Ukraine president aims to end domestic gas subsidy

KIEV, Feb 1 (Reuters) - Ukrainian President Viktor Yushchenko on Friday demanded an end to subsidised domestic gas prices to ensure that Naftogaz, the national gas and oil company, becomes solvent.

"The government is free to pursue any policy it wishes but things must be paid for," Yushchenko told a meeting of the National Security and Defence Council.

"Naftogaz cannot be a pension or a subsidised fund. Its accounts should not be dragged into such considerations. A line must be drawn here so that no doubt hangs over Naftogaz's reputation."

Talks were needed to restructure the company, he said, as successive governments had "left Naftogaz with billions in debts because of sweet deals in terms of pricing policy".

The financial health of Naftogaz has been in doubt since Russian gas giant Gazprom (GAZP.MM) began imposing rises in the price of gas imported by Ukraine in 2006 and all supplies were channelled through a gas transit intermediary, RosUkrEnergo.

Observers say the increases were not being passed on to consumers.

Naftogaz last month asked bondholders to give it more time to file accounts for the last financial year and avoid going into default on a $500 million bond due in 2009.

The government offered a $2.4 billion lifeline to Naftogaz in the budget approved late last year after Prime Minister Yulia Tymoshenko said the company was close to bankruptcy. (Reporting by Yuri Kulikov, Writing by Ron Popeski, Editing by Anthony Barker)