Ukraine and Russia go to the wire over gas supply deal

Russia's state-controlled natural gas monopoly, Gazprom, said early today that Ukraine had rejected a final offer on natural gas deliveries in 2006, setting the stage for Moscow to close the taps later today.

The announcement came after a midnight deadline the Russian state-controlled gas company and President Vladimir Putin had given Ukraine to decide on what price it would pay next year.

Sergei Kupriyanov, a Gazprom spokesman, said the company had sent its Ukrainian counterpart a signed contract offering the terms Mr Putin had made hours earlier: to maintain Ukraine's current fuel price for three months if Kiev agreed to pay more thereafter. Gazprom is demanding that Ukraine pays $230 (£135) ­ more than four times the current price of $50 ­ per 1,000 cubic meters of gas. Ukraine wants that increase to be phased in gradually and says Moscow is using the gas issue to punish Kiev for its drive to join the European Union and Nato.

Mr Putin said his offer was valid only until the end of the day ­ 10 hours before the threatened cutoff at 10am today.Mr Kupriyanov's statement capped a day of conflicting statements from Moscow and Kiev.

Ukraine's president, Viktor Yushchenko, said late on Friday that the most it was willing to pay was $80. Mr Yushchenko said Gazprom was adjusting its prices according to political criteria, offering gas for $110 to friendly ex-Soviet Caucasus states and $47 to the pro-Russian regime in Belarus. "A price of $230 is unacceptable not because it is high, but because there are no economic grounds for it," he said.

Russia supplies about half of the EU's gas ­ most of which flows through Ukraine.