Putin Offers Compromise to Break Russia-Ukraine Gas Deadlock

Putin said Ukraine could receive Russian gas at existing lower prices until April and then switch to the four-fold increase being demanded by state-controlled gas giant Gazprom.

"I instruct the government and Gazprom to ensure gas deliveries in the first quarter of 2006 with the conditions and rates of 2005, on the condition that before the end of today the Ukrainian partners sign the contract with Gazprom's offer for switching to market prices in the second quarter," Putin said.

There was no immediate reaction from Kiev to Putin's televised remarks to his security council and the head of Gazprom, but officials said they expected a statement from President Viktor Yushchenko. Government sources in Kiev, who asked not to be identified, said they were cautiously optimistic. "It's very good," said a source close to the energy ministry.

Putin's dramatic offer came less than 24 hours before Gazprom had been due to cut supplies to Ukraine unless it agreed immediately to the price rises.

Dependence on Russian gas

The row has sparked concern in western Europe, which is heavily dependent on Russian energy supplies, and cast a shadow over the start to Russia's 2006 presidency of the Group of Eight (G8) industrialized nations' club, during which Moscow wants to present itself as a reliable energy provider.

Gazprom wants Ukraine to pay $230 (195 euros) per 1,000 cubic meters (35,335 cubic feet) of gas from the start of 2006, up from the current $50. The company says this price reflects standard world rates.

Ukraine says it is ready to pay more but not so quickly and is offering up to $80 in a preliminary transition period. Moscow has flatly dismissed the offer.

Gazprom, which controls a third of the world's gas reserves, says it is ready to end supplies to the country of 48 million people at 10:00 am Moscow time (0700 GMT) on Sunday if Kiev still refuses the deal.

"All we need is the command" to cut supplies, Alexander Glazkritsky, the head of the Mostransgaz control center near the Russian-Ukrainian border, said on state-owned ORT television.

Ordinary folk unaffected?

Officials in Kiev say industrial centers will see a drop in supplies, but ordinary people should notice no difference, as the country has enough gas reserves to last the bitterly cold winter. "The people will feel nothing," Prime Minister Yuriy Yekhanurov promised, although many ordinary Ukrainians have expressed alarm.

"If they close the gas taps that will be a disaster," said 74-year-old former nurse Olena Rakivska, who lives in a village in the Jitomir region of northern Ukraine. "How could they? It's not possible. It's inhuman."

There has been mounting concern in western Europe, with the European Commission calling a special meeting of its gas coordination group for Wednesday to discuss the issue. Polish Economy Minister Piotr Wozniak said his country, which receives 90 percent of its imported gas from the east, would feel "the harmful potential effects" within days.

Political overtones

Although Gazprom insists the dispute is purely commercial, it has had unmistakable political overtones.

Yushchenko came to power almost exactly a year ago in the pro-Western "orange revolution" that saw him defeat a Russian-backed candidate in elections and vow to bring his country into the European Union and NATO. In March, his supporters face a strong challenge in parliamentary elections that could signal the comeback of his pro-Kremlin rival Viktor Yanukovich.

Putin's longtime economic adviser, who resigned this week to protest what he said was the lack of freedom in Russia, has accused Moscow of using energy as a "weapon."

"Russia will deliver energy supplies only to those it likes, only to those regimes who are friendly with Russia," Andrei Illarionov told Echo Moscow radio.