Russia urges order in Ukraine as gas talks begin

Reuters

MOSCOW/KIEV, Dec 4 (Reuters) - Russia called on Wednesdayfor "stability and order" in neighbouring Ukraine as the twocountries held their first high-level talks since Kiev pulledout of a trade alliance with the European Union.

Prime Minister Dmitry Medvedev hosted a Ukrainian delegationled by a deputy prime minister, Yuri Boiko, that is seekingcheaper gas and financial aid to close gaping external deficitsthat could set off a balance of payments crisis.

Risks of a financial meltdown in Ukraine, a former Sovietstate of 46 million, became acute after mass demonstrations inKiev last weekend against President Viktor Yanukovich and hisgovernment over a decision to seek closer alliance with Moscow.

"You are having quite an active political season," Medvedevtold Boiko in a meeting at his residence outside Moscow,according to the Interfax news agency.

"Of course this is an internal matter, but it is veryimportant that there be stability and order in the country."

Russian President Vladimir Putin had threatened financialsanctions against Kiev if it signed a trade agreement with theEU last week. Yanukovich abandoned the deal at the last moment,surprising European leaders and angering domestic critics.

Ukrainian Prime Minister Mykola Azarov told his cabinet that the Boiko visit would continue a dialogue with Russia ontrade and economic relations that are "very critical formaintaining and developing Ukrainian industry and economy."

The Boiko visit was clearly part of the government's plansto sketch out what the Ukrainians hope will be a 'roadmap' forfuture economic ties with their old Soviet master.

No immediate breakthroughs were announced but Yanukovich,who was visiting China, was expected to meet Putin soon.

Kremlin spokesman Dmitry Peskov said Putin would not meetBoiko. No date had yet been set for an encounter between the twopresidents.

GAS PAYMENTS

Adding to the pressure on Ukraine, the CEO of Russian gasexport monopoly Gazprom, Alexei Miller, said no dealhad been reached to put off payment of any portion of Kiev'sdebt for gas deliveries this year.

"We are seeking options to resolve this issue, we areholding talks, but no agreements have been reached at thispoint," Miller said in a statement. He said Ukraine owes justover $2 billion for August, October and November.

The head of Ukraine's state-run energy firm Naftogaz, YevhenBakulin, had been quoted as saying on Tuesday that it had agreedwith Gazprom to defer payments for the final three months of2013 until spring.

Bakulin also said Naftogaz would pay $765 million due toGazprom for deliveries in August.

Ukraine faces huge problems to finance a current accountdeficit of 7 percent of gross domestic product. Cheaper Russiangas would buy time for Kiev to find ways to meet outside fundingneeds estimated at $17 billion next year.

Ukraine's central bank intervened again on the currencymarket to support the value of the national hryvnia currency,amid concerns that its stock of foreign reserves of $20 billionwill be sufficient to hold the line.

The cost of insuring Ukrainian government debt for fiveyears rose to 1,097 basis points, near-four-year highs. Levelsover 1,000 basis points are indicative of financial distress.

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