Russia, Ukraine to hold gas crisis talks as deadline looms

Mon Jun 9, 2014 9:41am EDT

* Russia had set Tuesday deadline for payment

* Gazprom says Kiev owes more than $5 billion

* Ukraine, Russian presidents met last week

By Barbara Lewis and Martin Santa

BRUSSELS, June 9 (Reuters) - Ukraine and Russia will try to avert a gas war in last minute talks on Monday, brokered by the European Union in the hope of preventing supply disruptions and taking the heat out of the conflict in eastern Ukraine.

Russia has threatened to cut off gas supplies to Ukraine on Tuesday if it does not pay bills that rose sharply after popular protests toppled a pro-Moscow Ukrainian president in February. Moscow has since annexed Crimea from Ukraine and pro-Russian rebels are fighting security forces in the east.

The talks follow a tentative rapprochement last week when newly-installed Ukrainian President Petro Poroshenko and Russia's Vladimir Putin met in France at commemorations of the World War Two D-Day landings.

The Commission, the EU executive, announced at the weekend that Russian Energy Minister Alexander Novak, Ukrainian Energy Minister Yuri Prodan and the CEOs of Russia's Gazprom and Ukraine's Naftogaz would attend talks in Brussels, brokered by Energy Commissioner Guenther Oettinger.

Scheduled to start at 7 p.m. (1700 GMT) on a public holiday in much of Europe, the negotiations follow four previous rounds of trilateral talks as well as bilateral conversations between the two CEOs.

Oettinger said a week ago there had been progress and his "request and expectation" was that a deal could be agreed to ensure uninterrupted gas supplies until June next year, which would take Europe beyond the critical peak winter demand period.

The European Union gets roughly a third of its gas imports from Russia, and almost half of that is sent via Ukraine, meaning that if Gazprom cuts off gas to Ukraine, the EU could also suffer from disrupted supplies.

DESIRE FOR COMPROMISE

Poroshenko's swearing in as president this weekend has raised hope the wider conflict may ease, although fighting is still intense in the separatist east of the country.

Analysts say both sides are anxious for a compromise, even if Monday's talks stop short of solving all the issues.

"It is clear that the Russians really want a resolution without a crisis," Jonathan Stern, chairman of the Natural Gas Research Programme at the Oxford Institute for Energy Studies, said.

If EU officials could persuade Kiev to use some of the billions of international aid money provided by the EU, the IMF and the United States to at least partly reduce its debt to Moscow, Stern predicted talks could continue and the immediate threat of a cut-off would pass.

Russia gave Ukraine an extra week to clear its debts after it paid a first instalment of $786 million a week ago.

Kiev says it cannot afford the amount now demanded by Russia and wants to pay the lower price that it negotiated in the past.

Details of the price negotiations are a closely guarded commercial secret. Oettinger has said only that the price being considered was less than the $485 per 1,000 cubic metres Russia has demanded and more than the $268.50 Kiev is seeking.

While the dispute has gone on, Gazprom has continued billing Kiev at the higher rate. It says Ukraine owes it $4.46 billion in unpaid bills and is running up more debt at a rate of more than $1 billion per month.

Attempts to settle the gas row are complicated by Russia's determination to press ahead with its giant South Stream pipeline, which would deliver gas straight to the European Union, bypassing Ukraine.

The European Commission says South Stream breaks EU law on competition and asked Bulgaria to halt work on its section of the project, prompting Russia on Monday to accuse the EU of imposing "economic sanctions by stealth". (Editing by Philippa Fletcher)

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