Ukraine says EU to be guarantor in any Russia gas deal

BRUSSELS/KIEV (Reuters) - Ukraine and the European Union have agreed that the EU’s executive arm will serve as guarantor in any agreement for Russia to supply Ukraine with gas, Ukrainian Prime Minister Arseny Yatseniuk said on Thursday.

Russian Energy Minister Alexander Novak, meanwhile, said Moscow and Kiev could sign a gas deal later in the day if all necessary documents were finalised.

EU-hosted talks to unblock deliveries of Russian gas to Ukraine will resume on Thursday, the European Commission said, as Moscow reiterated its demand for advance payment for future supplies.

Russian gas exporter Gazprom cut off supplies to Ukraine in June, citing unpaid bills.

The latest discussions, which ended in the early hours of Thursday, made no progress.

“We and the European Commission have reached an agreement that the Commission will be a virtual guarantor of Russia fulfilling its obligations regarding a fair price,” Yatseniuk told a government meeting in Kiev.

Jointly prepared documents laying down a common understanding have been prepared and are now with the governments in Moscow and Kiev for approval, a spokeswoman for the Brussels-based Commission said in a statement.

“Trilateral consultations will continue throughout the course of today (Thursday),” the spokeswoman said.

Russia’s Novak said Moscow was sticking to its demand on prepayment.

“All future deliveries during winter should be prepaid before deliveries start,” Novak told a government meeting chaired by Prime Minister Dmitry Medvedev.

Yatseniuk said Ukraine’s position in Brussels was that the price of Russian natural gas should be $378 per 1,000 cubic metres by the end of 2014 and fall to $365 in the first quarter of 2015.

An official at Russia’s Energy Ministry confirmed the figures announced by the Ukrainian prime minister, RIA news agency reported.

Yatseniuk said Kiev was ready to pay off debts for previously supplied gas immediately after any deal was signed.

A total of $1.45 billion would be paid immediately and a further $1.65 billion paid by the end of the year, he said.

EU officials say Kiev, like Moscow, is negotiating hard and that the Ukrainian government is keen to win public support for any deal.

Despite agreement on price, the amount to be supplied and the repayment of unpaid bills, Moscow wants more legal assurances that Kiev can pay some $1.6 billion for new gas up front.

Some critics of Russia question whether its motivation is financial or whether prolonging the wrangling with ex-Soviet Ukraine and its Western allies suits Moscow’s diplomatic agenda.

Ukraine is in discussions with existing creditors the EU and the IMF. German Chancellor Angela Merkel, concerned about Russian gas supplies to the rest of Europe which come via Ukraine has spoken of bridging finance for Kiev.

But Russian negotiators said they wanted to see a signed agreement on EU financing for Ukraine.

Novak was quoted by RIA as saying he had been told in the talks that Ukraine was discussing funding for 4 billion cubic metres of gas with the European Commission and the International Monetary Fund but he had seen no guarantee of it.

“This isn’t about guarantees, but only statements from the Ukrainians,” he said. “We were shown no written guarantees.”

He noted that Russia was only offering to open the taps once prepayments were made by Ukraine, whose economy is in crisis and which has a record of payment difficulties. “If there’s money, there will be gas,” Novak said.

TEMPERATURES DROP

The gas cut-off has had little impact for months. But pressure is mounting for a deal as temperatures start to drop below freezing.

European Energy Commissioner Guenther Oettinger, who has been mediating, leaves office on Friday, making way for a new European Commission.

If he cannot broker a solution, it will be down to his Slovak successor, Maros Sefcovic, who takes office on Saturday.

The two sides came close to an agreement in September, but last week differences were wide over Kiev’s ability to pay.

Weekend elections returned a pro-Western parliament in Kiev, potentially stoking tensions with Moscow, although Russia’s EU envoy, Vladimir Chizhov, said on Thursday the mood could be more relaxed now the vote had taken place.

NOT JUST MONEY

Ukraine’s Naftogaz company has set aside $3.1 billion in a special escrow account to pay the debt.

Kiev says it is working to raise more money from all possible sources of financing, including the EU. The Commission is considering Ukraine’s request, made last week, for a further loan of 2 billion euros.

Russia provides around a third of the European Union’s gas, roughly half of which is pumped via Ukraine.

Ukraine in turn relies on Russia for around 50 percent of its own gas and despite storage has a winter shortfall of around 3 billion to 4 billion cubic metres, depending on the weather.

For Russia, the gas sector contributes approximately a fifth of the national budget.

Sanctions on Russia, which EU officials decided to leave unchanged on Tuesday while the conflict in Ukraine continues, are sapping an already weak economy.

(Additional reporting by Katya Golubkova, Lidia Kelly and Vladimir Soldatkin in Moscow and Tom Koerkemeier and Barbara Lewis in Brussels; writing by Dale Hudson; editing by Jason Neely)

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