MOSCOW, Dec 29: Russia and Ukraine are in ‘real crisis’, President Vladimir Putin said on Thursday, as negotiations to resolve a gas price dispute went to the wire ahead of a Jan 1 deadline for Ukraine to accept a steep increase or see supplies cut off.

“You have simply created a real crisis and not only in the energy sector,” President Putin said on state television in a rebuke to negotiators from both sides. “This crisis looks like a crisis between two countries. That is very bad.”

Russia’s state-controlled behemoth Gazprom has announced a more than four-fold increase in natural gas prices to neighbouring Ukraine. It says that if Kiev does not agree by Sunday the supply will be shut down — a scenario that could disrupt the huge shipments through Ukraine to western Europe.

Russian Energy Minister Viktor Khristenko was quoted by news agency RIA-Novosti as saying there had been no breakthrough in the talks, held at one of Mr Putin’s residences outside Moscow. However negotiations were continuing, Russian media said on Thursday.

Ukraine currently pays 50 dollars per 1,000 cubic metres of gas. Gazprom wants the price to be 220-230 dollars, which is close to world market levels.

The head of Ukraine’s state-owned Neftegaz, Alexei Ivchenko, indicated a possible compromise in telling Mr Putin that he wanted a transition period of lower prices up to April 1, when they would be able to ‘switch to the classic form of market relations’.

However, it was not clear whether he meant that Gazprom’s full price would be accepted from April 1. Ukrainian Energy Minister Ivan Plachkov, also speaking on Russian television, offered a price of just 80 dollars during the transition period.

Earlier in Kiev, Ukrainian President Viktor Yushchenko ruled out accepting Gazprom’s ‘provocative’ demand of 220-230 dollars, but added that the row ‘will be resolved very shortly’.

Mr Putin said one way out would be for Russia to offer Ukraine a 3.6 billion dollar loan to cover the cost of changing to new prices. “We are ready to extend a commercial credit directly to your company Neftegaz under guarantee from one of the first-class international banks,” Mr Putin was quoted as saying by Interfax.

Western Europe is closely following the row as nearly one-fifth of its gas imports come from Russia via Ukraine. Kiev has said it has a contractual right to 15 per cent of Russian gas shipped through its territory.

In Brussels, the European Commission said it would not intervene, but was hoping for a last-minute resolution. “We expect that the difficulties that are appearing now can be resolved in the coming hours before the deadline,” commission spokesman Amadeu Altafaj Tardio said.

Germany’s ambassador to Kiev, Dietmar Stuedemann, said that Ukraine should be allowed ‘a gradual path to market prices’.

“Ultimatums are unacceptable,” he was quoted as saying by the daily business newspaper Delo.

Relations between Moscow and Kiev have become increasingly strained since last year’s ‘orange revolution’ in which Mr Yushchenko led huge crowds to force an annulment of rigged presidential elections in which a pro-Kremlin candidate had been declared the winner. He then won the re-run.

Russia’s state-run gas giant Gazprom says the dispute is strictly commercial.

However, some ex-Soviet republics that have toed a more pro-Kremlin line continue to enjoy significant discounts. For example, Belarus has secured a deal to pay just 46.68 dollars per 1,000 cubic metres next year, President Alexander Lukashenko said on Thursday. —AFP