Russia, Ukraine in new gas talks as deadline nears

By Tanya Mosolova and Yuri Kulikov

MOSCOW/KIEV (Reuters) - Top Russian and Ukrainian energy executives began talks in Moscow on Monday in an attempt to clinch a last-minute deal that would allow Kiev to receive gas after January 1 and guarantee smooth transit to Europe.

The two countries are locked in the fourth gas row in as many years over debts and prices for next year. Russian gas giant Gazprom said there was a 50 percent chance of cutting supplies from January 1 if Ukraine fails to pay its debts.

Russian Prime Minister Vladimir Putin said he discussed the problem with Ukrainian President Viktor Yushchenko during an hour-long telephone conversation on Monday.

"There is no deal yet," Putin told reporters.

Officials in both countries sounded optimistic that Gazprom

would not carry out its threat as Kiev appeared to have warmed to a non-cash solution to its debts proposed by Moscow.

"I am confident that there is a formula for a solution," Russia's First Deputy Foreign Minister Andrei Denisov was quoted by Interfax as saying. "In the end, it may be found 15 minutes before the New Year."

Gazprom's export boss Alexander Medvedev said Gazprom still hoped to sign this year a gas supply deal with Ukraine for 2009. The gas firm has said it will sign next year's agreement only after Ukraine fully pays the debt.

"We hope our proposals would be accepted and we will begin the new year with a new contract which will allow to soothe fears of population in Europe, Ukraine and Russia," he told state television Vesti 24.

Europe will be closely eyeing the dispute. It gets a quarter of its gas from Russia, most of which is transported across Ukraine, and a supply cut in January 2006 after a similar row between Kiev and Moscow, briefly affected European consumers.

The dispute is being played out as the economies of both countries grapple with the effects of the global financial crisis. Ukraine's already ailing state energy firm Naftogaz has to pay debts of over $2 billion, according to Gazprom.

Kiev is now considering a Gazprom proposal that the debt is counted against future fees that Russia pays to transport its gas to Europe, said Oleksander Shlapak, the chief economic aide to Yushchenko.

"A number of sources (from which to pay debt) is being looked at, including prepayment (for transit) for next year," Shlapak told a news conference.

"If they are really ready to give us credit, to pay for transit services, then they can set their terms," he said.

Gazprom officials said Ukraine had previously dismissed this notion.

GAZPROM WARNING

Gazprom has already warned European customers it fears Ukraine could resume what it describes as siphoning gas from transit pipelines. Kiev says it will respect all obligations and has enough reserves in underground storage to withstand a cut.

But Naftogaz said this month that if supplies are reduced it has no intention of using up its reserves to ensure Russian gas gets to European customers. It says it needs up to 7 bcm of "technical gas" to keep the pipeline in operation.

The European Union and the United States have called on both sides to quickly reach a compromise to guarantee uninterrupted supplies to Europe. In 2006 several central and southern European states were affected by the supply cut.