Russia, Ukraine take gas row case to Europe

MOSCOW/KIEV (Reuters) - Russia and Ukraine argue their case to Europe on Thursday in a gas price dispute that has choked off energy supplies to EU countries beset by bitter winter weather.

Russian President Dmitry Medvedev told Ukrainian leader Viktor Yushchenko gas supplies had become hostage to squabbling in the Kiev leadership. Russia would insist that Ukraine, which has enjoyed low-price deliveries since the collapse of the Soviet Union, pay full market rates.

"There will be no discounts or preferences for Ukraine," Medvedev said.

The apparent tone of the Wednesday evening telephone conversation reflected broader tensions between Kiev and its former Soviet master in Moscow. Yushchenko's efforts to join NATO are bitterly opposed by Moscow and viewed with wariness even by European members of the alliance and by investors.

The Czech EU presidency said on Wednesday the heads of the Russian state gas export monopoly Gazprom and Ukraine's Naftogaz would meet Czech Trade and Industry Minister Martin Riman and EU Energy Commissioner Andris Piebalgs.

They would try to broker an accord on an EU mission to monitor the flow of Russian gas through Ukraine destined for Europe. Each side accuses the other of responsibility for a cut-off in supplies to Europe that has renewed concerns there over dependency on Russian gas supplies.

The meeting would also allow the two gas executives, Gazprom's Alexei Miller and Naftogaz's Oleh Dubyna, to plead their case in the dispute.

Naftogaz said Dubyna might hold bilateral talks with Miller.

Gazprom fully suspended supplies of transit gas toward Ukraine on Wednesday after accusing Kiev of tapping it in place of deliveries to Ukraine cut by Moscow in the pricing dispute.

France called on both sides to meet their obligations.

CHALLENGE FOR EUROPE

"The prime minister believes the current situation represents a challenge for all of Europe," a statement released by the office of French Prime Minister Francois Fillon said.

"The European Union must with force call on Russia to respect without delay its undertakings to supply the amounts destined for Europe, and on Ukraine to guarantee the free transit of gas through its territory."

European Commission President Jose Manuel Barroso suggested Ukraine would undermine its own campaign to draw closer to the EU if it impeded deliveries.

The row over gas prices and debts owed by Ukraine to Russia cut heating to tens of thousands of households in Bulgaria and hit supplies as far west as France and Germany as Europe faced freezing mid-winter temperatures.

Underlying the gas dispute are broader tensions between Russia and a southern neighbor still seeking to move from the shadow of its former imperial master. Relations with Russia have become a major bone of contention between President Yushchenko and his political rival, Prime Minister Yulia Tymoshenko.

Gazprom said it was increasing supplies to the European Union and Turkey via other routes. Despite those measures, the dispute cut Russia's supplies to Europe -- which depends on Moscow for a quarter of its gas supplies -- by half.

The reduction in supplies started on January 1 when Russia reduced gas volumes to Ukraine, and has been sharper and more prolonged than a similar disruption in January 2006.

The euro zone's major economies have escaped significant economic repercussions, but France has reported a drop in supplies and an Italian industry ministry spokesman said Italy has begun tapping its stockpiles of natural gas.

Eastern and Central Europe have borne the brunt of the row, with the Slovakia-based factories of French carmaker PSA and Korean Kia Motors saying they would stop production on Thursday.

Bulgaria said it was cutting back or suspending supplies to industrial users and at least 45,000 Bulgarian households went without central heating on Wednesday. Schools were shut and some companies were closed.

(Additional reporting by Mark John in Brussels, Robin Paxton and Amie Ferris-Rotman; writing by Ralph Boulton; editing by Jon Boyle)