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EU 'Prepares For Worst' In Looming Russian-Ukrainian Gas Crisis

European Commission President Jose Manuel Barroso was scrambling to ensure Kyiv would meet a looming payment deadline to Russia.
BRUSSELS -- The EU was scrambling to put together an international loan package as Ukraine faced a midnight deadline for another installment of its gas debt to Russia, which has been a frequent flash point for rocky energy relations with the West.

But the president of the European Commission, Jose Manuel Barroso, said the EU itself has no money to spare and was calling on international donors to step in.

In an indication of the extent of the frustration at Ukraine's failure to meet its obligations, the European Commission last week recommended that member states begin hoarding gas in preparation for further disruptions of Russian gas supplies.

Barroso said in Brussels that he had fronted a last-minute mediation effort between Moscow and Ukraine in addition to looking for international loans to help Ukraine settle the tranche of its debt to Moscow that is due on July 7.

He made it clear that the EU would not step in with its own money and was therefore preparing for the possibility of another gas shortage next winter, saying, "Of course we are working for the best, but we are also preparing for the worst."

Deja Vu

In January, more than half of the EU's 27 member states suffered debilitating disruptions in their gas supplies when Russia turned off the taps as a result of an earlier price dispute with Ukraine.

Russia is the EU's largest outside gas supplier and 80 percent of its exports to the EU cross Ukraine.

Despite the stakes, politicians and officials in the EU say there is decreasing willingness within the bloc to extend a helping hand to Kyiv. The EU insists that Ukraine is under a contractual obligation to guarantee passage for the Russian gas it has paid for.

EU member states are also frustrated with the continual political infighting between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko. There are also suspicions of foul play in Ukraine's murky gas sector.

No Way Out?

Barroso said the EU is "doing all it can" to avoid another gas war between Ukraine and Russia. He said he is in "permanent contact" with the leaders of both countries and spoke last week with both Tymoshenko and the Russian prime minister, Vladimir Putin.

Putin had written Barroso in May suggesting the two sides "pool" credit to bail out Ukraine.

But with the July 7 deadline approaching, Barroso said the EU did not intend to do that: "[I told them] that we do not have the means within the community budget to [assist Ukraine directly]. But we continue working, and I hope, I hope -- I've told you, it is not for us to give guarantees for the financing -- but I hope a solution will be found for today's payment."

The commission president said he had held talks with the International Monetary Fund (IMF) and the European Bank of Reconstruction and Development (EBRD), as well as other international financial institutions. He said "real interest" existed among all to help Ukraine but noted there was "not yet a deal" by early afternoon.

The Long Term

Barroso said the EU was looking for a "long-term, sustainable solution."

Signs now seem to indicate that the EU is increasingly unwilling to bet on Ukraine's ability to play its part in such a solution.

Instead, the European Commission, the EU's executive arm, now recommends member states fill their gas storage facilities to capacity.

Apart from preparing the EU for supply disruptions, this would also make economic sense, as gas prices have plummeted to about $250 per 1,000 cubic meters from last year's high of around $450.

The EU is also increasingly looking for alternatives to Russian gas and its evidently unreliable transit routes.

Its bid to tap directly into the Caspian basin reserves received a boost last week when participants in the Nabucco pipeline project agreed to formally sign off on it in Istanbul on July 13.