Russia, Ukraine draw closer to reaching deal on gas

MOSCOW/KIEV Thu May 15, 2014 10:53am EDT

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MOSCOW/KIEV (Reuters) - Moscow and Kiev took tentative steps on Thursday towards ending their standoff over the price of Russian gas supplies to Ukraine that has threatened to disrupt onward deliveries to western Europe.

A day after Moscow suggested price negotiations with Kiev could resume if its new leaders paid off part of their debts, Ukraine said it could give around $4 billion by the end of May but stood by a demand for a much lower rate for supplies.

Renewed talks would reduce the threat of a shut-off of Russian gas exports to Ukraine that could affect Europe, and would benefit Russia's state-controlled Gazprom, which has debts of just over 1 trillion rubles ($30 million).

Russian President Vladimir Putin urged European leaders to do more to help Ukraine through its economic crisis and to resolve the standoff over gas, repeating a threat to cut exports if Kiev fails to pay in advance for June deliveries but also the talks offer.

"The Russian Federation is still open to continue consultations and work together with European countries in order to stabilize the situation," he said in a declaration to foreign leaders.

Ukraine's deputy energy minister, Ihor Didenko, reiterated that Gazprom's price of $485 per 1,000 cubic meters was "non-market, monopoly-inflicted and unfair", adding that Kiev was coming up with proposals to avoid the gas taps being switched off.

"The Ukrainian side has clearly said that if the price of $268.5 (per 1,000 cubic meters) is fixed, then Naftogaz is ready to pay before the end of May a sum of around $4 billion," he told a news conference.

Ukraine, dependent for more than half of its gas needs on Russia, has refused to pay at the price Russia is asking, accusing Moscow of using energy supplies "politically" to punish the country for trying to break free from its influence.

Kiev says $268.5 per 1,000 cubic meters is a fair price.

Gazprom has stood firm, saying it is sticking to a 2009 contract signed by Kiev, and has threatened to cut supplies to Kiev if it fails to redeem its debt, which it says stands at $3.51 billion not including payments for June.

Moscow has twice before reduced gas supplies over price disputes, hurting supplies to Europe, which takes about half of its gas from Russia through Ukraine, at the height of winter.

SOFTENING

But Russia has signaled a slight softening of its stance, with Prime Minister Dmitry Medvedev saying on Wednesday that Moscow would start gas talks if Kiev's new leaders pay off at least part of its debts and that the price could be discussed.

Energy Minister Alexander Novak reinforced the message on Thursday, saying Moscow had never said the issue of discounts was off the table, but suggested that Europe should do more to help Ukraine pay off its debts.

"We even do not have guarantees that even if the price was set at $100 (per 1,000 cubic meters) - I fantasize - that the Ukrainian side can pay these prices because of the insolvency there," he told at an energy conference.

Analysts said a proposal similar to one made by European Energy Commissioner Guenther Oettinger for Ukraine to pay around $100 less for gas supplies could seal a deal.

"Neither side wants any disruption in supply to Europe or Ukraine. It is clear that Gazprom is ready to take off $100 to bring it down to the average European price (about $370) and then no one can accuse the company of overcharging," said Andrei Polishchuk, analyst at Raiffeisenbank.

"This will reduce the risk of write-offs over debt, and besides, Ukraine is a big consumer and Gazprom doesn't want to lose it."

Russia wants to send supplies eastwards following Western sanctions over its annexation of Crimea from Ukraine and Moscow's role in fomenting a rebellion in its neighbor's east, but it will take time to build the infrastructure to do so.

Putin will travel to China next week, hoping to sign a long-sought deal to supply it with gas. Both sides have yet to agree on price although Gazprom says the talks are now in their "final stage".

As part of the move eastwards, Gazprom said it was working on obtaining a listing in Singapore and may add the share platform in July.

"We want to have another platform on which our shares are traded," spokesman Sergei Kupriyanov said. "We are now working on the question of obtaining a listing in Singapore."

(Additional reporting by Denis Pinchuk and Olesya Astakhova, Writing by Elizabeth Piper, Editing by Timothy Heritage and Philippa Fletcher) nL6N0O12M1

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