Feb. 12 (Bloomberg) -- Ukraine averted a cut in supplies of natural gas from Russia's OAO Gazprom after the two countries' presidents reached an agreement before a deadline passed.

Ukraine will start paying the debt for 2007 gas deliveries on Feb. 14, Ukrainian President Viktor Yushchenko said at a Kremlin press conference broadcast by Russian state television today.

``Gazprom is satisfied with the proposals made by our Ukrainian partners,'' Russian President Vladimir Putin said as officials including Gazprom Chief Executive Officer Alexei Miller looked on. ``Today or tomorrow, we hope all these agreements will be put on paper.''

Gazprom, which supplies Ukraine with 71 percent of its gas, threatened to cut a quarter of deliveries at 6 p.m. Moscow time in the absence of an arrangement on repaying the debt. Russia's gas-export monopoly has said Ukraine owes it $1.5 billion for deliveries since November.

The threatened cutoff was reminiscent of a price dispute in January 2006, when Gazprom turned off all Ukrainian deliveries for three days, causing gas volumes to fall in the European Union. About a fifth of Europe's gas comes from Gazprom via Ukrainian pipelines.

Russia and Ukraine today agreed to establish two new companies to handle the gas trade, replacing RosUkrEnergo AG, the only company currently allowed to import gas into Ukraine.

Talks in Moscow

The two companies will have a further round of talks in Moscow on Feb. 14, said Oleh Dubyna, head of the Ukrainian state- run energy company NAK Naftogaz Ukrainy, in an interview today with 5 Kanal Ukrainian television broadcast live from Moscow.

``We will sign documents that would allow the two state companies to work directly,'' avoiding involvement of gas traders, such as RosUkrEnergo, Dubyna said, declining to comment on when exactly the two parties will replace RosUkrEnergo.

Ukraine will repay some of the debt on Feb. 14, he said.

``We want our cooperation to be as transparent as possible,'' Putin said.

RosUkrEnergo, owned 50 percent by Gazprom and 50 percent by two Ukrainian businessmen, emerged as the sole supplier of gas through Russian pipelines after the January 2006 shutoff. At the time, Gazprom backed down from original demands to quadruple Ukraine's gas price, agreeing to give RosUkrEnergo a lower price by selling it cheaper Central Asian fuel.

Handle Exports

The two new companies will handle exports to Ukraine and distribution in the country, Miller told reporters in Moscow today.

Gazprom will own 50 percent stakes in both companies. NAK Naftogaz Ukrainy, Ukraine's state-owned natural gas company, will hold equivalent stakes.

Yushchenko's prime minister, Yulia Timoshenko, had pledged to eliminate RosUkrEnergo as the intermediary between Gazprom and Ukraine.

Russia says Ukraine has run up $500 million in debt since January alone, since Gazprom had to compensate for shortfalls in cheap Central Asian gas with more expensive Russian fuel.

``It remains unclear whether Ukraine will also settle the debt which has reportedly accumulated since the start of 2008,'' Pavel Kushnir and Olga Danilenko, oil and gas analysts at Deutsche Bank AG, wrote in a note to investors after the meeting.

Timoshenko has recognized a debt of less than $1.1 billion, which she says was accumulated by her predecessor Viktor Yanukovych. Ukraine consumed only Central Asian gas in January, Timoshenko said yesterday.

To contact the reporters on this story: Greg Walters in Moscow at gwalters1@bloomberg.net; Lucian Kim in Moscow at lkim3@bloomberg.net

Last Updated: February 12, 2008 15:47 EST