CORRECTED: Russia, Ukraine hopeful on gas as ties with EU unravel

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Russia and Ukraine on Tuesday said they were nearing a compromise in gas negotiations while a rift between Kiev and the EU widened over the jailing of ex-prime minister Yulia Tymoshenko.

Ukrainian President Viktor Yanukovych hosted his Russian counterpart Dmitry Medvedev in the Ukrainian leader's industrial power base of Donetsk for a planned summit on regional cooperation but energy was expected to top the agenda.

Yanukovych, who is mired in a diplomatic crisis with the European Union following the jailing of his opponent Yulia Tymoshenko, is also seeking to negotiate lower gas prices with the Kremlin while trying to resist pressure for tighter integration with Russia.

Both Ukrainian and Russian officials said Tuesday talks to renegotiate a 2009 gas deal were at an advanced stage.

"The search for compromise is going on. There is encouraging information, let's be patient," Putin's spokesman Dmitry Peskov told AFP, adding that Putin would meet his Ukrainian counterpart Mykola Azarov during a regional summit in the Russian city of Saint Petersburg either later Tuesday or Wednesday.

Yevhen Bakulin, chief executive of Ukrainian state energy firm Naftogaz, said on the sidelines of talks between Yanukovych and Medvedev in Donetsk that he was hoping to reach a compromise in "the very near future."

Ukrainian energy minister Yury Boiko said a new price would be the result of a compromise.

"Our main task is to ensure a price which would let our economy develop," he said.

Officials declined to put a deadline on the negotiations but analysts expect the two countries to agree a new deal in the coming weeks.

Ukraine last week sentenced former prime minister Tymoshenko to seven years in prison for signing a gas contract with Russia in 2009 which allegedly forced Kiev to overpay by up to $8 billion.

Ahead of his talks with Medvedev, Yanukovych, speaking in an interview with several US and Western newspapers, rejected Western calls to review the jailing of Tymoshenko, insisting on the independence of the country's courts.

Hours later, a European diplomat told AFP the European Union had cancelled a scheduled visit by Yanukovych to Brussels on Thursday.

Ukraine was hoping to sign off on an association agreement with the European Union at a December summit in Kiev, a first step towards membership, but that plan is now also in limbo.

The jailing of Tymoshenko triggered an unprecedented crisis with the EU and could make Ukraine more vulnerable to the Kremlin's advances, much to the Europeans' chagrin, analysts say.

"The European Union does not want to let Russia take advantage of a cool-down in its ties with Ukraine," Fyodor Lukyanov, editor of Russia in Global Affairs magazine, told AFP.

"Russia understands this and will play its own game."

In Donetsk, Russian and Ukrainian officials were scheduled to sign several cooperation agreements but no commercial deals were expected.

The talks follow a landmark three-way meeting between the two leaders and Putin at a hunting lodge outside Moscow last month.

Russia has repeatedly said it could agree to sell Kiev gas at lower prices if Ukraine ceded control of its prized Soviet-era pipeline grid. Ukraine has repeatedly resisted the pressure.

Alexei Miller, chief executive of Gazprom, was set to accompany Medvedev to Donetsk on Tuesday.

A Ukrainian source said last week Miller and Ukraine's Boiko might meet in Donetsk again Wednesday when the city hosts a football match between Ukraine's Shakhtar Donetsk and Russian club Zenit St Petersburg.

A Gazprom official could not confirm that plan.

© 2011 AFP

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