Russia Gives Ukraine Leeway on Gas as Five Rebels Killed

(Bloomberg – bloomberg.com – Elena Mazneva, Stephen Bierman, Daryna Krasnolutska – June 2, 2014) Russia gave Ukraine an extra week to pay in advance for gas supplies or risk a cutoff, as the Ukrainian government said its forces killed five pro-Russian rebels in an upsurge in fighting in the eastern city of Luhansk.

Russian gas export monopoly OAO Gazprom (OGZD) eased tensions by moving back the deadline for Ukraine to start prepaying to June 9 from tomorrow. Gazprom Chief Executive Officer Alexey Miller, made the announcement today after Ukraine transferred $786 million for supplies received in February and March, its first payment for gas in months.

Around 500 insurgents attacked the headquarters of Ukraine’s State Border Guard Service in Luhansk at about 4 a.m. local time, it said in a statement on its website. Fighting continued for at least seven hours. Eight rebels and seven border guards were wounded. Separatists were shooting from residential buildings to avoid being attacked from the air, the border service said.

The Russian move on gas preceded the resumption of discussions with Ukraine in Brussels today on a deal to keep the gas flowing amid the conflict. It also came before President Vladimir Putin visits France for commemorations to mark the 70th anniversary of the World War II allied landings.

“Moscow possibly did not want the prospect of gas cuts this week to dominate the agenda and sour the mood for Putin’s visits,” Tim Ash, head of emerging-markets research at Standard Bank Plc in London, said in an e-mail.

Russia’s Micex stock index rose 2.5 percent at 2:20 p.m. in Moscow. It’s climbed more than 12 percent in the past month.

Talks Scheduled

Putin and French President Francois Hollande are scheduled to meet June 5 before the Russian leader crosses paths with U.S. President Barack Obama at the D-Day events in Normandy a day later.

A week of international engagement over Ukraine also includes meetings in Brussels of NATO defense ministers and of Group of Seven leaders, who boycotted a planned summit in Sochi to be hosted by Putin. Obama starts his tour of Europe tomorrow in Poland, which shares borders with Ukraine and Russia, and meets Ukrainian President-elect Petro Poroshenko in two days’ time.

NAK Naftogaz Ukrainy, Ukraine’s state-run gas company, said it sent a draft agreement before today’s talks “to settle all disputed issues” in a move “aimed at constructive talks with Gazprom.” The proposal includes changes to “the price, volume and conditions of gas supply,” Naftogaz said in an e-mailed statement.

Ukraine carries about 15 percent of the natural gas used by Europe through its Soviet-era pipelines and accuses Russia of using energy as a political weapon by ramping up prices.

Price Proposal

Russia is ready to c onsider lowering the price paid by Ukraine if the country pays its debt, Miller said in an e-mailed statement. Ukraine still owes for supplies in April and May.

Russia plans to submit a United Nations Security Council resolution today seeking a cease-fire and peace talks in eastern Ukraine, Foreign Minister Sergei Lavrov said at a televised news briefing in Moscow. The proposal would create humanitarian aid corridors, allowing civilians to seek safety and access for the Red Cross.

“We deliberately framed our resolution in a depoliticized way, focusing on measures that can quickly relieve the suffering of the civilian population,” Lavrov said. “We hope the humanitarian character of our resolution will be understood correctly by the UN Security Council and will be adopted rapidly.”

Security Situation

NATO ambassadors in Brussels will meet with the Russian envoy to the organization today at his request “to discuss the security situation in and aroun d Ukraine,” NATO spokeswoman Oana Lungescu told reporters.

NATO “continues to call for Russia to de-escalate the crisis, to stop destabilizing Ukraine and to ensure a full, meaningful and verifiable withdrawal of all its troops from the Ukrainian border,” Lungescu said.

In Kiev, the visiting U.S. assistant secretary of defense, Derek Chollet, reiterated warnings that the government in Washington is “prepared to do more when it comes to sanctions” against Russia over its support for the separatists.

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