Ukraine, Russia tackle gas crisis as tensions spike

Ukraine and Russia went into another round of EU-brokered gas talks in Brussels Wednesday aimed at ending a months-long supply cut that threatens to hit parts of Europe this winter.

The negotiations come a day after Russia further stirred tensions with its war-torn neighbour by announcing plans to recognise polls pro-Kremlin insurgents in eastern Ukraine intend to stage on Sunday.

Speaking after meeting his Ukrainian counterpart Yuri Prodan in Brussels, EU Energy Commissioner Guenther Oettinger said he would meet with his Russian counterpart Alexander Novak before all three sat down together.

"Our common ambition is to come to an interim solution, to come to a winter package ... to solve our security of supply," Oettinger told reporters.

The commissioner said hurdles still had to be cleared, including Ukraine's unpaid bills and advance payment for new deliveries.

In an interview with German television ZDF earlier, Oettinger put the talks' chances of success at no more than 50 percent.

Several acrimonious rounds of talks have failed to resolve a dispute stemming from Kiev's refusal to pay a higher rate imposed by Moscow after the February ouster of Ukraine's Kremlin-backed president.

Russia's state energy holding company Gazprom cut Ukraine's gas deliveries in June -- the third such interruption in less than 10 years.

The cut did not immediately impact European clients that receive about half their Russian shipments via Ukraine, a former Soviet republic.

But EU nations fear that Ukraine -- its fuel supplies running low heading into the winter -- may be forced out of desperation to tap into the gas it transports westwards.

The two sides have reached a tentative price deal that would see Russia charge about 20 percent less at $385 (302 euros) per 1,000 cubic metres for the coming six months.

But there is still no agreement over Ukraine's debt repayments or how it will pay for the new deliveries.

- 'Gas deal is critical' -

Ukrainian Finance Minister Oleksandr Shlepak said Russia's refusal to budge from its demand for immediate cash payments reduced the chances of a firm agreement emerging on Wednesday in Brussels.

Analysts warned that the threat of a gas cut would hang over Europe -- further clouding its prospects for economic recovery -- until a final agreement between Moscow and Kiev is reached.

"A gas deal is critical. Until a deal has been formally agreed the risk of failure and the threat of disruptions to EU customers remain," said Chris Weafer of Moscow's Macro-Advisory consultancy.

"The issue for Moscow is who will pay both the arrears of $1.45 billion immediately and a further $1.55 billion by the year-end, and the upfront winter gas supply cost of approximately $2.0 billion."

The European Commission said last week that Kiev had requested a further 2.0-billion-euro ($2.5-billion) loan from Brussels to help cover the debt.

Germany Chancellor Angela Merkel called on Russian President Vladimir Putin on Friday "to firmly support the search for a swift solution before the approaching winter".

- Russia stirs US rebuke -

Russian Foreign Minister Sergei Lavrov told the Izvestia newspaper on Tuesday that the rebel elections in Ukraine's east, due to take place this weekend, should "go ahead as agreed" and that Russia would "recognise the results".

Lavrov's comments drew a sharp rebuke from US Secretary of State John Kerry and coincided with a decision by the EU to keep sanctions in place against Moscow for its role in the crisis.

Russian energy giant Rosneft meanwhile announced its third-quarter profits crashed as it operates under Western sanctions over the Ukraine crisis and the ruble plunges.

But Russia said that France is still due to complete the handover of a Mistral helicopter carrier next month, despite pressure for the deal to be scrapped.

Ukraine staged its own elections on Sunday in which pro-European forces scored a decisive victory at the expense of parties that once backed closer ties with Russia but now tread a more centrist course.

The poll saw Western-backed President Petro Poroshenko's political bloc and a party led by Prime Minister Arseniy Yatsenyuk come close to the 50 percent of the votes needed to form their own government.

Poroshenko is busy negotiating the makeup of a new coalition that is all but certain to keep Yatsenyuk as premier -- an outcome cheered by Western lenders who view him as a market-friendly proponent of economic change.

Yatsenyuk told reporters his party's first-place finish meant he had the right to "contend for the premiership post."