KIEV, Oct. 29 – Ukraine is expected on Tuesday make a $500 million payment to settle the lion’s share of the remaining $729 million debt owed for Russian natural gas supplies, an official said Monday.

Ukraine needs to pay the debt in full before Nov. 1 to avert a gas supply cutoff by Russian gas giant Gazprom as had been stipulated in an agreement reached earlier this month in Moscow.

The $500 million payment will be made by Naftogaz Ukrayiny, the national oil and gas company, and would complement a $200 million payment already made by UkrGaz-Energo, a Ukrainian gas trader, on Oct. 18.

The payments are being made to RosUkrEnergo, a Switzerland-based gas trader controlled by Gazprom, while the trader later wires the money directly to Gazprom.

The transaction would leave the remaining debt owed for the Russian gas supplies at about $229 million forcing cash-strapped Naftogaz to scramble to borrow the money to make the payment before Nov. 1, analysts said.

Naftogaz on Tuesday is expected to get $500 million payment from Gazprom for transit services in the last quarter of 2007, and will immediately wire the payment towards settling the debt, Energy and Fuel Minister Yuriy Boyko said.

“Tomorrow, Gazprom will make the advance payment and we will send it back as the payment for gas,” Boyko said. “By this we will perhaps complete the payments for gas that has been stored in our underground gas tanks.”

Boyko did not elaborate on when and how will Naftogaz try to arrange the remaining $229 million to completely pay the debt.

Analysts have been questioning the company’s ability to raise the money quickly following the move by Fitch Ratings to put the company’s credit rating on watch for possible downgrade.

Fitch explained the move by the fact that Naftogaz had failed to disclose its financial results to investors holding $500 million worth of the company’s Eurobonds earlier this year.

The gas debt settlement is watched widely in Europe after Gazprom on Oct. 2 has warned the European Union that gas supplies to Ukraine, and perhaps to the EU, may be disrupted due to an emerging dispute over gas debts with Ukraine.

Gazprom moves 110 billion cubic meters of gas annually via Ukrainian gas pipelines to Europe, which is about 80% of Russia’s Europe-bound gas supplies.

The Russian officials cited the debt at more than $2 billion, of which $1.3 billion was owed by RosUkrEnergo and the remaining 929 million jointly by Naftogaz and UkrGaz-Energo.

Naftogaz’s debt was estimated by Ukrainian officials at $729 million, while UkrGaz-Energo, which is 50-50 owned by RosUkrEnergo and Naftogaz, were owed $200 million. (sb/ez)