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Ukraine raises stakes in Russian gas standoff

Ukraine stuck to its guns on Thursday in a fierce gas standoff with Russia that could impact Europe and wreak further havoc on the nation's economy as it battles a separatist insurgency in the east.

KIEV: Ukraine stuck to its guns on Thursday in a fierce gas standoff with Russia that could impact Europe and wreak further havoc on the nation's economy as it battles a separatist insurgency in the east.

Another acrimonious round of EU-mediated talks broke up on Wednesday in Brussels with Ukraine calling Russian President Vladimir Putin's offer to lower Kiev's fuel price by more than 20 percent a "trap".

The third "gas war" between the two neighbours in less than a decade flared when Moscow nearly doubled Kiev's gas rate in the wake of the February ouster of Ukraine's Russian-backed president.

A solution by Monday's debt payment deadline would boost new Ukrainian President Petro Poroshenko's efforts to mend ties with Moscow and enlist Putin's support in resolving a two-month pro-Russian insurgency that has claimed 270 lives.

The Western-backed chocolate baron hinted on Wednesday that he was ready to meet separatist leaders who had laid down their arms.

"The head of state does not exclude conducting a round table... with various participants of the conflict who support the president's peace plan," Poroshenko's office said on its website.

But the militants have so far shown no sign of abandoning their drive to have the economically-vital eastern rust belt -- home to nearly seven million mostly Russian speakers -- come under Kremlin control.

And Russian Foreign Minister Sergei Lavrov on Thursday said that Moscow had seen "no progress whatsoever" in defusing the crisis.

Lavrov noted that reports of Ukrainian forces using incendiary bombs -- charges vehemently denied by Kiev -- were a "cause for special concern".

Ukraine receives half of its gas supplies from Russia and transports 15 percent of the fuel consumed in Europe.

Russian Prime Minister Dmitry Medvedev -- a former chairman of state-held gas company Gazprom -- argued that Moscow's "long-term discounts" offer was a goodwill gesture aimed at helping Ukraine during its worst crisis since post-Soviet independence.

"We will do this to help our neighbour, whose economy is now living through troubled times," he wrote in a Facebook post.

But Kiev's leaders fear being taken hostage by Russian pressure and Putin's long-term ambition of turning Ukraine into an integral part of a new post-Soviet economic bloc.

Ukraine says that Russia's discount offer is only good for a year and would require constant renegotiation. It is pushing for a formal change to the two sides' long-term contract -- a condition that Moscow rejects.

Putin noted that Ukraine was demanding a price lower than its European neighbours' and warned that "if our offer is rejected, we will shift to a whole other level" of relations.

"You get the impression that Kiev is going for broke," Moscow's National Energy Security Foundation head Konstantin Simonov remarked.

Analysts said Ukraine had enough gas in storage to last through early autumn and would only suffer shocks to its economy -- already expected to contract by at least five percent this year -- if Russia abandoned negotiations and allowed the case to drag through a European arbitration court.

"Ukraine is ready to see its gas cut off," said independent Kiev energy analyst Valentyn Zemlyanskiy.

"The situation is not critical. It would have been a lot worse if this all happened in the winter."

Yet Ukraine's seeming efforts to force Russia into a supply interruption that would further damage its reputation in Europe appears to be wearing thin with EU Energy Commissioner Guenther Oettinger.

Oettinger, the main broker of the talks, has stressed repeatedly that Ukraine must continue paying off a debt Russia puts at $4.5 billion (3.3 billion euros) while the negotiations continue.

"The European Commission is clearly a bit frustrated. We have made no progress whatsoever," said Amanda Paul of the European Policy Centre in Brussels.

Oettinger added on Wednesday that he expected the dispute to now be tackled by Putin and Poroshenko themselves.

Both Moscow and Kiev said no such contacts were being planned.

Russian Foreign Minister Sergei Lavrov said on Thursday that Moscow was already heavily involved in talks with Kiev.

"I do not know what they mean," Lavrov told reporters when asked about Oettinger's comments.

"If the Ukrainian representatives (Russia is in talks with) have no authority, than it will not be easy to conduct any future negotiations."

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