Moscow/Kiev  - Russian export monopoly Gazprom on Wednesday accused its Ukrainian counterpart of planning to siphon off gas meant for European clients. It was the latest twist in a row over money Ukraine owes to Russia for gas deliveries.

Ukrainian official were in last-ditch talks in Moscow Wednesday ahead of a promised New Year's cut-off of gas deliveries by Gazprom over a 2-billion-dollar debt.

Gazprom chairman Alexander Medvedev said the threat was made in an official letter from Ukrainian state gas company Naftogaz. He produced a copy of the letter at a news conference in Moscow on Wednesday.

"It is impossible to view the letter as anything less than blackmail," Medvedev told journalists in the televised conference. "This puts us in a situation when transit volumes to western Europe are in danger."

He said the move undercut Ukraine's credibility as a gas transit partner and violated its contracts for shipping on gas supplies to Europe.

Europe receives roughly one-quarter of its natural gas from Russia, over 80 per cent of those supplies are exported via Ukrainian pipelines.

Ukraine during a 2006 Russian natural gas cut-off siphoned some of the Russian gas destined for Europe, causing price spikes as far away as Paris.

The current gas supply agreement between Russia and Ukraine runs out at the end of 2008. Ukraine in both 2006 and the present stand off used Gazprom sensitivity to loss of income from gas sales in Europe as a lever to negotiate better terms for Russian gas delivered to Ukraine.

Gazprom spokesman Sergei Kupriyanov called the present situation "unprecedented" and said Naftogaz's position made the chances of reaching a deal before midnight highly unlikely.

"This letter raises the chances of the situation developing into a crisis scenario to 70 per cent," he said.

Gas cuts to Ukraine would start at 10 am (0700 GMT) January 1, if a new contract for gas supplies to Ukraine was not signed by the end of Wednesday, Kupriyanov said.

An announcement by Naftogaz earlier that it had transferred 1.5 billion dollars to middle-man gas trading firm Rosukrenergo for the settlement of its debt had looked to be a breakthrough in talks.

Medvedev confirmed that the money had reached Rosukrenergo, a Russian-Ukrainian intermediary based in Switzerland, adding he hoped it would soon be fed to Gazprom's accounts. Rosukrenergo is owned 50 per cent by Gazprom and 50 per cent by a consortium of Ukrainian businessmen.

Ukraine's government, led by Prime Minister Yulia Timoshenko, required state-owned banks, Oshadbank and Ukreksimbank, to loan the funds necessary to cover the debt. Tymoshenko has criticised the funneling of gas payments through the middleman Rosukrenergo, and called for direct settlements between Gazprom and Ukraine in he future.

Russian and Ukrainian negotiators had reportedly made some progress by late Wednesday afternoon, with Russia offering Ukraine a 2009 fixed gas price of 250 dollars per 1,000 cubic litres, according to an unconfirmed Rosbizneskonsalting news magazine report.

The number is close to Ukraine's original 200 dollar initial negotiating number. Gazprom officials earlier this week had demanded Ukraine pay 418 dollars, a price dismissed by Ukrainian officials as "impossible."

But Russian negotiators have said they will not consider any gas agreement for 2009, until Ukraine settles its bills for 2008.

The Wednesday news of Ukraine's 1.5 billion dollar payment to Rosukrenergo was seized on by Kupriyanov as proof that Gazprom was in the right all along - after months of the Ukraine disputing the size of its debt.

The Russian company claims it is owed more than 1.5 billion dollars for gas exports for November and December, and another 500 million dollars in late fees.

Ukrainian energy officials however were pitching the transfer as a good faith payment to make sure gas supplies to Europe continue uninterrupted. The size of Ukraine's debt to Russia, applicable late fees, and gas delivery terms for 2009 are all issues subject to negotiation, they said.

Gazprom has warned European clients of possible shortages and disruptions to supplies in this, the fourth gas dispute between Moscow and Kiev in as many years.

Ukraine's Wednesday warning to Gazprom was an upping of the ante, marking the first time the Ukrainians had formally warned the Russia gas volumes to Europe would be siphoned in case of a flow reduction or cut off. (dpa)