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Gas Impasse

GAS IMPASSE. Here's what the Gazprom halt could mean for Ukraine:

* Ukraine has plenty of stored gas. Naftohaz says it has 17 billion cubic meters (bcm) in storage, 22 percent of Ukraine's annual consumption; it says intermediary RosUkrEnergo has a further 11 bcm.

* Higher gas prices would be negative for current account, closely watched by investors after the hryvnia suffered steep falls in the recent months against major currencies. Higher gas prices would add pressure on the hryvnia.

* A gas price hike could hit the profits of major industries, although Ukraine actually needs less gas now as the economic crisis has reduced industrial energy consumption by 25 percent. Many of the country's biggest metals producers -- the drivers of Ukraine's economy -- use coal instead of gas.

* Price hikes would strain Naftohaz finances even more in a year in which it has to repay a $500 million Eurobond. The company avoided technical default on the bond in late December when it published its 2007 audited accounts -- a condition of the bond. Default would lead to far more expensive foreign debt for Ukrainian companies and the state.

* Higher gas prices will eventually feed through to Ukrainian households, who are already facing rising unemployment and lower wages, though prices are subsidized heavily by the government.

* Politicians may have to take unpopular decisions, such as raising gas bills, as they gear up for a presidential election in 12 months. Yushchenko and Prime Minister Yulia Tymoshenko, at loggerheads for months, are expected to stand.

* Relations with Russia could dominate the political agenda and deflect attention away from dealing with the economic crisis.
-- Reuters