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Ukraine, Russia in Search of 11th-Hour Deal on Gas Dispute

Russia and Ukraine have moved to settle a rancorous dispute on gas prices, ahead of a threat by Russian state-run gas giant Gazprom to cut off deliveries to Ukraine by Jan. 1 if no agreement is reached.

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The hiss and sizzle over gas prices between Moscow and Kiev has reached a new pitch

Ukraine's energy minister arrived in Moscow on Wednesday for further negotiations on Gazprom's demand that Ukraine begin immediately paying world market rates for gas it receives from Russia, instead of the highly subsidized price charged at present under a barter system left over from Soviet practices.

Kiev says it is prepared to pay market rates -- and to charge Russia market rates for use of the gas pipeline network on Ukrainian territory that Gazprom relies on to ship gas to customers in Europe -- but wants the shift to take place gradually over several years.

"Unacceptable" Russian stance

Prior to dispatching his energy minister, Ivan Plachkov, to Moscow, Ukrainian President Viktor Yushchenko chaired a meeting with Prime Minister Yury Yekhanurov, Plachkov and other officials in the capital Kiev.

Gazprom has said it wants Ukraine to start paying $220-230 (185-193 euros) per 1,000 cubic meters of gas it receives from Russia -- roughly the price the Russian gas monopoly charges to customers in Western Europe but more than quadruple the $50 Ukraine pays at present.

Ukraine Russland Streit um Gaslieferungen Demonstration Kiew

Ukrainian demonstrators protest against Moscow's demand

Speaking at a cabinet meeting in Kiev, Yekhanurov described a price of $230 as "unacceptable," Interfax news agency reported.

"This is direct economic pressure on the country. This is not a market approach, and the ball remains in Gazprom's court," he said.

"Legally ignorant"

The Ukrainian prime minister sparked a storm of protest from Moscow on Tuesday when he asserted that Ukraine had an automatic right under existing accords to take 15 percent of all Russian gas that transits through the pipeline network on Ukrainian territory.

Gazprom quickly slammed that assertion as "irresponsible and legally ignorant," while Russia's influential industry and energy minister, Viktor Khristenko, called it "surprising, at the very least" and said Ukraine had no automatic right to any Russian gas.

Hopes of a compromise

The dispute has produced increasingly colorful and testy exchanges between the two sides in recent days, but analysts forecast that despite all the sound and fury as the Jan. 1 deadline approached, a compromise deal would be found.

"We believe there will be an eleventh hour compromise between Russia and Ukraine on the gas price issue," brokerage firm Renaissance Capital said in its daily market commentary.

"We expect Gazprom to achieve a higher price relative to 2005, and it will be a price that Ukraine has the ability to pay," Renaissance Capital said. It described the price range being sought by Gazprom as "plainly absurd."

Ukraine has long benefited from cheap Russian gas and Gazprom, noting that the European Union earlier this month formally recognized Ukraine as a "market economy," said it was under no obligation to continue giving Kiev the preferential treatment meted out to some other ex-Soviet republics.

"A traitor to Ukraine"

Mode von Gestern für die Politik von Morgen

The flamboyant Tymoshenko has weighed in the gas dispute

Meanwhile, Ukraine's fiery former prime minister and one-time powerful businesswoman in the gas sector, Yulia Tymoshenko, offered to help negotiate a deal with Russia but said Kiev had a right to the cheap gas and should not agree to any higher price.

Any official who signed a higher price deal with Gazprom would be "a traitor to Ukraine," said Tymoshenko, who remains a powerful political voice in the country and who is trying to position herself and her party ahead of crucial parliamentary elections in the country next March.

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