Transcript of the beginning of the meeting:

Vladimir Putin: Good evening, Mr Belyaninov, let's start with customs problems. I know that you have issued instructions to Gazprom. What was the reason for this?

Andrei Belyaninov: The Federal Customs Service of Russia pointed out that the gas, which is referred to as goods, crosses this country's border with no corresponding agreement. Apparently, we risk failing to receive currency revenues and a number of provisions are violated; as a matter of fact, these supplies are illegal.

Therefore, we had to issue Gazprom an official warning yesterday, not simply instructions. We understand perfectly well that Gazprom has fallen prey to the situation, but legally, such gas supplies are practically smuggling. As a government body, we cannot allow such a situation, which is why yesterday we issued Gazprom a warning, or caution.

Vladimir Putin: Mr Belyaninov, I understand the Customs Service's concern; different experts give various views of the situation. At the same time I would like to draw your attention to the fact that Gazprom does not supply gas to Ukraine, and consequently, its actions cannot be called smuggling, whichever way you look at it. Gazprom has nothing to do with what is happening in Ukraine. Rather, it is the transit country that is to be blamed. Therefore, I would like to discuss this situation in more detail.

Now let us move to supplies proper. Mr Miller, could you please tell us how the relations with our European partners are faring in this area?

Alexei Miller: Mr Putin, as far as supplies to our European partners are concerned, the situation is tense.

Vladimir Putin: Bulgaria's Prime Minister and Romania's President have already called me. They are of course concerned with what is going on.

Alexei Miller: Ukraine has completely terminated supplies in the Balkan direction. Russian gas supplies to Bulgaria, Romania, Greece, Macedonia, and Turkey, which lie in that direction, were stopped totally.

Vladimir Putin: But Mr Miller, does Gazprom supply Ukraine's transport export system with the necessary gas volume for our Western partners?

Alexei Miller: Yes, it does. We have optimised this volume, provided that, apart from the Ukrainian direction, we supply gas in the Yamal-Europe direction.

Gas supplies to European consumers through Belarus and Poland were maximised. The same concerns the Blue Stream, in the Turkish direction. That pipeline was loaded to the maximum. We are also taking gas from our underground gas storehouses in Europe and buying gas on the spot market to meet all demands of European consumers.

Vladimir Putin: I know. I wonder whether you supply gas for Western consumers to Ukraine's gas transporting system.

Alexei Miller: As for gas supplies to the Russian-Ukrainian border, we supply gas by taking consumer demands into account, minus the gas volume Ukraine has stolen from Russia. We do it in accordance with the order you gave yesterday.

Vladimir Putin: That gas has been stolen from Western consumers, not from Russia; it is they who have bought and paid for these goods.

Alexei Miller: You are absolutely right; gas is being stolen from Western consumers, who do not receive it. Supplies to consumers in Central and Western Europe are still carried out, but as far as the Balkan direction is concerned, they have been totally terminated. As for the latest developments, we see that the volume of stolen gas increases every hour. According to recent data, Ukraine steals about 15% of the gas supplied to the Russian-Ukrainian border. Naturally, if Ukraine completely blocks gas supplies in the Western direction, to consumers in Central and the Western Europe, we will consider supplying gas to the Russian-Ukrainian border to be pointless.

Vladimir Putin: So, Gazprom fills Ukraine's gas transporting system, but Kiev has zeroed out gas output in some directions.

Alexei Miller: Yes, it has. This gas vanished in Ukraine.

Vladimir Putin: Mr Miller, I asked you to contact European bodies to inform them about the developments in our relations with Ukraine. Have you done it?

Alexei Miller: Yes, Mr Putin, your commission was executed - we have scheduled a meeting with our European partners in Brussels on January 8.

Vladimir Putin: In the European Commission?

Alexei Miller: Yes. And in the European Parliament.

Vladimir Putin: Good. Then I would like to ask you to take all necessary documents, including agreements. We have nothing to hide; it is not a classified document. Take the transit agreement and show it to our European partners.

Alexei Miller: Yes, we will.

Vladimir Putin: Mr Miller, we have touched upon the Balkan states, where Ukraine ceased to supply gas. Will you please remind me the average price of our gas for these countries in the first quarter of 2009?

Alexei Miller: For the countries bordering on Ukraine, the price amounts to some $470 for one thousand cubic metres in the first quarter.

Vladimir Putin: And what price did you offer our Ukrainian partners?

Alexei Miller: We offered our Ukrainian partners a very lucrative price - $250 dollars for a thousand cubic metres.

Vladimir Putin: They rejected your offer, didn't they?

Alexei Miller: Yes, they did. And they unilaterally broke off negotiations.

Vladimir Putin: How do our European partners react to such gas price disparity, given that gas is the basic raw material for a number of industries?

Alexei Miller: Our European partners say that pricing terms for Ukraine as lucrative as $250 dollars for one thousand cubic metres are illogical, and we share their opinion.

Vladimir Putin: What is, in your view, the outlook for the negotiation process?

Alexei Miller: Naftogaz of Ukraine CEO Oleg Dubina called me today to notify me that he plans to arrive in Moscow for negotiations on January 8. We are surprised to see such a position of Naftogaz of Ukraine, since the state of affairs in Russian gas transit through Ukraine is really dramatic. It is unclear why Naftogaz of Ukraine prefers to watch the current situation from the outside for two days instead of conducting negotiations.

We are eager to continue talks. I would like to remind you that the Ukrainian party broke off negotiations on December 31 and has not returned to the negotiating table yet.

Vladimir Putin: Thank you.