Gas Talks Falter as Ukraine Mourns 49 Killed in Rebel Attack

Jun 15, 2014 3:11 am ET

(Updates with Gazprom comment in second paragraph. For more on the crisis in Ukraine, see {EXT2}.)

June 15 (Bloomberg) -- Talks may resume today to prevent a cutoff by Russia of natural gas flows into Ukraine tomorrow, even as riots broke out near the Russian embassy in Kiev after separatists shot down a Ukrainian military plane.

Negotiations involving Ukrainian, Russian and European Union officials that started late yesterday were to reconvene at about 9 a.m. in Kiev, EU Energy Commissioner Guenther Oettinger told reporters. No timetable is set, and OAO Gazprom “doesn’t rule out anything,” Sergei Kupriyanov, a spokesman for the Russian state-run gas company, said by phone today.

Ukraine is observing a national day of mourning for the 40 soldiers and nine crew members on the plane, which was shot down as it approached Luhansk airport in eastern Ukraine early yesterday, authorities including the Kiev-based Prosecutor General’s Office said. The 49 deaths mark the deadliest strike on Ukrainian forces since pro-Russian unrest in the nation’s two eastern regions began in early April.

Ukrainian protesters gathered near the Russian embassy in Kiev starting at around 4 p.m. yesterday, demanding Russia stop sponsoring the rebels. Demonstrators threw firecrackers and eggs, broke some of the building’s windows with stones, and turned over and torched at least three embassy cars.

The protest continued past midnight, as Russian Foreign Minister Sergei Lavrov asked Didier Burkhalter, head of the Organization for Security and Co-operation in Europe, to intervene and use “all possible measures” to stem the violence. In a statement, Lavrov said Ukraine authorities did nothing to stop the attack.

‘Provocateurs’ Arrested

Ukraine’s Foreign Ministry said it was “doing everything” to restore security to the embassy and that “police arrested some provocateurs.”

On the natural gas issue, the EU has been trying to broker a deal since last month.

“No solution has been found,” Ukrainian Energy Minister Yuri Prodan told reporters after talks ended late last night. “The European Commission proposed that talks continue. The Ukrainian side agreed.”

The showdown over fuel heaps pressure on Ukraine’s new president, Petro Poroshenko, who’s struggling to fulfill an election pledge to halt an uprising by rebels in the country’s eastern regions.

The EU is dependent on Russian gas piped through Ukraine for about 15 percent of its supplies. German Chancellor Angela Merkel, French President Francois Hollande and Russian President Vladimir Putin discussed the crisis and gas supplies before the talks started yesterday, according to presidential offices in Paris and Moscow.

Cut-Off Notice

Russia is represented in the negotiations by Alexey Miller, chief executive officer of Gazprom. Ukrainian Prime Minister Arseniy Yatsenyuk instructed authorities on June 13 to prepare for a gas cutoff once Gazprom’s debt payment deadline of 10 a.m. tomorrow expires. By then, Ukraine must pay $1.95 billion to partially cover its debt for past supplies, according to Gazprom.

Ukraine refused to pay after Russia raised the price of the fuel by 81 percent in April. Putin stripped the country of a 2010 export-duty break that it exchanged for a lease on its Black Sea Fleet’s port in Crimea, which Russia annexed in March. Gazprom rescinded a price discount granted to Ukraine in December, citing mounting debt.

Broader Conflict

The gas conflict reflects the broader political crisis between two former Soviet partners as Russia took Crimea after Ukraine’s Kremlin-backed president was ousted in street protests in February. Ukraine, along with the U.S and the EU, accuses Russia of stoking turmoil in Ukraine by supporting pro-Russian separatists, including supplying them with weapons.

Russia has denied providing such support, while urging Ukraine’s new government to do more to protect the rights of Russian speakers in the country.

Poroshenko announced the day of national mourning for those aboard the downed IL-76 aircraft.

“All linked to this terrorist action of such scale will be punished, for sure,” he said on his website.

The incident, which may fuel tensions between Moscow and Washington, Ukraine’s main ally, came after the U.S. accused Russia of sending heavy weapons, including old-model tanks and multiple-rocket launchers, to the rebels, who say they are fighting a war against fascism and to join Russia.

Hollande and Merkel “emphasized the importance of rapidly reaching a cease-fire agreement in Ukraine,” Hollande’s office said in a statement. Measures were needed “in particular avoiding the movement of fighters and arms across the border and calling on the separatists to stop fighting,” they said.

More Violence

Five border guards were killed and seven wounded yesterday when rebels attacked a convoy near the coastal town of Mariupol, the State Border Service said on its website. Clashes also spread to Shchastya, the city council of Luhansk said in a statement. Shchastya is about 20 kilometers (12 miles) north of Luhansk and 50 kilometers from the Russian border.

Rebels claimed to have shot down an SU-25 fighter jet over Horlivka, according to Russia’s Interfax news service. The pilot ejected and was captured, it said.

Ukraine’s hryvnia, this year’s worst-performing currency against the dollar with a 30 percent plunge, fell 0.2 percent last week in Kiev, data compiled by Bloomberg showed. The ruble was little changed.

--With assistance from Daria Marchak and Kateryna Choursina in Kiev, James G. Neuger in Brussels, Mark Deen in Paris, Terry Atlas in Washington, Elena Mazneva in Moscow and Anna Shiryaevskaya in London.