WRAPUP 2-EU, lenders cite progress in Ukraine gas talks

* EU, lenders see progress in possible financing

* Support for gas purchases dependent on reforms

* Ukraine's gas storage needs put at $2 bln - source

(Releads with statement after talks)

By Pete Harrison

BRUSSELS, June 29 (Reuters) - International lenders and the European Union reported good progress in talks with Ukraine and Russia on Monday over possible loans to help Kiev pay for Russian gas and avert a new crisis that could cut off supplies to Europe.

Ukraine transports the bulk of Russian gas supplies to Europe and is seeking $4-5 billion in funds to build stockpiles of gas before winter, when demand rises by a third.

But Ukraine's political leadership is badly divided and Kiev's relations with former Soviet master Moscow are tense, increasing European leaders' fears that Russia could halt gas supplies to parts of Europe, as in January.

"The participants made good progress in identifying the key issues of concern and elements for possible solutions including possible financing arrangements," the European Commission and international lenders said in a joint statement.

"The international partners emphasised that further support to facilitate gas purchases would be conditional upon continuing reform of the (Ukrainian) gas sector," they said, adding that further contacts were planned in the coming weeks.

The talks included officials from the International Monetary Fund, European Commission, European Bank for Reconstruction and Development, European Investment Bank, Russian gas export monopoly Gazprom (GAZP.MM) and Ukrainian energy firm Naftogaz.

But banks are wary of pouring money into the state-owned gas company without assurances it will be radically restructured to cope with Ukraine's severe economic crisis.

A source in the talks said participants had identified a need to secure 8-10 billion cubic metres of gas, worth some $2 billion, for winter storage. It was not immediately clear what implications that had for the total amount of funding being sought by Ukraine.

"I hope they (banks) will work intensively and will not create any unnecessary preconditions, but conditions are always necessary for finance," said Gazprom export chief Alexander Medvedev.

A power struggle between Ukrainian Prime Minister Yulia Tymoshenko and President Viktor Yushchenko and a presidential election set for January could make agreement on Naftogaz hard to reach in the country that is strategically positioned between Europe and Russia.

MONTHLY FEARS

Ceyla Pazarbasioglu, the IMF's mission chief to Ukraine, said political consensus was important on how to make Naftogaz more transparent and improve its finances. [nN26355292]

"For us, it will be key to have consensus on how to address (Naftogaz's) problems and to have a time-bound action plan," said Pazarbasioglu, who was attending the Brussels meeting.

Naftogaz deputy chief Ihor Didenko dismissed calls for better transparency from his company.

"People who talk about transparency don't even read our book-keeping records. Let them go to our site and look at how transparent each annual report from (accountants) Ernst and Young is," he said.

Concerns are growing about Ukraine's ability to pay monthly bills for its own domestic gas needs. The next is due on July 7.

Ukraine expects a bill of about $300 million for June imports of 1.1 billion cubic metres of gas, and Yushchenko's energy envoy said last week about $120 million of that would have to be borrowed.

Gazprom, which has also been hit by the recession, has said it is confident Ukraine will pay its bills for June consumption, but EU gas experts predict increasing problems as it ramps up the amount of gas it puts into storage as winter approaches.

About 19.5 billion cubic metres has already been stored, and a further 9 bcm could be needed for storage before the winter, an EU official said, citing Russian sources. (Additional reporting by Daniel Fineren and Lesley Wroughton, Writing by Pete Harrison, Editing by Richard Balmforth)