Putin Says Russia Never Uses Gas Prices to Choke Ukraine

President Vladimir Putin said Russia isn’t using natural gas prices to choke Ukraine and that a $15 billion bailout for the former Soviet state is based on special ties that make the nations “like close relatives.”

Putin, speaking at a press conference in Moscow today, said that a 33 percent gas price cut announced for Ukraine was a temporary measure “but it can be extended by a decision of both partners.” He said he hoped “a long-term relationship” could be agreed between Russia and Ukraine.

“No one was choking anyone,” Putin said. “From the very start, it was said, including in Ukraine, and this is entirely fair, if we want to be independent, we have to pay for it.”

Ukrainians are continuing the biggest protests in almost a decade after Yanukovych rejected an EU integration accord last month and instead chose deeper ties with Russia, which had opposed the deal. Ukraine, a country of 45 million people that’s a key Russian gas pipeline transit nation to the West, is struggling with its third recession since 2008 and dwindling foreign reserves.

“This is a very strong message from Putin to Ukraine not to even think about doing some kind of side deal with the European Union,” Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said in a phone interview. “It’s the stance of a bully strong-arming Ukraine by reminding them of the very high opportunity cost.”

Yanukovych, in a live television interview today, said there were “no strings attached” to Russian aid and that the gas price cut will make Ukrainian products more competitive.

EU Talks

He called for three-way talks with the EU and Russia in the remarks made after returning to Kiev from Moscow where he signed agreements with Ukraine’s former Soviet master meant to bypass a deal with the International Monetary Fund and the EU.

Ukraine’s opposition vowed to keep up street protests against Yanukovych after he sought to calm anger at the Russian bailout by pledging to raise public employee wages three times next year before his 2015 re-election bid.

The yield on Ukraine’s dollar denominated bonds due 2023 rose to 8.97 percent as of 12:52 p.m. in Kiev today. The cost to insure Ukraine’s debt against non-payment with five-year credit default swaps dropped 131 basis points to 766, the lowest level since June, according to data compiled by Bloomberg.

Maidan Barricades

Thousands of pro-European Union demonstrators spent yesterday evening listening to anti-Yanukovych speeches on Kiev’s Independence Square, also called Maidan, urging them not to back down. Barricades were fortified to prevent a repeat police crackdown, while protesters cooked on the central square in open fires, sang songs and tried to stay warm in near-freezing temperatures. Vitali Klitschko, a former boxing champion, called for a massive New Year’s Eve celebration to be held on the square.

“We should not leave Maidan,” said Arseniy Yatsenyuk, the head of jailed ex-Prime Minister Yulia Tymoshenko’s party. “He wants us to leave badly. Victory will not happen soon. But we will have victory because we are following the right path.”

Leaders of the 28-nation EU are meeting today in Brussels for summit that includes defense issues.

EU leaders will give support to “European hopes” of Ukrainian people without giving promises about membership possibilities, according to Russian newswire Itar-Tass, which didn’t say where it got the information. They will also demand freedom for “all opposition supporters” and offer to mediate talks between the government and opposition, it said.

U.S. Sanctions

In the U.S., the Senate Foreign Relations Committee approved a resolution calling on President Barack Obama and Congress to consider sanctions if Ukraine’s government resorts to violence against protesters. Sanctions would include visa bans and asset freezes of responsible individuals.

Russian Foreign Minister Sergei Lavrov is visiting Warsaw today to discuss “cooperation strategy” between the two countries, and the new German Foreign Minister Frank-Walter Steinmeier will visit Poland later in the day. His talks with Polish counterpart Radoslaw Sikorski and President Bronislaw Komorowski will include the situation in Ukraine.

Under the Russian accord, Ukraine will issue $15 billion of Eurobonds for Russia to buy, with a $3 billion tranche of two-year debt possible in 2013, according to Russian Finance Minister Anton Siluanov. It will also get a one-third cut in the price it pays its neighbor for natural gas, Putin announced

‘Buy Out’

“Putin is giving him cash to buy out his power base,” Jan Techau, the director of the Brussels office of the Carnegie Endowment, said by phone. “This is Russia’s strategy for between now and election day so that the economy doesn’t tank.”

Yanukovych, who faces elections in March, 2015, has damaged his popularity with the EU snub and overseeing the use of force against protesters, according to a poll published by Tyzhden magazine.

He’d lose to any of the opposition candidates if a vote was held now, with his worst result againstKlitschko, who polled 46.9 percent, compared with 28.6 percent for Yanukovych, the Nov. 28-Dec. 7 survey of 2,013 people by Perspektyva showed. It had a 2.2 percentage-point margin of error.

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Olga Tanas in Moscow at otanas@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net

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