The Wall Street Journal

INTERNATIONAL FINANCE: RUSSIA FUMES OVER GAS BILL FROM UKRAINE

Reuters News Service

8 April 2009
 
MOSCOW -- Russia threatened to fine Ukraine for failing to buy enough
natural gas in the first quarter, increasing pressure on its neighbor at
a time when the World Bank said Kiev's economy was contracting fast.

Alexei Miller, chief executive of Russia's state-run gas giant OAO
Gazprom, said in an interview that the corporation was in talks with its
Ukrainian counterparts regarding possible sanctions over
lower-than-agreed-upon gas imports.

"We are discussing this with our Ukrainian colleagues. This is spelled
out in our agreements," he said.

The threat dealt a further blow to Ukraine, which is facing anger
sparked by the authorities' handling of the economic crisis and
political wrangling over the date of the next presidential election.

Gazprom had previously said it wouldn't impose fines, in recognition of
Ukraine's dire financial plight.

Russia's apparent rethink comes after Ukraine's leaders -- squeezed
between traditional loyalty to former Soviet master Moscow and a desire
to move closer to the West -- angered the Kremlin by signing an
agreement in Brussels to overhaul Ukraine's aging pipeline network.

Adding to Kiev's woes, the World Bank predicted on Tuesday Ukraine's
economy would contract 9% this year, rather than the 4% it had forecast
before. Things could get worse, it added.

"We . . . still see downside risks to this forecast should the external
environment deteriorate further and/or the authorities delay critical
anticrisis steps," the bank said.

The World Bank also predicted that inflation, fueled by a big
devaluation of the hryvnia currency, would spiral to 16.4% this year
against an earlier forecast of 13.6%.

Inflation last year was even higher at 22.3%.