CORRECTED - WRAPUP 9-Russia: gas talks fail, will cut off Ukraine

Wed Dec 31, 2008 9:32pm GMT

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(In fourth paragraph, makes clear last cut-off to Ukraine was three years ago, not two)

* Ukraine's gas to be cut at 0700 GMT on Thursday

* Russia says will maintain European supplies

* Europe has stocks to ride out crisis - analysts

* Ukrainian negotiators leave Moscow

By Vladimir Soldatkin and Guy Faulconbridge

MOSCOW/KIEV, Dec 31 (Reuters) - Russia said on Wednesday it will switch off gas supplies to its neighbour Ukraine on New Year's day, a step that could have a knock-on effect on deliveries to the European Union.

European states have enough reserves to manage without Russian supplies for several days, but the cut-off could inflict new damage on Moscow's standing as a reliable energy partner for the West and hurt a Ukrainian economy that is in deep trouble.

Alexei Miller, head of Russian gas export monopoly Gazprom (GAZP.MM), said several days of talks with Ukrainian officials had failed to settle a dispute over unpaid gas bills and the price at which Ukraine will buy Russian gas next year.

European states depend on Russia for a quarter of their gas and most of it is shipped in pipelines that run across Ukraine's territory. A previous Russian cut-off to Ukraine three years ago briefly disrupted supplies to other parts of Europe.

"From 10 a.m. (0700 GMT) on Jan. 1, Gazprom will completely, 100 percent, cease gas supplies to consumers in Ukraine," Miller told a news conference at the company's headquarters in Moscow.

He said Russia would honour its obligations to supply European customers with gas and said Ukraine should take full responsibility for causing the crisis.

"We have the impression that there are political forces in Ukraine which are very much interested in having a gas conflict between our two countries," Miller said.

In Kiev, a spokesman for state energy firm Naftogaz said the Ukrainian delegation had left Gazprom headquarters in Moscow and was returning to Kiev. He gave no further details and declined to comment on the talks.

Russia says the cut-off does not apply to shipments to Europe, but there could be a knock-on effect if it causes a drop in pressure in the transit pipelines or if Kiev halts flows to Europe to use as a bargaining chip in its dispute.

European states are anxious to avoid a repeat of what happened in January 2006 when, during a similar row, Moscow cut off supplies to Ukraine, causing a brief fall in gas pressure for some European consumers.

Germany's E.ON (EONGn.DE) and BASF BASF.DE and Italy's ENI (ENI.MI) are among the biggest customers for Russian gas.

Countries in eastern and central Europe are likely to feel any disruption first because they are closer to the potential bottleneck in Ukraine.

Though Russia says its row with Ukraine is purely commercial, Moscow has in the past been accused of using energy to blackmail its neighbours and it has been fiercely critical of the drive by Ukraine's pro-Western leaders to join NATO.

Russian Prime Minister Vladimir Putin -- who sparred with Kiev on several occasions in his previous job as Russian president -- launched a scathing attack on Wednesday on Ukraine's leaders.

He said they snubbed an offer to buy gas in 2009 at the below-market price of $250 per 1,000 cubic metres, alleged Kiev would halt Russian gas supplies to Europe, and said they had brought Ukraine to the verge of economic collapse.

"The situation in Ukraine is aggravated by the fact that a fight between different clans is having a negative impact on the economy," Putin said at a televised meeting with President Dmitry Medvedev.

That appeared to be a reference to the bitter rivalry between Ukrainian President Viktor Yushchenko and Prime Minister Yulia Tymoshenko.

Some Western analysts say Moscow may be trying to undermine Yushchenko's presidency in favour of Tymoshenko, who is seen in Moscow as a less awkward partner.

Both Moscow and Kiev have much at stake in the dispute. Ukraine's hryvnia currency has suffered steep falls this month despite a loan from the International Monetary Fund, and the row with Russia could further hurt investor confidence.

Russia -- already viewed with suspicion in the West after its war with Georgia in August -- has also been hit hard by the global slowdown and does not want to forfeit its lucrative position as Europe's biggest gas supplier. (Additional reporting by Pavel Polityuk and Sabina Zawadzki in Kiev and Dmitri Zhdannikov in Moscow; Writing by Christian Lowe; Editing by Kevin Liffey)

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