Russian and Ukrainian PMs agree to resume Europe gas supplies

"We have reached an agreement," Putin said in televised comments following marathon negotiations with Ukrainian Prime Minister Yulia Tymoshenko in Moscow.

"Shortly the gas transit -- as the Ukrainian side assures us -- will be resumed," said Putin, speaking alongside his Ukrainian counterpart.

Tymoshenko said Russian and Ukrainian state gas companies had been told to draw up agreements by Monday and "immediately after those documents on transit and gas prices are signed, all transit of gas to Europe will be resumed.

"The talks were not easy but we have reached a mutual understanding that allows us to sign agreements," she added.

The deal came after the European Union piled pressure on Russia and Ukraine, calling for an immediate resumption of supplies and warning that it could review its relations with both countries unless they agreed this weekend.

Under the terms of the deal, Russia would grant Ukraine a 20-percent discount on Russian gas imports for 2009 as long as Ukraine keeps its tariffs for the transit of Russian gas to Europe at the 2008 level, Putin said.

"Starting from January 1, 2010, Ukraine and Russia will shift to European prices on gas and gas transit," Putin said, without giving any further details on prices that have been the subject of heated debate between Moscow and Kiev.

Putin spokesman Dmitry Peskov told AFP he could not say what the exact 2009 price for Ukraine would be and it was not immediately clear when Russia could resume gas supplies to Ukraine’s domestic market.

Ukraine last year paid 179.5 dollars per 1,000 cubic meters of gas from Russia -- far lower than the price paid by other European countries.

The dispute started when Ukraine refused to pay 250 dollars for 2009 and Russia has since further jacked up its price demands to around 450 dollars.

Putin and Tymoshenko began their negotiations on Saturday -- the first face-to-face talks between the two governments since the start of their crisis when Russia cut supplies to Ukraine in the payment dispute on New Years Day.

Russia subsequently entirely halted supplies to European customers transiting through Ukraine, which account for around a fifth of the EU’s total consumption, after accusing Kiev of stealing the gas bound for Europe.

Ukraine vehemently denied this and accused Russia of stoking the crisis.

Russian President Dmitry Medvedev earlier said he was hopeful of a breakthrough after Kremlin talks on Saturday attended by Tymoshenko, EU envoys and senior officials from several European countries affected by the crisis.

"I want this to happen as soon as possible, literally in the next few days," Medvedev said, referring to the resumption of gas supplies to Europe.

But the Czech EU Presidency said in a statement it was "not satisfied" with the result of the meeting and pressed for a deal at the Putin-Tymoshenko talks.

The agreement announced on Sunday capped nearly a month of high-stakes brinkmanship, closed-door intrigue and furious invective between two countries that until 1991 were part of the same state, the Soviet Union.

Swathes of central Europe and the Balkans have been left shivering by the crisis, with gas-fired central heating reduced or cut off to millions of people and schools and factories shut down because of the lack of supplies.

The cuts have raised urgent questions about EU energy security and the reliability of both states in delivering supply to Europe and have cost EU states hundreds of millions of dollars (euros).

Earlier the EU said the talks in Moscow were the "last and best chance" to resolve a crisis that European Commission President Jose Manuel Barroso branded "unacceptable and incredible."

As she headed for Moscow, Tymoshenko said that she was confident of a deal but added she did not want "a knife in the back", apparently a reference to her rival, Ukrainian President Viktor Yushchenko.

Yushchenko has taken a harder line with Russia than Tymoshenko. He has accused Moscow of fomenting a revolt against his rule and trying to undermine Ukraine’s independence by taking over its pipeline network.