Deal to restore EU gas supplies from Russia suffers late setback

A deal that would have restored the flow of Russian gas to Europe was on the brink of collapse last night, only hours after it was signed.

The agreement between Russia and Ukraine, who are disputing Ukraine's payments of bills and fines to the Russian gas company Gazprom, appeared to have broken the deadlock that has caused crucial energy shortages in 18 countries in the depths of winter.

On Wednesday, Gazprom, the largest provider of gas to EU members, turned off all supplies that run through pipelines in Ukraine. Russia fears that Ukraine has been siphoning off gas paid for by other countries.

Hundreds of thousands of families in countries including Bulgaria, Serbia and Bosnia-Herzegovina have been struggling without heating in sub-zero temperatures. In what was hailed as a diplomatic coup, the Czech government, which holds the EU presidency, brokered a deal that would have enabled supplies to restart using monitors to ensure that gas was not stolen.

But last night the Russian President, Dmitry Medvedev, said Ukraine had added "unacceptable" conditions and the deal was now "null and void". "I cannot call such stipulations and additions [anything] other than a mockery of common sense and violation of earlier achieved agreements," he added. "These actions, in fact, aim to disrupt the existing agreements on monitoring gas transit and are clearly provocative and destructive. I therefore order the government not to implement the document."

However the Czechs, insisted that a Ukrainian declaration which included the modifications had no effect on the deal. "According to the Czech presidency, a unilateral statement of Ukraine, which we have received this afternoon, does not change the validity of the agreement signed by the European Commission, the Russian Federation and Ukraine on the monitoring of the transit of Russian gas via Ukraine," the presidency said.

"The European Commission has fulfilled its part of the agreement concerning the deployment of monitors sending them to all agreed posts. The Czech presidency calls upon all parties to the agreement to fulfil their obligations."

The commercial dispute over gas prices has played out against a background of broader tensions between Ukraine, which wants to join Nato, and its giant neighbour to the north. The EU, which receives a fifth of all its gas through Ukrainian pipelines, has found itself playing arbiter in a bitter power struggle between the two ex-Soviet states still acting out a separation.

A copy of the monitoring agreement had the handwritten words "with declaration attached" next to the signature of the Ukrainian government's representative. The declaration stated that Ukraine had not siphoned off any gas while in transit and that it had no outstanding debts to Gazprom.

It said Russia had to supply volumes of "technical" gas, at no cost, to Ukraine to maintain pressure in the pipeline system – a demand Gazprom described as "an attempt to legalise the theft of gas".

Gazprom claimed that Ukraine was demanding 21 million cubic metres of technical gas a day – enough to meet the daily needs of a country like Austria. "Ukraine has again taken a destructive position," Gazprom said.

Even when the deal appeared to have been reached, it was clear that the central cause of the dispute remained unresolved. Some senior EU officials had questioned the Czech Republic's ability to broker a deal, saying its representatives might lack the necessary diplomatic clout. The Czechs blundered as soon as France handed over the baton of the rotating EU presidency, when a spokesman described Israel's strikes on Gaza as "defensive" in a gaffe that triggered global fury.

The Czech efforts to get the EU to broker a Gaza ceasefire were then steamrolled by the French President, Nicolas Sarkozy, who is determined to keep France at centre stage. He flew out on a peacekeeping tour timed to coincide with the EU delegation.