Putin Accuses Ukraine Of Forcing Crucial Gas Talks Into A 'Dead End'

Russian President Vladimir Putin accused Ukraine on Wednesday of forcing gas talks into a “dead end” by rejecting a price cut offer made amid a row threatening supplies to the rest of Europe.

As Kiev demanded contract changes to lower the highest prices in Europe for Russian gas supplies, Moscow also dug in its heels, suggesting its proposed price cut of about one-fifth to around $US385 per 1,000 cubic metres was its final offer.

The dispute is part of a broader stand-off between Ukraine and its former Soviet master, as Kiev’s new West-leaning leadership struggles to contain a pro-Russian separatist rebellion in its eastern provinces.

Arguments over what Russia charges for its gas have rumbled on for years and led to supply cut-offs in 2006 and 2009.

Putin, meeting his government outside Moscow, said Russia had offered a discount of $US100 per 1,000 cubic metres by removing an export duty. That would roughly bring it in line with the price paid by other European consumers.

“The reduction is too little for our Ukrainian partners, they want more, although it’s not clear on what basis,” he said. “If this is the case, then it seems that the issue is being driven into a dead end.”

The latest crisis flared with the overthrow of Ukraine’s Moscow-leaning president Viktor Yanukovich in February, after which Moscow annexed its neighbour’s Crimea region and nearly doubled the price Kiev has to pay for gas.

Russian gas exporter Gazprom had been charging a preferential rate as part of Moscow’s effort to keep Ukraine from drifting into the orbit of the European Union.

“Russian Traps”

Earlier on Wednesday, Ukrainian Prime Minister Arseny Yatseniuk made clear at a cabinet meeting that Kiev rejected Russia’s offer to lower gas prices by removing the export duty, a measure that would not be written into the contract and was therefore at the whim of Moscow.

“I want to say that we know these Russian traps. The discount is set by the Russian government and cancelled by the Russian government,” he said. Ukraine instead wants to change a 2009 contract that locked it into buying a set volume of gas, whether it needs it or not, at $US485 per 1,000 cubic metres. The average gas price for Europe was about $US387 per 1,000 cubic metres last year but Gazprom has given no current figure.The European Commission, the EU executive, has taken on the role of brokering trilateral price talks, but five rounds have failed to secure a deal.

Arriving for Wednesday’s talks at the European Commission in Brussels, EU Russian envoy Vladimir Chizhov hinted that Ukraine was the obstacle.

“These negotiations stand a good chance of success, but this particular tango takes three,” he said. Asked who was out of step, he said: “No prizes for guessing.”

Negotiators hope Wednesday’s talks between the countries’ two energy ministers, the Commission and the CEOs of Gazprom and Ukraine’s Naftogaz will build on progress made in talks that broke up in the early hours of Tuesday in Brussels.

Gazprom extended until Monday a deadline for Kiev to switch to prepayment or face a supply cut-off, but it was not clear if the longer negotiation time improved prospects for a deal.

Knock-on Disruptions

If supplies are cut to Kiev, there could be knock-on disruptions to the European Union as roughly half of the gas it receives from Russia – about 30 per cent of its gas demand – is shipped via Ukraine.

The talks between Russia, Ukraine and the European Commission have been going on while Kiev,Moscow and the Organisation for Security and Cooperation in Europe discuss peace proposals put forward by Ukraine’s new president, Petro Poroshenko, to settle the armed stand-off in the east.

Those talks have produced what Kiev says is a mutual understanding on key aspects of the peace plan, intended to end the insurgency by rebels who want parts of Russian-speaking eastern Ukraine to joinRussia.

Analysts say resolving the gas row would go some way to taking the heat out of the wider conflict.

Moscow dropped Ukraine’s gas price from $US485 per 1,000 cubic metres to $US268.50 after then-PresidentViktor Yanukovich turned his back on a trade and association agreement with the EU last year, but reinstated the original price after he was ousted.

Moscow says Ukraine has stacked up more than $US4 billion in debts to Gazprom and must pay off some of that before a new price deal can be reached.

Kiev paid off $US786 million at the start of last week but has since said it will only pay more when an overall deal is struck.

(Additional reporting by Natalia Zinets, Pavel Polityuk and Timothy Heritage in Kiev, and Elizabeth Piper and Vladimir Soldatkin in Moscow, Editing by Tom Heneghan)

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This post originally appeared at Reuters. Copyright 2014. Follow Reuters on Twitter.

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