Gas deal still eludes Ukraine and Russia at EU talks


* Energy Commissioner says 50/50 chance of a deal

* News briefing cancelled as talks run late into night

* New commissioner takes over on Nov. 1

(Updates with late-night talks continuing, no deal yet)

By Barbara Lewis and Alastair Macdonald

BRUSSELS, Oct 29 (Reuters) – Ukraine and Russia bargained
late into the night on Wednesday but European Union officials
trying to broker a deal to resume gas supplies to Kyiv as winter
sets in said there was still no accord to announce.

At talks in Brussels hosted by energy commissioner Guenther
Oettinger two days before he makes way for a new EU executive
team, officials cancelled an evening news conference at which
they had hoped to announce a deal after months of negotiation.

“Negotiations are ongoing and likely to continue until late
in the evening,” the European Commission said in a statement at
9 p.m. (2000 GMT). “In case of agreement, the press conference
is envisaged to take place tomorrow morning at 8:30 a.m.”

With Kyiv and Moscow locked in conflict over pro-Russian
rebellions in Ukraine and over the former Soviet state’s move to
bind itself closer to the West, the European Union, which also
depends heavily on Russian gas, is trying to help overcome
wrangling about payments that threatens to disrupt supplies.

Russian state utility Gazprom, whose chief
executive was attending the talks with Oettinger along with the
Russian and Ukrainian energy ministers, halted supplies to
Ukraine in June, citing Kyiv’s unpaid gas bill, which Moscow
says is around $4.5 billion.

The EU, which has lending facilities to Ukraine along with
the IMF, is looking at releasing more funds. And Germany, a key
ally for Ukraine’s pro-Western leaders, has spoken of providing
international “bridging finance” to see Kyiv through the winter.

For months, the gas cut-off has had little impact. But
pressure is mounting for a deal as temperatures start to drop
below freezing and Oettinger, who has been mediating, prepares
to leave office on Friday, making way for a new Commission.

The two sides came close in September, but last week
differences were wide over Kyiv’s ability to pay.

Some of Russian President Vladimir Putin’s many critics in
eastern Europe question his interest in concluding an agreement
on commercial grounds and see the temperature of Ukrainian homes
in the coming months being determined more by Kremlin
calculations of its geostrategic interests.

Oettinger, a German, said before talks began on Wednesday
that there was a 50 percent chance of a breakthrough.
If he cannot broker a solution, it will be down
to his Slovak successor, who takes office on Saturday.

Weekend elections returned a pro-Western parliament in Kyiv,
potentially stoking tensions with Moscow, although Russia’s EU
envoy, Vladimir Chizhov, said earlier in the day that the mood
could be more relaxed now the vote had taken place.

“During the last rounds of talks, let’s not conceal it, the
pre-election situation had its influence on Ukrainian side,”
Chizhov told Russian agency RIA Novosti. The only unresolved
problem, he said, was where to get the money from for winter
supplies.

NOT JUST ABOUT THE MONEY

Ukraine’s Naftogaz company has set aside $3.1 billion in a
special escrow account to pay off a chunk of its debt to
Gazprom, but Russia is also demanding prepayment for winter
supplies before it is willing to turn the taps back on.

Kyiv says it is working to raise more money from all
possible sources of financing, including the European Union. The
European Commission is considering Ukraine’s request, made last
week, for a further loan of 2 billion euros.

But Kyiv also says money alone may not be enough.

“I have an impression that the Russian side doesn’t want to
agree,” Ukrainian Finance Minister Oleksander Shlapak said on
Tuesday.

Analysts said it could be very hard to come up with enough
assurances to satisfy Russia, even if Gazprom, and more widely
the Russian treasury, would welcome new revenues as the economy
suffers from the effects of Western trade sanctions.

Ukraine at the same time is pushing for written guarantees
that any agreement on price will be lasting.

For all sides, there is much at stake.

Russia provides around one third of the European Union’s
gas, roughly half of which is pumped via Ukraine.

Ukraine in turn relies on Russia for around 50 percent of
its own gas and despite storage has a winter shortfall of around
3 billion to 4 billion cubic metres (bcm), depending on the
weather.

For Russia, the gas sector contributes approximately a fifth
of the national budget.

Sanctions on Russia, which EU officials decided to leave
unchanged on Tuesday while conflict in Ukraine continues, are
sapping an already weak economy. But Moscow could well be
willing to endure much more hardship for political ends.

“Economic factors are generally not given precedence when
national security concerns are at stake,” Pasquale De Micco, a
national expert from the European Parliament’s policy
department, said in a research paper on Europe’s gas supply
options.

“What is certain is that a gas war risks harming both
parties in the short term and that it would hamper future
efforts to re-establish mutually trusting relations.”

(Additional reporting by Vladimir Soldatkin and Ekaterina
Golubkova in Moscow, Natalia Zinets and Pavel Polityuk in Kyiv
and Michael Nienaber in Berlin; editing by Andrew Roche)