Gas Talks Falter as Ukraine Mourns 49 Killed in Attack

Negotiators in Kiev will attempt to revive talks to avert a Russian gas shutoff tomorrow as Ukraine observes a day of mourning for 49 people killed in the country’s worst military loss in the months-long conflict.

Russia, Ukraine and the European Union may resume talks this evening, Ukrainian Energy Minister Yuri Prodan told reporters today before holding consultations with the EU. Ukraine hasn’t changed its position in talks with Russia, which could turn off fuel supplies tomorrow at 10 a.m. Moscow time without a deal.

The showdown over fuel heaps pressure on Ukraine’s new president, Petro Poroshenko, who’s struggling to fulfill an election pledge to halt an uprising by rebels in the country’s eastern regions. Russia and Ukraine are trading accusations over yesterday’s attack on a military plane near Luhansk and an attack on the Russian Embassy in Kiev, damaging the prospects for a breakthrough in the gas talks.

“I’m not optimistic about the talks at all,” Dmytro Marunich, co-chairman of the Energy Strategies Fund research institute, said today by telephone from Kiev. “In the best case scenario, the sides will agree on temporary terms of cooperation between Naftogaz and Gazprom with some guarantees on stable transit to the EU while the case is heard in Stockholm arbitration.”

Mourning Attack

Poroshenko declared a day of mourning in a statement yesterday, vowing to punish the people behind the “terrorist” attack. U.K. Foreign Secretary William Hague condemned the downing of the plane, saying it “underlines once again the urgency and importance of Russia taking further measures to prevent the escalation of violence.”

The incident came after the U.S. State Department said Russia sent heavy weapons, including old-model tanks and rocket launchers, to the rebels, who say they are fighting a war against fascism and to join Russia.

Ukraine has intensified an offensive against the insurgents since it battled a rebel convoy of armored vehicles two days ago, including the first reported separatist tanks. NATO warned that reports of an armored column entering from Russia would mark a “serious escalation” in the conflict.

Protesters gathered near the Russian Embassy in Kiev yesterday, demanding Russia stop sponsoring the rebels. Demonstrators threw firecrackers and eggs, broke some of the building’s windows with stones, and turned over and torched at least three embassy cars.

Putin Call

German Chancellor Angela Merkel, French President Francois Hollande and Russian President Vladimir Putin discussed the crisis and gas supplies before the talks started yesterday, according to presidential offices in Paris and Moscow. Russian Foreign Minister Sergei Lavrov followed up with his German and French counterparts in phone calls today, the ministry said on its website.

EU Energy Commissioner Guenther Oettinger is attempting to broker a deal in Kiev after talks in Brussels last week led to Russia pushing back its deadline from June 10. The EU is dependent on Russian gas piped through Ukraine for about 15 percent of its supplies.

Ukrainian Prime Minister Arseniy Yatsenyuk instructed authorities on June 13 to prepare for a gas cutoff once OAO Gazprom’s debt payment deadline tomorrow expires. By then, Ukraine must pay $1.95 billion to partially cover its debt for past supplies, according to Gazprom.

Gas Price

Ukraine refused to pay after Russia raised the price of the fuel by 81 percent in April. Putin stripped the country of a 2010 export-duty break that it exchanged for a lease on its Black Sea Fleet’s port in Crimea, which Russia annexed in March. Gazprom rescinded a price discount granted to Ukraine in December, citing mounting debt.

The gas conflict reflects the broader political crisis between two former Soviet partners as Russia took Crimea after Ukraine’s Kremlin-backed president was ousted in street protests in February. Ukraine, along with the U.S and the EU, accuses Russia of stoking turmoil in Ukraine by supporting pro-Russian separatists, including supplying them with weapons.

Russia has denied providing such support, while urging Ukraine’s new government to do more to protect the rights of Russian speakers in the country.

Three separatists were killed and two others captured when they tried to break through a checkpoint near Slovyansk in eastern Ukraine, the country’s National Guard said in a website statement. That follows the death of five border guards yesterday in an attack on a convoy near the coastal town of Mariupol.

Ukraine’s hryvnia, this year’s worst-performing currency against the dollar with a 30 percent plunge, fell 0.2 percent last week in Kiev, data compiled by Bloomberg showed. The ruble was little changed.

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net; Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; Andrew J. Barden at barden@bloomberg.net Scott Rose, Andrew J. Barden

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