Russia, Ukraine to hold further gas talks in May

By Alissa de Carbonnel

BRUSSELS (Reuters) - Russia and Ukraine will meet for further gas talks in May after an EU-mediated discussion in Brussels on Monday yielded no concrete results, Russian Energy Minister Alexander Novak said.

The talks have focused on Russian gas transit via Ukraine to Europe, the source of up to 3 percent of Ukrainian gross domestic product.

With Russia embroiled in conflict with Kiev over breakaway regions in Ukraine's east and the European Union reliant on Russian gas to fuel its industries, the future of gas transit - seen by Kiev as a crucial guarantor of its independence from Moscow - is the subject of intricate diplomacy.

Russian President Vladimir Putin has said Moscow is ready to keep its transit of gas to Europe through Ukraine once the current deal with Kiev expires on Dec. 31, 2019 if supplies are economically viable.

Ukrainian state energy company Naftogaz accused Russia of delaying negotiations in order to get its Nord Stream 2 pipeline built first.

Russia's planned doubling of capacity on the Nord Stream pipeline across the Baltic Sea to Germany could help Moscow bypass exports via Ukraine. That would deny Kiev transit fees.

"Gazprom is delaying real talks in terms of transit in order to build Nord Stream 2," Naftogaz Deputy Chief Executive Yuriy Vitrenko told Reuters before the talks on Monday. "Then they will say, 'We are OK without any Ukrainian transits at all'."

Russian gas giant Gazprom's partners in the $11 billion Nord Stream 2 pipeline project include Germany's Uniper and Wintershall and France's Engie.

THREE-WAY TALKS

Sources familiar with Monday's talks said European Commission Vice-President Maros Sefcovic, who chaired the three-way meeting with Ukrainian Foreign Minister Pavlo Klimkin and Novak, had floated a proposal for the two countries to agree a new 10-year transit contract, with a guaranteed minimum yearly transit volume of 60 billion cubic metres (bcm) and 30 bcm of additional flexibility.

There was no immediate reaction from either the Russian or Ukraine delegations. Executives from Naftogaz and Gazprom also attended the meeting.

Moscow and Kiev have clashed frequently over energy. Talks are complicated by a lengthy legal dispute between Gazprom and Naftogaz that led to a Stockholm arbitration court ruling in February 2018 that each company must compensate the other.

Sefcovic said the Stockholm arbitration was the "elephant in the room".

Naftogaz emerged the net winner of that ruling, gaining $2.56 billion from Gazprom. Gazprom is challenging the decision - a process that could take years.

"For the Russians, it is a huge stumbling block," Sefcovic said. "For them, it is difficult to negotiate a good contract for the long term when they are still fighting the legal claims."

(Reporting by Alissa de Carbonnel in Brussel and Vladimir Soldatkin in Moscow; Editing by Jason Neely/Dale Hudson/Susan Fenton)