Russia says reached deal with Ukraine on gas debt

KIEV/MOSCOW, Oct 3 (Reuters) Russia said on Wednesday it had reached a deal with Ukraine over debts of 1.3 billion dollars after threatening to reduce supplies, but President Viktor Yushchenko said Kiev owed nothing to Russian gas giant Gazprom.

Analysts said the spat, which revived European fears over stability of 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,'' Dmitry Medvedev, Russian First Deputy Prime Minister and chairman of 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. Gazprom's stock fell by 0.7 per cent, in line with the broader market <.mcx>.

But Yushchenko, in Berlin for a visit, told journalists no such debt existed, Interfax news agency reported.

''Neither the Ukrainian state nor Naftogaz has debts to Gazprom,'' Interfax Ukraine news agency quoted Yushchenko as telling reporters in the German capital.

Earlier, Finance Minister Mykola Azarov questioned the size of the debt, saying that ''some issues in accounts may have arisen'' but that the full figure was ''out of the question''.

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 just leads Yanukovich's Regions Party and its Communist supporters.

Yushchenko asked the rival parties to start negotiating on forming a coalition government. The process is likely to be drawn out.

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

''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.

Relations between the two countries cooled markedly when Tymoshenko was briefly premier in 2005, but on Wednesday she sounded a conciliatory note, blaming Yanukovich for incurring such a huge debt, which she said Ukraine must pay off.

Gazprom has repeatedly denied any political link.

''We will soon publish our first quarter financials. Analysts would have noticed a jump in debts owed to us. We needed to do something about it,'' Gazprom's spokesman Sergei Kupriyanov said.

Russian gas supply to the European Union, most of which goes across Ukraine, accounts for a quarter of the bloc's needs.

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

The EU executive Commission, however, said it considered Gazprom a ''reliable supplier'' and welcomed the early warning it received of potential delivery problems. It invited Ukrainian and Russian energy companies for talks later this month.

Moscow-based analysts said they expected Gazprom and Ukraine to reach a compromise before the new year, when a new gas pricing contract is due to come into force.

''While a renewed conflict with Ukraine may raise concerns over Gazprom's ability to fulfil its export liabilities, we believe a resolution is likely to be imminent,'' said UralSib.

At the beginning of this year, Gazprom raised the price of gas imports to Ukraine to 0 per 1,000 cubic metres from .That price is still below the 0 and more that Ukraine's European Union neighbours pay.

REUTERS SBA AS0109