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UPDATE 1-Russian PM plays down "gas war" talk, warns Ukraine on EU

Stephen Adler and Timothy Heritage
Friday, 1 Nov 2013 | 10:00 AM ET

* Russian PM no link between gas row and EU talks

* Warns Kiev not to expect more loans from Moscow

MOSCOW, Nov 1 (Reuters) - Russian Prime Minister Dmitry Medvedev said he saw no reason for Moscow to cut gas supplies to Ukraine over an unpaid bill for now, playing down talk of an imminent "gas war" that might disrupt flows to Europe.

In an interview with Reuters, he denied Russia's demands for payment had anything to do with opposition to Ukraine signing agreements with the European Union this month which would mark a historic shift away from former imperial master Moscow.

But the 48-year-old ex-president said the "special relationship" between the two former Soviet republics would change if Ukraine moved closer to Europe and that Kiev should no longer come to Moscow seeking loans.

Russian gas export monopoly Gazprom said on Tuesday that Ukraine, which is dependent on supplies of Russian gas, had failed to settle a $882 million bill for August deliveries and demanded it be paid urgently.

Medvedev said it had yet to pay.

"We understand that they have economic difficulties, but they still have to pay, especially after we gave them loans and financed transit," Medvedev said in the interview on Thursday, adding that the transit fees cost billions of dollars.

"It's the law - you have to pay for delivered goods. It's normal practice around the world. Let them pay."

Medvedev said Russia could resort to a system of advance payments if Ukraine did not respond to its demands.

As it nears a payment crunch to service its debt over the next 18 months, Ukraine has asked for leniency from Russian creditors, including trying to extend the term of a $2 billion loan from Russia's Gazprombank by five years. Just last month, Putin said Russia would lend $750 million to Ukraine.

Ukrainian Energy Minister Eduard Stavitsky said Kiev was able to cover its gas payments without additional borrowing.

"We hope to find a common language in the nearest future, there is no doubt about it, maybe today," he told Reuters. 1/8ID:nL5N0IM1A1

LET EUROPE PAY

Medvedev said if Ukraine moved closer to Europe by signing an association agreement with the European Union at a summit on Nov. 28-29, and joining a free trade pact, Brussels could then foot the bill. He denied Russian pressure over the unpaid bill was connected to Kiev's choice of closer ties with the West.

"This is the sovereign choice of Ukraine, but let's hope they don't kick themselves when they see that they will not receive those dividends, those benefits which they counted on, and lose the advantages that exist because of what we have now ... a special relationship with them, an exclusive relationship," he said.

Asked whether there would be a reduction in gas supplies to Ukraine, he replied: "No. In this sense I think that for now everything is okay ... I don't expect any complications."

Harsh language used by Gazprom in the gas dispute has raised concerns of a new "gas war" over prices between the neighbours, similar to those in the winters of 2006 and 2009 which caused supplies to be disrupted to Ukraine and the rest of Europe.

Ukraine's energy minister acknowledged on Wednesday the country may have fallen behind in payments for monthly supplies of Russian gas but said he expected the matter to be settled with Moscow very soon.

Ukraine, which must meet conditions including releasing former prime minister Yulia Tymoshenko from prison for the EU agreements, may have a safety net provided by the International Monetary Fund if Russia cuts it ties.

Russia fears Ukraine could be moving out of its sphere of influence and will stymie President Vladimir Putin's dream of a Moscow-led customs union to replace, at least in part, ties broken with the collapse of the Soviet Union in 1991.

Russia has put pressure on its neighbour, by tightening customs rules and banning some imports.

Medvedev said it was simple choice between forming a trade pact with the 28-nation bloc or the customs union with Russia and two other former Soviet republics, Belarus and Kazakhstan.

"It's their position, and it has to be respected, but they have to understand that relations with us will be different," he said. "They constantly turn to us for credits, for example. In the end, if they have such advanced relations with Brussels ... let them get credits from Brussels."

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