Ukraine facing Russian gas cutoff as negotiations fail

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MOSCOW -- Ukraine risks the cutoff of natural gas supplies from Russia after overnight talks to resolve a pricing dispute between the two countries ended without a deal less than eight hours before a payment deadline.

Ukraine must pay $1.95 billion to partially settle its debt to the Russian-owned natural gas exporter OAO Gazprom for past deliveries by 10 a.m. Moscow time today, said Sergei Kupriyanov, a company spokesman, by phone. He said the deadline won't be waived.

"The Russian side has stated that if there will be no upfront payment, it will start limiting gas," said Ukraine Energy Minister Yuri Prodan.

Russian negotiators rejected a compromise proposal by the European Union, according to EU Energy Commissioner Guenther Oettinger, who has been involved in the trilateral talks since they started in May.

The EU, dependent on Russian gas piped through Ukraine for about 15 percent of its supplies, is trying to broker a deal to maintain shipments amid the fuel payments conflict. In Ukraine, government forces and rebels claiming allegiance to Russia continue to clash in the east of the country.

"For the moment, our Russian partners didn't accept my proposal," Mr. Oettinger said. "We have no common understanding."

Under the EU's last offer, Mr. Oettinger said, Ukraine would pay its debt in installments, with $1 billion paid immediately and the rest by the year-end.

Even after the talks concluded, Andriy Kobolyev, chief executive officer of the country's national energy company, NAK Naftogaz Ukrainy, said he hopes the Russians might still accept the EU offer and waive the deadline.

Gazprom previously had extended the payment deadline for Ukraine after receiving $786 million for supplies delivered in February and March. Ukraine refused to pay the rest of its debt, demanding market-based prices, which it says would be lower than Gazprom proposed.

In April, after Ukraine's Kremlin-backed President Viktor Yanukovych was ousted in street protests, Russia rescinded a gas discount it previously had granted Ukraine. Russian President Vladimir Putin also stripped the Ukraine of a 2010 export-duty reduction that it exchanged for a lease on its Black Sea fleet's port in Crimea, which Russia annexed in March.

Tensions rose as Russia accused Ukraine's acting foreign minister Sunday of "going beyond the limits of decency" by swearing about Mr. Putin during a violent protest outside its embassy in Kiev.

Russian Foreign Minister Sergei Lavrov called for Andriy Deshchytsia to resign, and Moscow protested to Kiev about Saturday's violence, during which cars were overturned, windows broken and a Russian flag ripped up.

Mr. Deshchytsia said he had gone to the rally to try to stop it turning violent, but video footage on YouTube also showed him saying: "I am for you protesting. I am ready to be here with you and say 'Russia, get out of Ukraine.' "

"Yes, Putin is a" thickhead, "yes," he went on to say and the protesters responded by chanting the phrase.

Ukraine was ready to accept the EU proposal of a price range between $300 and $385 per 1,000 cubic meters, still above the $286.5 that the country paid in the first quarter, Mr. Kobolyev said today. Gazprom's final offer was $385, the company said last week.

Ukrainian Prime Minister Arseniy Yatsenyuk on Friday ordered the nation's authorities to prepare for the planned cutoff.

Ukraine, which relies on Gazprom for about half its gas, is able to survive without Russian fuel until the middle of September as its current gas consumption almost matches domestic output due to low seasonal demand and the stalling of production at its chemical plants in the east, according to a Concorde Capital, a Kiev, Ukraine-based investment company.

Reuters News Service contributed.

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