Ukraine Must Show Will to Pay Before Gas Talks, Medvedev Says

May 20 (Bloomberg) -- Russian Prime Minister Dmitry Medvedev discusses the situation in Ukraine with Bloomberg's Ryan Chilcote.

Ukraine should settle a substantial part of its natural-gas debt and set a payment schedule before Russia will start price negotiations amid a dispute that may affect Europe, according to Prime Minister Dmitry Medvedev.

“It should be a substantial sum that would clearly indicate their intention to pay their debts,” Medvedev said yesterday in an interview with Bloomberg Television at his residence outside Moscow. “It can’t be 3 percent.”

Ukraine depends on its neighbor for about half of its gas and is a key transit route for supplies to the European Union, increasing the stakes in Russia’s worst standoff with the U.S. and the EU since the Cold War. The allies have accused Russian leader Vladimir Putin of stoking unrest in Ukraine’s easternmost regions before a May 25 presidential election, a claim he has denied.

“We are aware of the current state of the Ukrainian economy,” Medvedev said. “We aren’t saying they have to pay $3.5 billion all at once, but give us a timetable for paying off these debts, especially since Ukraine has just received a tranche from the IMF, and both the Americans and Europeans have promised loans.”

Ukraine is ready to pay $4 billion for gas as long as OAO Gazprom, Russia’s state-run producer and exporter, agrees to lower the price it charges, the Ukrainian Energy Ministry said last week. The country received the first $3.2 billion from a $17 billion International Monetary Fund aid package this month.

Photographer: Andrey Rudakov/Bloomberg

Dmitry Medvedev, Russia's prime minister. Close

Dmitry Medvedev, Russia's prime minister.

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Photographer: Andrey Rudakov/Bloomberg

Dmitry Medvedev, Russia's prime minister.

Discounts Canceled

Russia raised the price it charges more than 80 percent in April, to $485 per 1,000 cubic meters, after canceling previous discounts. The government in Kiev is seeking to return to the first-quarter price of $268.50 and has refused to pay the higher price that Gazprom says is based on their contract.

“We didn’t force anyone to accept it,” Medvedev said of the 2009 accord, signed to end a pricing conflict that led to two weeks of disrupted flows to Europe during freezing weather. Europe imports about 30 percent of its annual gas demand from Russia, half of which crosses Ukraine in Soviet-era pipelines.

Ukraine’s former Prime Minister Yulia Tymoshenko, a candidate in the May 25 presidential election, was jailed under the previous administration for signing the 2009 accord and freed after Viktor Yanukovych’s ouster in February.

The European Commission and Russia plan to resume gas talks on May 26 in Berlin, aiming to strike an agreement before June 1, EU Energy Commissioner Guenther Oettinger said yesterday in Berlin after a round of discussions.

Gazprom will continue shipping gas to Europe across Ukraine for now, saying the responsibility for transit lies with the neighboring country.

“If the Ukrainian market is stable and if Ukrainians fulfill all of their obligations, Europe will receive what it is entitled to in full,” Medvedev said.

To contact the reporters on this story: Ryan Chilcote in London at rchilcote@bloomberg.net; Olga Tanas in Moscow at otanas@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Torrey Clark, Scott Rose

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