin (R) meets with Gazprom’s Chief Executive Alexei Miller at the Novo-Ogaryovo residence outside Moscow, October 29, 2012.

Ukrainian state-owned gas company Naftogaz is facing another tense standoff with Russia over gas payments that threatens supplies to the rest of Europe.

On Tuesday, Alexey Miller, CEO of Russia’s own state-owned gas behemoth Gazprom, told journalists that Naftogaz had failed to pay for its March gas deliveries and threatened to terminate the contract with his Ukrainian counterparts — potentially cutting off supplies to Europe through Ukraine as early as Friday.

Something like this happened in 2006 when a Russian gas cut triggered fuel shortages in France, Italy, Germany and Poland.

According to Russian media reports he said (emphasis added):

It takes about two days to get payment from Naftogaz deposited to a Gazprom account. That’s why a delivery to Ukraine of 114 million cubic meters will lead to a complete termination of Russian gas supplies as early as in two days, which creates serious risks for the transit to Europe.

This is a big problem for both Ukraine and Europe. Austria depends on gas supplies through Ukraine for almost 15% of its energy needs, while Italy gets around 13% from the same source. Greece and France would also see their energy supply disrupted.

For Ukraine itself, a cutoff would be even more severe. Not only do Russian gas supplies account for 58% of gas consumed in the country but transit fees to Europe are also a key source of revenues for the cash-strapped government in Kiev.

In response to Miller’s comments Naftogaz has accused Gazprom of breaching an agreement struck between the two sides last October. Under the deal Naftogaz was required to pay $US2.2 billion in debt and pre-payments in exchange for 2 billion cubic metres of gas per month (at a maximum volume of 114 million cubic metres per day) from Russia.

Gazprom is also chasing a $US3.1 billion payment for past deliveries.

However, the Ukrainian side claims that instead of the 114 million cubic meters it was promised under the contract its Russian partners only delivered 47 and 39 million cubic metres on February 22 and 23. They are now refusing to pay for March deliveries.

One of the major issues is that since February 19 the government in Ukraine is no longer supplying gas to the breakaway regions of Donetsk and Lugansk, controlled by pro-Russian separatists. However, Moscow has since supplied 12 million cubic meters of gas directly to the self-proclaimed “people’s republics” and is counting it as part of the October deal.

Of course, this isn’t the first time the two sides have fallen into a dispute.

Negotiations over gas deals have proven a source of continuous friction between Kiev and Moscow in recent years. In 2006 Gazprom, Russia’s state-owned gas company, cut off supplies to Ukraine in a row over accusations that the Ukraine capital was syphoning off gas destined for European markets to supply its domestic market. The move led to shortages in France, Italy, Germany and Poland.

And Gazprom turned off the taps again in 2009 over a dispute over non-payment of debts by its Ukrainian partners. The deal brokered between then Ukrainian Prime Minister Yulia Tymoshenko and Putin to get gas flowing again in the aftermath of that crisis would ultimately cost her a sentence of seven years in prison and a bill of $US200 million.

Earlier this month Ukrainian prime minister Arseniy Yatsenyuk announced plans to spend $US1 billion to build up a strategic gas reserve in order to reduce its reliance on fuel imports from Russia.

This dangerous game of chicken, however, is unlikely to please Ukraine’s partners in Europe who have just pledged new money for the country under a $US40 billion bailout deal brokered by the IMF. Under the deal the IMF will inject a further $US17.5 billion with as much as $US10 billion coming from the US and the European Union.

However, in the past the EU has been clear that it would not allow emergency funds to be used to pay off Ukraine’s past gas bills. After all, at this stage Kiev is effectively being asked to transfer bailout funds to the country it accuses of provoking and sustaining a civil war on its territory.

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