EU agrees to Putin's call for gas security talks

BRUSSELS Thu Apr 17, 2014 9:11am EDT

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BRUSSELS (Reuters) - The European Union told Russian President Vladimir Putin it is willing to hold talks with Moscow and Kiev on gas security as the bloc scrambles to defuse a deep political crisis over Russia's annexation of Crimea.

European Commission President Jose Manuel Barroso, replying to a letter Putin sent last week to 18 EU countries, accepted Putin's proposal for three-way talks.

"The European Union agrees on your proposal for consultations with the Russian Federation and Ukraine with regard to security of gas supply and transit," Barroso said in his reply, released by the European Commission on Thursday.

Putin warned EU leaders a week ago that Russia would cut natural gas supplies to Ukraine if it did not pay its more than $2 billion gas debt and said this could lead to a reduction of onward deliveries to Europe.

The EU has voiced outrage over Moscow's annexation of Ukraine's Crimea region and is extremely nervous about the energy implications of the conflict as Ukraine is a major transit route for Russian gas.

Russia provides Europe with roughly one third of its gas imports, some 40 percent of which flow via Ukraine, and delivers around half of Ukraine's domestic gas needs.

The transit nation's instability worsened on Thursday as Kiev reported three separatists had been killed in east Ukraine, overshadowing talks between Ukrainian, Russian and Western diplomats in Geneva to try to resolve the conflict.

WHO WILL PAY?

Some analysts say the only way for Europe to take the heat out of the crisis is for the EU to pay Ukraine's gas bills, but that is opposed by many in the bloc on the grounds it would be a direct payment to Russia, which has flouted international law.

Barroso said Ukraine's gas debts and import prices should be considered as part of a wider aid package between the EU and the International Monetary Fund.

He also said Europe was already providing support to Ukraine and rebuffed Putin's criticism the EU was to blame for Ukraine's economic and political crisis.

Earlier this month Russian gas giant Gazprom increased gas prices for Ukrainian consumers to $485 per 1,000 cubic meters from $268, prompting Ukraine's new authorities to say the rise was politically motivated and to refuse to pay.

Barroso's reply to Putin said "changes to contractual arrangements due to political circumstances run counter to the spirit of support and cooperation enshrined in your letter".

He also reiterated his wider call on Russia to respect gas contracts and said it had a duty to warn Europe before taking "any unilateral steps", such as halting supplies.

Gas supplies to the EU were disrupted in 2006 and 2009 as a result of pricing spats between Russia and Ukraine.

In response, Europe has sought to improve its energy security through improved infrastructure and requirements on member states to keep gas in storage, but it remains heavily dependent on Russian supplies.

Russia meanwhile has sought to diversify its energy shipment routes.

It has already built the Nord Stream pipeline to carry Russian gas directly to Germany and is now working on the South Stream route from Russia via the Black Sea to Bulgaria.

The European Commission says South Stream is in breach of EU law and has instead placed the emphasis on modernizing Ukraine's energy transit infrastructure.

(Additional reporting by Adrian Croft in Brussels and Vladimir Soldatkin in Moscow, editing by David Evans)

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