Ukraine, Russia seek gas dispute deal before Poroshenko-Obama talks

KIEV (AFP) - Ukraine and Russia enter crunch talks on Monday to settle a long-running dispute over the price of gas deliveries, two days before a first meeting between Kiev's new pro-Western leader and US President Barack Obama.

Ukraine's third "gas war" with Russia in less than a decade erupted when Moscow - stunned by the sudden ouster of an ally who had just rejected an EU alliance that the Kremlin greatly feared - nearly doubled the price it charges its neighbour for the fuel.

Kiev accused Moscow of "economic aggression" and refused to cover a bill that Russia puts at US$5.17 billion (S$6.5 billion).

Russian gas transits through Ukraine supply about 15 per cent of European needs and a top EU envoy is now urgently seeking a compromise that could save 18 member states from seeing their deliveries start dwindling on Wednesday.

A final round of talks was set for Monday in Brussels after Ukraine's Naftogaz state energy firm - bowing to both EU and Kremlin pressure - transferred a US$786 million payment to its Russian counterpart Gazprom to keep the talks alive.

Gazprom now says it is willing to discuss a lower price and analysts believe that a compromise is in sight because Russia would prefer to avoid complicating its relations with Europe still further.

Ukrainian Prime Minister Arseniy Yatsenyuk added to the general cheer surrounding Monday's meeting by promising to settle Russia's entire bill using a part of a new Western financial rescue package.

"We will pay our bills," Yatsenyuk told German public television in an interview aired Sunday.

"First we have to sign a (new price) contract. And then, 10 days later, Ukraine will pay."

But he also warned that Ukraine would follow the example of other Gazprom clients who had won their own price disputes through the courts by filing for arbitration in Stockholm by end of Monday if no agreement was reached.

Three days before his inauguration, confectionery tycoon Petro Poroshenko will Wednesday shake hands with Obama in Warsaw, wary of an address last week in which the US president put diplomacy above military might in confronting threats such as Russia's expansion.

Obama's message was greeted with awkward silence by former Soviet satellites in eastern Europe that have been clamouring for firmer US protection since Russia's seizure of Ukraine's strategic Black Sea peninsula of Crimea in March.

Washington is sending Assistant Secretary of Defence Derek Chollet for meetings in Kiev on Monday aimed at reassuring Poroshenko and showing Putin the strength of the US commitment to Ukraine.

"I am certain that as soon as president-elect Poroshenko is sworn into office, we will begin discussions about our future cooperation on security and defence," US Ambassador Geoffrey Pyatt told Kiev's Dzerkalo Tyzhnia newspaper.

Poroshenko will also attempt to arrange the first meeting between a Ukrainian leader and Russian President Vladimir Putin since the February ouster of a pro-Kremlin regime in Kiev sparked the worst East-West crisis since the Cold War.

The 48-year-old will cap off the pivotal week with his inauguration Saturday as the fifth president of Ukraine after a convincing May 25 election win handed him a mandate to resolve a separatist insurgency threatening the very survival of the former Soviet republic.

"These meetings will be crucial," said Kiev-based political analyst Volodymyr Fesenko.

"They will help establish direct relations and introduce Petro Poroshenko to world leaders - first and foremost, Barack Obama."

Poroshenko for his part promised to seek a "new security alliance with the United States and Europe" that could protect Ukraine without its outright membership in the Cold War-era NATO bloc that Russia views with hostility and mistrust.

Putin spelt out the threat of an outright invasion of Ukraine when he sought and won parliament's authorisation on March 1 to use any means necessary to "protect" ethnic Russians living across the border.

But the drumbeats of war began fading last month when Putin surprised many by suddenly softening his tone.

The Russian leader advised Ukraine's eastern Lugansk and Donetsk regions against holding May 11 independence referendums that went ahead anyway but which he then refused to recognise as binding.

Putin also promised to "respect" the outcome of Ukraine's own election and began pulling back the 40,000 troops he had parked just inside Russia's border in an ominous show of strength that touched off near-panic in Kiev.

Western diplomats remain sceptical about the sincerity of Putin's restraint. But they agree that it provides a welcome opening for Poroshenko.

Poroshenko hopes to tap the ties he nurtured while serving as foreign minister under deposed president Viktor Yanukovych to set up a meeting with Putin on the sidelines of Friday's D-Day commemorations in Normandy.

Resolving Ukraine's two-month separatist insurgency "is impossible without engaging the Russian leadership," Poroshenko said a day after his election.

But the Kremlin is yet to confirm the meeting and analysts expect no breakthrough even if such talks are held.

"This would be something like a political reconnaissance mission for Poroshenko," said analyst Fesenko.

"It is important to understand Putin's mood and to know what kind of concessions he might make."