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Gas Talks Turn to Price After Russia Gives Ukraine Time to Pay

Russia and Ukraine discussed setting a natural-gas price for the next 12 months, the European Union said after three-way talks in Brussels, a signal that a deal on fuel supplies between the countries may be getting closer.

After the end of negotiations yesterday, EU Energy Commissioner Guenther Oettinger said both sides would consider the proposals before resuming discussions. Earlier, Russian gas exporter OAO Gazprom (GAZP) had extended a deadline for Ukraine to settle debts or face a cut-off to supplies.

“Real progress has been made,” Oettinger said in a statement. The heads of Gazprom and Ukrainian gas company Naftogaz met to discuss the commercial terms of a potential settlement, he said.

While the two countries remain at loggerheads over the annexation of Crimea and separatist movements in eastern Ukraine, the EU is pushing for a deal on gas supplies to avoid disruption that could affect Europe. The region relies on Ukraine’s pipelines to provide about 15 percent of its fuel.

Russian Energy Minister Alexander Novak said he expects Ukraine to pay $1.45 billion this week to settle outstanding debts for the last two months of 2013. That would be in addition to $786 million Gazprom received yesterday.

Gazprom CEO Alexey Miller said after the talks a further payment was necessary before a deal on price could be formally discussed. The Moscow-based company had earlier extended the deadline for Ukraine to pay from yesterday to June 9.

Talks Resumed

The trilateral gas talks resumed yesterday as a week of international engagement on the crisis in the former Soviet republic starts and President Vladimir Putin prepares to visit France for D-Day commemorations.

Ukraine has been increasing gas shipments from Russia since April, adding 3.2 billion cubic meters to storage during May, according to Bloomberg calculations based on Gas Infrastructure Europe website data. That is four times more than Ukraine’s gas imports in May last year.

Ukraine may avoid a move to advance payments and win a lower price by settling its gas debt by June 9, Gazprom said yesterday before the talks. The company had rebuffed Ukraine’s previous attempts to renegotiate an agreement signed in 2009 to end a standoff that disrupted flows to Europe for two weeks during freezing weather.

In April, Gazprom cited the contract as it raised Ukraine’s price 81 percent to $485 per thousand cubic meters, higher than for any EU member.

The exporter rescinded a discount granted in December because of Ukraine’s mounting debts, while Russia stripped the neighboring country of an export duty break given in 2010 in exchange for a lease on its Black Sea fleet’s port in Crimea, the peninsula Putin annexed in March.

Higher Price

Ukraine has refused to pay the higher price, calling for a return of its first-quarter price of $268.50 per thousand cubic meters. Russia and Ukraine will probably settle on a price of about $350 to $380, closer to the average EU price, said Maxim Moshkov, an analyst at UBS AG.

Oettinger said that Russia and Ukraine agreed there would be no supply disruptions while they analyze the plan. Neither party will initiate a legal action at the arbitration court and there will be no prepayment requirements, he said.

“This gives us a stable basis for the coming days to be able to work out options for the future.” he said. “My aim was to ensure that the future price would deal with all legal disagreements, at least until June next year, which will ensure security of supply for at least a year.”

To contact the reporters on this story: Elena Mazneva in Moscow at emazneva@bloomberg.net; Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Stephen Cunningham

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