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Russia Says Reached Deal with Ukraine on Gas Debt

Russia said on Wednesday it had reached a deal with Ukraine over a large gas debt after threatening to reduce supplies, but Kiev denied that it owed as much as the $1.3 billion cited by Moscow.

Analysts said the spat, which aroused fears in Europe of interruptions to gas flows, was politically motivated. Moscow issued the threat as votes were being counted from a parliamentary election in Ukraine that showed gains for pro-Western parties.

"We have reached an agreement to avoid such problems in the future," Russian First Deputy Prime Minister Dmitry Medvedev, who is also chairman of Russian gas export monopoly Gazprom, said after meeting Ukraine Energy Minister Yuri Boiko.

Gazprom said Boiko had pledged to repay the debt before November to avoid a reduction in supply and to guarantee stable deliveries to Europe.

"European consumers won't suffer. European customers are in an absolutely comfortable situation," Medvedev was quoted by Russian agencies as saying.

But in Kiev, Ukraine's Finance Minister Mykola Azarov questioned the amount of debt.

"The debt figure about which (Gazprom) is talking is out of the question, absolutely out of the question. With such huge volumes of deliveries -- 32 billion cubic meters (a year) -- with such huge volumes, some issues in accounts may have arisen," he said.

Ukraine's election was meant to settle months of deadlock between pro-Western president Viktor Yushchenko and Prime Minister Viktor Yanukovich, seen as more sympathetic to Russia.

Orange Gains

Almost complete results showed big gains for the "orange" camp of ex-premier Yulia Tymoshenko. Her bloc, allied with pro-presidential party Our Ukraine was just ahead of Yanukovich's Regions Party and its Communist supporters.

Analysts saw Gazprom's move as a gesture of support for Yanukovich, suggesting he could best handle relations with Ukraine's giant neighbor and chief source of energy.

"The victory of the Orange coalition in the early parliamentary elections, and the possibility that Tymoshenko will come back to take charge of Ukraine's government, appears likely to result in yet another stand-off with Gazprom," said Deutsche UFG brokerage.

But analysts from Sibinbank said they expected Gazprom and Ukraine to reach a compromise before the new year, when the new pricing contract for Russian gas is due to come into force.

Russian gas supply to the European Union, most of which is piped across Ukraine, accounts for a quarter of the 27-nation bloc's needs.

In January 2006, supplies in some EU countries fell by as much as 20% for a few days after Gazprom and Ukraine failed to agree new prices for imports.

The EU urged Ukraine and Russia to resolve this dispute quickly. The European Commission said on Wednesday it planned to invite representatives of Russian and Ukrainian energy companies to discuss the dispute with EU experts later this month.

"We are going to convene the gas coordination group in mid-October," Commission spokesman Ferran Tarradellas Espuny said.

At the beginning of this year, Gazprom raised the price of gas imports to Ukraine to $130 per 1,000 cubic meters from $95. That price is still below the $260 and more that Ukraine's European Union neighbors pay.

Russian ambassador Viktor Chernomyrdin has said prices for Ukraine would depend on the composition of the new government.

Relations between Russia and Ukraine cooled during Tymoshenko's brief tenure as premier in 2005.

Yanukovich said on Wednesday he planned to go to the Russian capital soon to discuss the gas issue.

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