UPDATE 3-Russia urges order in Ukraine as gas talks begin

Wed Dec 4, 2013 8:36am EST

MOSCOW/KIEV Dec 4 (Reuters) - Russia called on Wednesday for "stability and order" in neighbouring Ukraine as the two countries held their first high-level talks since Kiev pulled out of a trade alliance with the European Union.

Prime Minister Dmitry Medvedev hosted a Ukrainian delegation led by a deputy prime minister, Yuri Boiko, that is seeking cheaper gas and financial aid to close gaping external deficits that could set off a balance of payments crisis.

Risks of a financial meltdown in Ukraine, a former Soviet state of 46 million, became acute after mass demonstrations in Kiev last weekend against President Viktor Yanukovich and his government over a decision to seek closer alliance with Moscow.

"You are having quite an active political season," Medvedev told Boiko in a meeting at his residence outside Moscow, according to the Interfax news agency.

"Of course this is an internal matter, but it is very important that there be stability and order in the country."

Russian President Vladimir Putin had threatened financial sanctions against Kiev if it signed a trade agreement with the EU last week. Yanukovich abandoned the deal at the last moment, surprising European leaders and angering domestic critics.

Ukrainian Prime Minister Mykola Azarov told his cabinet that the Boiko visit would continue a dialogue with Russia on trade and economic relations that are "very critical for maintaining and developing Ukrainian industry and economy."

The Boiko visit was clearly part of the government's plans to sketch out what the Ukrainians hope will be a 'roadmap' for future economic ties with their old Soviet master.

No immediate breakthroughs were announced but Yanukovich, who was visiting China, was expected to meet Putin soon.

Kremlin spokesman Dmitry Peskov said Putin would not meet Boiko. No date had yet been set for an encounter between the two presidents.

GAS PAYMENTS

Adding to the pressure on Ukraine, the CEO of Russian gas export monopoly Gazprom, Alexei Miller, said no deal had been reached to put off payment of any portion of Kiev's debt for gas deliveries this year.

"We are seeking options to resolve this issue, we are holding talks, but no agreements have been reached at this point," Miller said in a statement. He said Ukraine owes just over $2 billion for August, October and November.

The head of Ukraine's state-run energy firm Naftogaz, Yevhen Bakulin, had been quoted as saying on Tuesday that it had agreed with Gazprom to defer payments for the final three months of 2013 until spring.

Bakulin also said Naftogaz would pay $765 million due to Gazprom for deliveries in August.

Ukraine faces huge problems to finance a current account deficit of 7 percent of gross domestic product. Cheaper Russian gas would buy time for Kiev to find ways to meet outside funding needs estimated at $17 billion next year.

Ukraine's central bank intervened again on the currency market to support the value of the national hryvnia currency, amid concerns that its stock of foreign reserves of $20 billion will be sufficient to hold the line.

The cost of insuring Ukrainian government debt for five years rose to 1,097 basis points, near-four-year highs. Levels over 1,000 basis points are indicative of financial distress.

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