UPDATE 2-Putin, Poroshenko to discuss Ukraine peace, gas supplies in Milan


(Adds details, analyst quote)

By Alexei Anishchuk and Pavel Polityuk

MOSCOW/KYIV Oct 15 (Reuters) – A long-running dispute over
natural gas supplies will be on the agenda when Russian
President Vladimir Putin and Ukrainian leader Petro Poroshenko
hold talks in Italy later this week, the Kremlin said.

A Kremlin statement issued late on Tuesday said the
Ukrainian and Russian presidents had spoken by telephone and
discussed measures to restore peace in eastern Ukraine.

Their forthcoming meeting in Milan is an encouraging sign
for Moscow, Kyiv and the West, who are balancing on the brink of
a new gas rift following Russia’s decision to cut supplies to
Ukraine because of mounting debt.

Ukraine faces possible energy shortages this winter if no
deal is reached, which in turn risks causing disruptions to
Europe’s gas supplies — as happened in 2006 and 2009. Europe
receives a third of its gas needs from Russia, around half of
which is pumped via Ukraine.

The Russian and Ukrainian leaders will continue their
discussions on the sidelines of a summit of European and Asian
leaders that they are both attending in Milan on Oct. 16-17.

Ukraine’s president said on Wednesday “the whole world has
high expectations” of their expected face-to-face meeting.

A senior Kremlin aide said on Wednesday that Putin and
Poroshenko could meet in the presence of German Chancellor
Angela Merkel and French President Francois Hollande on Friday
and did not rule out that the two post-Soviet leaders might hold
a separate meeting afterwards.

Yuri Ushakov said Putin will also meet Merkel one-on-one on
Oct. 16 upon arrival in Milan, ahead of the main Ukraine talks.

Russian natural gas producer Gazprom cut supplies
to Ukraine in June after Kyiv failed to pay gas debts which
Russia says have now reached more than $5 billion.

“I think that the meeting in Milan will bring a breakthrough
in the gas sphere,” said Mikhail Pogrebinsky, a Kyiv-based
political analyst. “Russia will eventually sell gas to Ukraine,
after Ukraine pays a symbolic part of its debt, this will allow
Ukraine not to freeze in winter.”

Officials from Russia and the European Commission, which is
mediating the talks, say a deal could be near. Poroshenko said
on Saturday he hoped for “significant progress” on the issue
during the talks in Milan.

Efforts to reach an agreement have been complicated by the
conflict in eastern Ukraine. Ukraine and the West accuse Russia
of providing pro-Russian separatists there with extra troops and
weapons, a charge Moscow denies.

The conflict has caused the worst standoff in Moscow’s
relations with the West since the Cold War, with the United
States and European Union imposing sanctions on Russia over the
crisis.

Deep divisions remained between Washington and Moscow after
talks between U.S. Secretary of State John Kerry and Russian
Foreign Minister Sergei Lavrov in Paris on Tuesday.

(Reporting by Vladimir Soldatkin, Pavel Polityuk and Richard
Balmforth in Kyiv,; Writing by Katya Golubkova and Alexei
Anishchuk, Editing by Timothy Heritage and Crispian Balmer)