Hints of possible deal on Ukraine gas emerge at G20

WASHINGTON, April 11 Fri Apr 11, 2014 7:43pm EDT

WASHINGTON, April 11 (Reuters) - Behind statements that Russia will not budge in demanding Ukraine repay its debts for its natural gas deliveries, hints emerged at a meeting of G20 finance chiefs this week that a deal in which Moscow eases its stance might be in the works.

Financial aid to Ukraine was a hot topic at a meeting of finance ministers from the Group of 20 leading nations, but the country's gas crisis, which could threaten deliveries to Europe, topped discussions with Russia that were held on the sidelines.

Moscow, which alienated Western powers by annexing Ukraine's Crimea peninsula, this month raised the price it charges Kiev for gas and said it awaits $2.2 billion in unpaid bills.

Russian Finance Minister Anton Siluanov reiterated the Kremlin's threats that it may switch to prepaid gas deliveries to Ukraine if payments don't start coming, but between the now-standard lines he signalled some room for maneuver.

"We do not want to escalate tensions with Ukraine. We want to resolve it peacefully and neighborly," Siluanov told journalists when asked about the gas dispute.

"But it requires a decision of the Ukrainian authorities, support of the European Union colleagues. There is a need to sit down and discuss this issue. Find solutions."

The indication from Moscow that a solution was possible suggested diplomatic efforts by Germany and pressure from the United States were bearing fruit.

GERMANY, THE BROKER?

U.S. Treasury Secretary Jack Lew told Siluanov in a meeting on Thursday that Russia needed to "further participate" in international efforts to ensure a free flow of energy and trade.

Kiev gets about half of its gas from Moscow and a large proportion of Europe's gas is pumped from Russia via Ukraine's territory.

Siluanov said the talks with Lew were tense and that each stood by their own position, but he was decidedly more relaxed after meeting with his German counterpart, Wolfgang Schaeuble, with whom he said he has had "a very good relationship."

Their bosses, President Vladimir Putin and Chancellor Angela Merkel, on Friday signalled a need for a common approach.

Putin backed off from a warning on Thursday that Moscow could cut off gas to Ukraine, potentially threatening European supplies. "I want to say again: We do not intend and do not plan to shut off the gas," he said.

Merkel said the European Union wants to be "good customers and we want to be able to rely on Russian gas supplies."

The EU confirmed plans for talks between Russia, Ukraine, the EU and the United States in Geneva on April 17.

In Washington, Siluanov said Schaeuble told him he was concerned about the gas price hike Moscow imposed on Ukraine, but suggested there was willingness to work together.

"Schaeuble and others are interested in a fast resolution of Ukraine's (gas) conflict and in the country's ability to repay its obligations," Siluanov said.

As for Schaeuble, he said Russia must be a part of the solution to the whole Ukrainian crisis. "We don't want to make this difficult for Russia," he said.

The details of how Germany or other European countries could help remain unclear. Siluanov said a first tranche worth some $6 billion from an IMF and Western aid package to Ukraine could be used for gas payments.

He would not answer a question on whether Russia would then ease prices or return to discounts it had offered earlier to Kiev, saying there was a set of conditions Ukraine would first have to meet.

But he added that Moscow was not "tied" to those conditions.

NOT IN THE HOT SEAT

There had been some expectation officials from the Group of Seven developed nations, which includes Germany, would consider possible further sanctions on Russia over Ukraine at a meeting its top finance officials held on Thursday.

But the group did not mention Russia in a statement issued afterward, and Eurogroup President Jeroen Dijsselbloem said further sanctions were not discussed.

"Europe and the U.S. are prepared to look at further sanctions if necessary and we are determined we will go that way if necessary, but I think we have a strong joint interest with the Russians to stop this escalation," Dijsselbloem told Reuters.

"It is having major economic effects on Russia, it is having major political and economic effects on Ukraine, and we have to look for common ground for Europe and Russia to stabilize the situation in Ukraine," he said. "I think that is key." (Additional reporting by Gernot Heller, Jan Strupczewski and Anna Yukhananov; Editing by Tim Ahmann)