Russia and Ukraine's gas dispute heats up

KIEV, Ukraine, Dec. 31 (UPI) -- Ukraine's energy concern Naftogaz said without a new contract it would confiscate Russian Gazprom natural gas intended for European customers.

The contract expires Jan. 1. A source told RIA Novosti Wednesday Naftogaz sent Gazprom a letter which said "unless gas transit and supply terms are agreed in the near future … Naftogaz has no legitimate grounds to accept into Ukraine's gas transportation system Russian natural gas and move it via Ukraine's customs border."

Gazprom spokesman Sergei Kupriyanov called the threat "blackmail by Ukraine of Russia, as well as Western European countries."

"Informing us that transit gas could be confiscated changed the 50-50 probability to 70-30 in favor of a crisis scenario," he said.

Kupriyanov said Gazprom was willing to talk and a spokesman for the Ukrainian government said Prime Minister Yulia Tymoshenko was headed to Russia to negotiate on the matter.

Behind the conflict, Gazprom has insisted Ukraine owes a $2 billion gas bill and threatened to cut of supplies to the country.

Gazprom Deputy Chairman Alexander Medvedev said Ukraine had transferred $1.5 billion to an intermediary, RosUkrEnergo, but Gazprom had not received any money.