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. Last Updated: 07/27/2016

Moscow Allows Kiev to Delay Gas Debt

Moscow on Friday offered Kiev an eight-year breathing space on a $2 billion gas bill that has soured relations between the two capitals, news agencies reported.

"We are ready to grant an eight-year delay" in payments for gas already consumed by Ukraine, Interfax quoted Prime Minister Mikhail Kasyanov as saying after talks with his Ukrainian counterpart Viktor Yushchenko.

Kasyanov said Russia understood Ukraine’s financial woes but wanted full payment for the supplies, RIA news agency quoted him as saying.

Russian sources cited by the news agency said Moscow had called for the debt to be paid in equal tranches between 2008 and 2010.

"We insist that this debt be converted into sovereign debt, as Ukraine does not see any other way of converting this debt," Interfax quoted Kasyanov as saying.

Kasyanov said Moscow would allow Ukraine to buy additional gas in 2001 for winter use, but only if it pays with sovereign debt, which could be used to buy up Ukrainian state enterprises at privatization auctions, Itar-Tass quoted him as saying.

Yushchenko, for his part, pledged Kiev would crackdown on the illicit siphoning of gas from Russian export pipelines that transit his country.

Ukrainians pilfer up to 10 billion cubic meters of gas each year from pipelines shipping supplies from national gas monopoly Gazprom to Western markets.

Gas industry analysts say privatization or outside management of the pipelines is the only way to end the practice and solve the debt problem.

Kiev has restructured mounting gas debts to Gazprom before. Some $1.4 billion was converted into tradable debt in 1994-95, but the paper proved highly illiquid, and Gazprom has been unwilling to repeat the exercise.

As Yushchenko was in Moscow seeking to soothe Russia over gas payment arrears, he was under fire at home from Kuchma over his Cabinet, whose energy policy the president has criticized in the past.

Kuchma told students in Kiev that he would have swept some ministers out of office "with a broom." He did not say to whom he was referring, but he has previously rebuked Deputy Prime Minister Yulia Tymoshenko, a Yushchenko ally who oversees the troubled energy sector.

The Ukrainian prime minister has made clear he will quit if Tymoshenko is forced out.

She has been accused of overstating winter energy supplies in a report to parliament, a claim she has denied.