Prime Minister Mikhail Kasyanov said a breakthrough on the troubled supplies had been reached at a meeting between President Vladimir Putin and Ukrainian President Leonid Kuchma in Sochi on Saturday.
However, Russia has not softened its position. "There is every chance that we will conclude an intergovernmental agreement [on gas supply] before Jan. 1," Kasyanov said.
This will happen only if Kiev makes a number of substantial concessions.
But if Moscow?€™s conditions are too tough, Kiev and Ukrainian Prime Minister Viktor Yushchenko?€™s government will find them hard to swallow. The upper house of the Ukrainian parliament and the country?€™s business elite are already gnashing their teeth at the Cabinet for its attempt to push through a deficit-free budget and privatize seven regional energy producers.
An agreement with Russia on gas would be depicted by the Ukrainian press as a betrayal of national interests. All of this could create a political crisis and result in the government?€™s removal.
The situation is made all the more prickly by Russia?€™s attempt to build a pipeline to Western Europe that bypasses Ukraine, announced last week by Gazprom.
To increase the pressure on Ukraine, Putin has instructed Deputy Prime Minister Viktor Khristenko to work toward an international agreement for supplying gas to Ukraine and at the same time to begin negotiations with Polish leaders regarding the construction of a gas pipeline bypassing Ukraine.
Khristenko said Putin had also ordered him to examine the possibility of linking Ukraine?€™s electric power systems to Russia?€™s power grid to organize energy transit to Europe.
Kasyanov said Putin and Kuchma discussed gas tariffs and special terms. Kuchma asked Putin simply to transport Turkmen gas to the Ukrainian border. The trump card was Kuchma?€™s offer to transfer Ukraine?€™s national gas transportation and storage utility to Russia at a discount.
"Russia?€™s interest must be captured," Yushchenko said. Russia was offered 50 percent of the Ukrtransgaz shares, though not 51 percent because a controlling stake would have been difficult to get through Ukraine?€™s parliament.
Khristenko said Moscow will work toward an intergovernmental agreement based on several conditions.
Firstly, Ukraine?€™s gas requirements must be tightly determined taking into account the levels of gas Ukraine produces itself and the volumes supplied from Turkmenistan and Russia, the deputy prime minister said.
Such a formulation would insure Russia against an unpleasant situation: Turkmenistan can simply turn off the supply if Ukraine falls behind with payments. Russia cannot do this because its gas is transported to Europe. Having concluded an agreement with Ashkhabad, Kiev can count on Turkmen gas, but its lack of hard currency makes it tempting to use Russian gas for free.
Ukrainian sources said Kuchma is rushing to Warsaw ?€” the Polish government?€™s spokesman, Krysztof Luft, has already announced that cutting out Ukraine would not be permissible "without first asking our opinion."
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