Gas War Looms as Ukraine Offers $4bn But Refuses to pay Russian Price

Ukraine is willing to transfer $4bn to Russia's Gazprom for gas deliveries by the end of May, Deputy Energy Minister Ihor Didenko said on Thursday.

In the latest attempt to keep Russian gas flowing to the Ukraine, Didenko said the interim government in Kiev had calculated its usage based on the price of $268.50 per 1,000 cubic metres.

State-owned energy giant Gazprom said it wants $485 per 1,000 cubic metres from Kiev for its gas, after a pro-European government took over in the wake of Viktor Yanukovych's ouster.

"The Ukrainian side has clearly said that if the price of $268.5 is fixed, then Naftogaz is ready to pay before the end of May a sum of around $4 billion," Didenko told reporters on Thursday.

Gazprom says Ukraine owes it $3.51bn for gas deliveries and threatened to cut off supplies to Kiev if it does not pay for gas up front from June.

Speaking earlier on Thursday, Russian Energy Minister Alexander Novak said he could see no possibility of Ukraine paying for its gas deliveries, even if Gazprom granted Kiev a hefty discount.

"We even do not have guarantees that even if the price was set at $100 (per 1,000 cubic metres,) I fantasise, that the Ukrainian side can pay these prices because there is complete insolvency [in Ukraine] at the moment," he told reporters at an energy conference.

Russia and Ukraine became embroiled in a dispute over the price that Kiev pays for gas after pro-Russian president Yanukovych fled the country and a pro-European interim government was installed ahead of presidential elections.

Yanukovych had negotiated a discount on gas prices for his government but Gazprom revoked the deal and effectively almost doubled the price it charges Kiev for gas. Ukraine is refusing to pay what it considers a "political price" and has not paid its gas bills since it came to power.

Russian President Vladimir Putin warned European leaders last month that gas supplies to Europe could be affected in the event of the Ukrainian supply being halted.

Previous disputes between Russia and Ukraine have resulted in Russia cutting off gas supplies to Ukraine in the middle of winter. While the cut-off lasted for a matter of days, Ukraine and some European countries experienced shortages.

The EU relies on Russia for around a third of its gas needs, 40% of which comes via Ukrainian pipelines.