A new row over gas supply payments burst into the open on the eve of Ukrainian President Viktor Yushchenko's visit to Russia, threatening to complicate attempts to consolidate ties between Moscow and Kiev.
The pro-Western leader's talks with outgoing Russian leader Vladimir Putin in Moscow, which he visits on Tuesday, will also expose the growing differences he has with Ukraine's Prime Minister Yulia Tymoshenko.
The rare talks between the presidents of two Slav nations that once formed the backbone of the Soviet Union were to have focused on strategic issues. But a sudden new threat by Russian gas giant Gazprom to cut gas over payment arrears is certain now to take centre stage.
"Gazprom is flexing its muscles ahead of President Yushchenko and Prime Minister Tymoshenko's planned visits to Moscow," said Alexander Burgansky of Moscow-based Renaissance Capital brokerage.
"We do not believe the current stand-off should lead to any supply cuts to Europe and expect the matter to be swiftly resolved." A row over gas supplies between the two countries in 2006 disrupted supplies to parts of western Europe.
Gazprom says it will cut off some supplies from Monday if what it describes as arrears of $1.5 billion are not paid by Ukraine's state energy firm Naftogaz which says it owes nothing.
"The Russian side is using all its might to try to drive Naftogaz, and Ukraine, into a corner," Naftogaz head, Oleh Dubyna, told the weekly Zerkalo Nedeli. "And all this is happening right before President Yushchenko's visit to Russia."
This year's contract, negotiated before Tymoshenko returned to office in December, set the gas price at $179.50 per 1,000 cubic metres, a 38 percent rise but still lower than most nearby countries.
Tymoshenko, due to visit Moscow on February 21, says intermediaries in the supply system are to blame for rising prices and wants them removed. But Yushchenko urges caution against this, saying Ukraine enjoys the region's most favourable terms for gas. "He's been fairly clear that it's the best deal in town. I'm not sure what he could actually do. Russia says it has a cast- iron contract," said Tim Ash of Bear Stearns brokerage.
LOW PRICE FOR THE REGION:
With the brief cut-off of 2006 fresh in everyone's minds, gas supply talks and the price to be paid have become a major event in Ukraine.
Both president and premier treated the latest row with public calm. But Yushchenko told Tymoshenko swiftly to produce measures for steady supplies. He was clear over what lay behind Russia's threat-Tymoshenko's demand to do away with intermediaries and for talks to charge Gazprom more to ship its gas west through Ukraine.
"The Ukrainian gas market is becoming politicised," he told a television interviewer. "The general discussion should not focus on whether we are receiving gas from an intermediary or not."
Tymoshenko was fired after seven months in office in 2005 amid major differences and worsening relations with Russia. She and the president have vowed this time to work in tandem, and to build good ties with Moscow, but cracks have reopened six weeks into her new mandate.
In addition to criticising her calls to overhaul gas supplies, Yushchenko has chided her over the selloff of regional energy companies and her handling of affairs at the state savings bank and the privatisation agency. An energy expert at Kiev's Razumkov Centre think tank said a longer-term solution would come from within Ukraine.
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